Market sentiment is being hit again this morning as markets question the viability of the “Trump trade”. The failure of Donald Trump and the Republicans to get through their healthcare legislation has put risk appetite under increasing pressure once more. Safe havens are subsequently being sought after. Traders are wondering whether Trump will be able to achieve his plans and are looking to unwind a degree of the “Trump trade”. Treasury yields are now continuing to fall back, whilst gold has again broken higher and the yen strength continues. The dollar is under significant pressure too, with the Trade Weighted Dollar Index closing in on a potential big top pattern, with the support of the February low being breached today. Equity markets are also under pressure. All this is coming as markets are now questioning the viability of Trump’s fiscal plans and deregulation rhetoric in light of a clearly divisive Congress. Coming into the final week of the month and the quarter, what more excuse to traders need to take profits off the table?
Wall Street closed slightly lower on Friday with the S&P 500 -0.1% at 2344 but the Asian markets have been under pressure this morning, with the Nikkei especially weak -1.4% as the yen has strengthened once more. European markets are also looking corrective in early moves today. The forex markets reflect significant dollar weakness across the major pairs, with the yen being to standout performer. Gold is also strongly higher amidst the dollar weakness and oil is another percent lower as Friday’s US rig count continued to reflect the burgeoning US supplies.
It is a fairly quiet open to the week for economic data. The German Ifo Business Climate 0900BST will be interesting to see if the soft, survey data of the flash PMIs is also reflected in the improvement in the Ifo as there is a positive correlation between the Ifo and German growth. The forecast suggests that there will be no change to last month’s 111 which was its highest reading in three years. With a lack of US data in the afternoon, focus will be on more Fed speakers. Chicago Fed President Charles Evans (increasingly shifting from dovish to centrist) spoke a couple of times last week and is again today at 1515BST. Evans has been historically a dove but been far more in line with the Fed’s recent trend of hikes, suggesting a centrist lean now. The Dallas Fed President Robert Kaplan (centrist) is also pencilled in to speak at 1030BST and he also spoke last week mentioning that the US was making reasonably good progress on inflation.
Chart of the Day – Silver
The recovery on the silver chart has pushed back above a key level. The Fibonacci retracements of the $21.10/$15.59 correction have been key in the turning points of the past two big moves on silver. The 50% Fib level at $1835 was the basis of resistance for the December to February rally, with the 23.6% Fib level at $16.89 buffering the March correction. The daily chart shows that the 38.2% Fib level at $17.70 has previously been a level the market has paid regard to during February and breaking back above this in the last couple of days is a key move. It comes with momentum moving strongly higher whilst the upside potential in the momentum would suggest that whilst the 50% Fib at $18.35 should not be ruled out now. The long term downtrend is currently at $18.15 and is clearly once more open. The hourly chart shows support in the consolidation around $17.41/$17.69 and with momentum remaining positive and corrections are being bought into.
The consolidation that saw last week into the close is once more breaking to the upside. All the recent bull candles have been followed by a two or three day consolidation, only to then break to the upside. The early morning break above the resistance of last week’s high at $1.0825 has put the euro on course for a considerable test of the $1.0850 resistance. A move above would effectively complete a base pattern of over four months and be a significant breakthrough for the bulls. The December spike high was $1.0872, which needs to be breached, preferably on a closing basis to confirm the base. The momentum indicators are all bullishly configured with the RSI at 65 and the strongest since August. Friday’s low at $1.0760 is now becoming a key near term higher reaction low, with $1.0790 initially supportive
Friday’s solid bear candle had been threatening the bull run but was not the first time within the recent rebound that a consolidation had subsequently turned into an opportunity to buy. The early gains this morning have once more looked to breakout to the upside with a move above Thursday’s high at $1.2530. Whilst this is not yet a confirmed break, a move towards the $1.2570/$1.2580 resistance is once more building. The momentum indicators are strongly configured and with dips being bought into, the outlook for further pressure on resistance is positive. The hourly chart shows bullish configuration on momentum with further upside potential. With intraday corrections now being bought into, initial support is now at $1.2460 which is above a key near term low at $1.2420.
The selling pressure on Dollar/Yen has taken on a renewed force on Monday morning. After ending last week in consolidation mode the market has reacted negatively to the failure of Trump’s healthcare bill and the pair has taken on another leg lower. The candles are also now moving away from the resistance of the old support at 111.60, whilst also a close below the old long term pivot at 111.00 would be a key long term move. There is little real support for which the market can latch on to now until 107.50, however the 110.00 would be a degree of round number support today. The momentum indicators are very negatively configured with the RSI now around 30 and both Stochastics and MACD lines looking bearish. The hourly chart suggests that any intraday rallies are an opportunity to sell and any move that unwinds the hourly RSI into 50/60 tend to be a limiting. There is near term resistance at 110.60/111.05, with the key overhead supply still around 111.60.
The consolidation that ended last week seems to have just been a delay in the recovery with the strong bullish open today continuing the move back towards a test of the February high at $1263.80. Momentum is strongly configured and with the RSI at 65 there is upside potential for the bulls to have a real challenge. The bull moves seen during January and February consistently saw the RSI around 70 before losing a bit of steam. The long term downtrend comes in at $1274 today which is also well within range now. The consolidation has formed important near term support around $1240 which can now be used as a base to build from. The hourly chart shows momentum a touch stretched early this morning but there is support between $1247/$1253 seemingly now a chance to buy.
Friday’s consolidation has done little to change the corrective outlook on WTI. Once more the early gains in the session could not be sustained and the move this morning reflects a market still under pressure. The market has been posting a succession of lower highs in the past week or so and there is little sign that a recovery is likely to take hold. The key resistance following the original break below $50 sits at $49.60 with $48.75 and now $48.50. The momentum is negatively configured and pressure on the support at $47.00 can be expected with rallies remaining a chance to sell. There is resistance from Friday’s high at $48.30, whilst on a longer term basis, the bottom of the big 12 month uptrend channel comes in at $46.15 today.
Dow Jones Industrial Average
Since the break below 20,777 last week, the market has been unable to reclaim the old support. This level has now become a basis of resistance and the market increasingly looks corrective. The small bodies of the last three candles suggested an uncertainty, but the negativity increased once more on Friday with a negative candle. The continued decline in the momentum indicators suggests that the bears are controlling now. Friday’s low at 20,530 is initially supportive, but there is little real support on the way down towards the January range back around 20,125. There is a small downtrend forming now that comes in at 20,895 meaning that there is a near term sell zone between 20,777/20,895 with only a move above the lower reaction high at 21,000 changing the outlook bullish.