Last updated: May 3rd, 2017 at 09:57 pm
Two key factors are at play in the markets today, the dollar strength is resuming and oil is pushing higher once more. The dollar bull run that had threatened to wane after the disappointing Non-farm Payrolls has come back strongly once more in the wake of a somewhat acrid second Presidential debate (and the dreadful revelations in the Trump video). Hillary Clinton is seen as a dollar positive victor in the Presidential race and polls suggest her lead is widening. The US dollar bulls are subsequently flexing their muscles once more and this means that Dollar/Yen is closing in on a key breakout once more, Cable is dropping once more and even EUR/USD is threatening a break. The oil bulls have also regained their poise after Russia have claimed that they are also ready to take part in some sort of production freeze or perhaps even a cut was possible. The June high was breached on a closing basis on Brent Crude (although WTI is lagging slightly) to take the price to its highest since September 2015.
Equity markets took this as a positive and risk appetite was positive into the close on Wall Street (S&P 500 +0.5%) with Asian markets also positive (Nikkei +1.0%). European markets are a little more cautious in the early moves and it will be interesting to see if the bulls will take up the challenge today. In forex markets the dollar strength is showing once more across the board, however interestingly, once more the euro is fighting hard and trying its hardest to resist. Gold and silver are bucking the dollar strength strategy and are trading higher on the day, although their recent recoveries are struggling to gain much traction. The oil price has just unwound slightly in the early moves.
Again there is little on the economic calendar, but traders will be watching out for the German ZEW Economic Sentiment at 1000BST which is expected to improve to 4.3 (from 0.5 last month), coming a day after the Eurozone Sentix investor confidence indicator beat estimates.
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Despite the fact that the euro continues to trade within the levels of an increasing medium term consolidation there is a mild bearish bias to the outlook. Since the August rally to $1.1365 the market has posted a series of lower highs whilst continuing to add pressure on the lows at $1.1120. Although there was a sharp intraday rebound from the long term pivot at $1.1100 on Friday, the downside pressure continues. Yesterday’s bear candle comes as the momentum indicators are now increasingly corrective, with the decline on the Stochastics especially the concern. Additionally, today’s early weakness will add to the near term negative outlook. However the converging trendlines are yet to be breached and the bears will not be in control until the lower uptrend (currently at $1.1100) has been broken. Using the near term bounces as a chance to sell is the strategy near term and the resistance around the $1.1200 pivot on the hourly chart is a chance now, with further resistance at $1.1250 and $1.1285. A close below $1.1100 opens $1.1050 again.
The market looks to be settling down after Friday’s “flash crash”, but that does not mean that the sterling bears are ready to cede control. Yesterday’s candle was another negative move that had the closing price close to the low of the day and this weakness continues today. It is important not to get distracted by the daily Stochastics which are rising sharply now. This is a quirk of their calculation which is still accounting for the low of the day on Friday at $1.1450. Other momentum indicators are much more bearish and the RSI continues to show downside potential at 20 (January’s big bear trend went to 15). The hourly chart shows the intraday support from Friday at $1.2223 and that is the next test. The concern is that there is again no support beyond there if it breaks. Intraday rallies are a chance to sell with $1.2375 and $1.2400, with $1.2425 and then up at $1.2470.
It looked as though the dollar bulls were losing their control after Friday’s Non-farm Payrolls disappointment, but they have fought back strongly and yesterday’s positive showing has been followed by further gains today. This now means that the key resistances overhead are now back in striking distance. The momentum indicators have been reasserted as bullish with the RSI back above 60 and the Stochastics looking to regain the bullish initiative. The recent rally high at 104.15 is initial resistance but the key September high at 104.30 is the major level to watch. A breach opens 105.50 but also would be a huge signal of intent for the dollar bulls going forward. The support at 102.80 is now increasingly key with the pivot at 103.35 being initial support on the hourly chart.
Can the gold bugs make any sort of an impression in a recovery? The initial signs are that they are struggling. The two candles that suggest any semblance of a recovery could be underway are very weak. Just $5 added in the past couple of days into the close yesterday and two very weak small bodied candles have been formed. The daily chart shows momentum indicators as trying to develop some sort of recovery but thus far are unable to. The hourly chart shows how rallies are finding resistance at lower levels, with $1265 capping the gains of the past two days, and that is before further resistance at $1270 and $1277. Today’s moves show the price drifting back away again and if the hourly RSI drops back below 40 it would be an increasing sign of bear control once more. The prospect of a recovery is waning. Support at $1251 and then $1241 could come back under threat once more.
The volatility of oil and sensitivity to newsflow was shown yesterday as the price picked up sharply from the intraday low to burst through to a new four month high. The move came amid reports that Russian was willing to join OPEC in a production freeze or perhaps even a cut. The early June resistance is now being eyed, this was the original high from the recovery to $51.67 and would be a key move should a closing breakout be seen. Technically, WTI is increasingly strong with RSI still now yet at 70 and showing upside potential. The hourly chart shows that the breakout above $50.75 now means there is a band of support $50.00/$50.75 for an unwinding move. Furthermore, the bulls have a firm marker in the ground at $49.15 as key support.
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