If Q1 started with a bang for the bulls, the early throws of Q2 have threatened an implosion, or at least that was seen from yesterday’s market moves. The fears over a trade war continue to ripple through markets, dampening risk appetite and sending traders into the safety of lower risk assets. Gold, Treasuries and the yen are favoured during these times of heightened risk. Equities are being hit, especially those in the tech space as Facebook remains under pressure amidst the threat of stringent regulation, but also a disparaging tweet from Donald Trump hit Amazon by -5% yesterday to add fuel to the fire. The dollar actually had a fairly quiet period over Easter but it will be interesting to see if this remains the case with Treasury yields dropping back and the yield curve continuing to flatten (never a great combination). There has been an early rebound for risk sentiment today as US futures have bounced and the yen has unwound some of its gains of recent days, however trade war fears never seem to be too far away at the moment. Sentiment could be also be impacted early today if the Eurozone PMIs continue to reflect a slowing of the economic recovery today. The Reserve Bank of Australia held rates flat as expected at 1.50%, with continued low wage growth and low market expectation of any move until well into the middle of next year.
Wall Street fell sharply for much of the session yesterday and even with a late rebound the S&P 500 was down -2.2% at 2582. Asian markets followed suit, trading lower but not to the same degree (Nikkei -0.5%). European markets are also lower in early moves although relatively contained. In forex, the slight early recovery in sentiment is seeing a yen correction, whilst the commodity currencies are also doing better (the Aussie especially). In commodities, gold is hovering again, seemingly unable to build on traction, whilst oil is consolidating after a strong sell-off yesterday.
Traders will be looking out for the European PMIs which are announced today. With the flash reading suggesting a decisive rolling over, focus will be squarely on the Eurozone final Manufacturing PMI at 0900BST which is expected to hold at 56.6 (56.6 in flash reading, down from 58.6 last month). The UK Manufacturing PMI is at 0930BST and is expected to drop to 54.7 (55.2 last month).
Chart of the Day – EUR/AUD
The breakout above 1.5975 was a key move for the bulls in mid-March. The market continues to post higher highs, but also a series of higher lows too. With this, the old resistance at 1.5975 has become a basis of new support. Despite a corrective slip over the final days of last week, the market simply unwound to the old breakout which is now supportive and the bulls are looking to reassert themselves. A minor slip has been seen this morning in the wake of the latest RBA inaction, but the support of the breakout is again holding. Momentum indicators are still positively configured which suggests that corrections are a chance to buy. The RSI remains above 60, whilst the MACD lines remain positively configured. Yesterday’s positive candle looks to be a reflection of resumed positive sentiment on the pair and whilst the support at 1.5975 remains intact the bulls will be eyeing the resistance of last week’s high at 1.6190 which protects the key multi-year highs of $.16245 and $1.6325. The latest higher low is at 1.5855 and a band of support 1.5800/1.5855 is now key.
The euro is once more searching for direction against the dollar. The past few sessions have been particularly quiet with small candlestick bodies lacking direction. The RSI has been stuck now for almost a week along with a very neutral MACD configuration and flattening Stochastics. This is certainly a market in need of a catalyst. The big uptrend of the past 12 months comes in at $1.2230 today and continues to provide an underlying rising support but the converged plateau of the 21 and 55 day moving averages shows how neutral the near to medium term outlook is as the market remains stuck in this range between $1.2155/$1.2555. The hourly chart shows the mildest of negative biases near term with support at $1.2280 being pressured. Trading below the near term pivot around $1.2360 also adds to this. Yesterday’s high was at $1.2345.
Cable may have lost the immediate upside impetus following the corrective move late last week, but importantly, the retreat has now built support again around the psychological $1.4000 level which is increasingly becoming a key pivot. The candlesticks have been tentative with this support but opening higher today is adding a basis to this support, whilst the rising 55 day moving average (currently $1.3985) seems to once more be seen as a supportive indicator as it did through March. The longer the bulls can defend these supports the better the outlook will be. There is though still an uncertainty (not least of all due to the indecisive recent candlesticks) with momentum indicators which are around pivotal near term levels. The RSI around 50, MACD lines rolling over and Stochastics flattening will be seen as interesting gauges. A close below $1.4000 would change the complexion but the long term uptrend is supportive at $1.3930. The hourly chart shows a move back above $1.4100 would begin to develop upside momentum once more.
Last week’s sharp bull candle is gradually being chiselled away again as a run of three negative candles has pulled the market back from what could now be yet another lower high at 107.00. Rallies continue to be seen as a chance to sell on Dollar/Yen and even though there was an initial break of 106.65 resistance this move could not be sustained and indicators have simply rolled over once more. However, with thinner trading volumes due to the Easter period it will be interesting to see how the market responds today. Initially there is a degree of support coming in with support at 105.65 which comes above a minor higher low at 105.30 on the hourly chart. Can the bulls regather themselves? Resistance at 106.45 could have a significant say today too.
With the uncertainties of risk appetite in recent days there have been some significant swings in the gold price. In the past two weeks, a strong run higher found correction last week, only for the bulls to try and grasp control once more yesterday. A $15 gain on the day puts the bulls in a positive position but it is interesting that there seems to be a pivot forming around $1341. Although there is a slight positive positioning within the $1300/$1365 range, the bulls need to take on more sustained control again. Holding the support at $1321 is an absolute minimum but also momentum indicators need to find positive traction, something in this period of fluctuation has been hard to come by. Holding above $1341 would be a positive (something that could not be achieved yesterday) and then a test of $1357. The hourly chart shows resistance at $1345 initially.
The near term outlook has turned corrective as a decisive negative candle formed yesterday to leave a lower high at $65.40 below the key resistance at $66.55/$66.65 from the January/March highs. However, this little corrective move will now mean the medium term bulls will be on alert again. The market is now into a band of support $62.35/$63.30, but there is also the support of the uptrend dating back to September 2017, which supported the March correction, comes in at $61.80 today. Furthermore, the 89 day moving average (a medium term trend signal) which supported the February and March correction comes in around $61.45.. However, near term momentum is negative so it will be interesting to see if this move develops into something more considerable. Breaches of the multi-month trend would be a concern, but until the key reaction low at $59.95 is broken, this would remain a bull market correction.
Dow Jones Industrial Average
The selling pressure has ramped up once more as the first trading day of the second quarter posted a significantly negative candlestick. This move broke not only the March low of 23,510 but more importantly the key February low at 23,360 was also breached, albeit very briefly. A late session rebound salvaged 300 ticks but the intent of the sellers is growing. The Average True Range is growing once more, up at 482 ticks which means it is likely that if the sellers resume control again today, the low at 23,344 will be tested again. Momentum indicators are not only negatively configured but with further downside potential with the RSI falling into the 30s and the Stochastics turning lower once more. Furthermore, the move bolsters last week’s peak of 24,446 as a key lower high now. Breaching the key February low of 23,360 on a closing basis means the next support is the November low at 23,242.
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