Perhaps it was a slightly delayed reaction to the extremely strong ISM Non-Manufacturing data, but the dollar bulls seemed to get another shot in the arm yesterday as hawkish Fed speakers continue to suggest the FOMC is on track for its tightening cycle. Two of the more hawkish FOMC members, John Williams and Patrick Harker both reiterated the Fed being on a consistent path of rate hikes. Furthermore, the first key step towards tax reform as the House of Representatives passed the budget, which now goes to the Senate. All of this subsequently means that the dollar is strong moving into today’s Non-farm Payrolls report. As the Dollar Index pushes towards its key August lower high at 94.15, this coincides with a key support on EUR/USD at $1.1660. Such is the market’s apparent conviction that the Fed will hike again in December, this payrolls report is not going to materially change the outlook of dollar strength. Furthermore, the impact of the hurricanes that hit the Gulf of Mexico states a few weeks ago means that even a negative surprise in the report would likely have a short-lived impact.
Wall Street closed in yet further all-time high ground with a sixth consecutive record close for the S&P 500 at +0.6% at 2552. Asian markets were positive with the Nikkei +0.3% whilst European markets are also positive in early moves. In forex, the dollar is positive across the forex majors with sterling once more a notable underperformer as the outlook worsens for the UK’s Conservative ruling party, along with the Aussie dollar. Commodities are also slightly weaker with the dollar strength, with gold and silver marginally lower and oil giving back some of yesterday’s gains that came on the back of positive talks between Saudi Arabia and Russia over extensions to production curbs.
Traders will be looking out to Non-farm Payrolls for direction this afternoon. The US Employment Situation report is released at 1330BST and the headline Non-farm Payrolls are expected to have only grown by +90,000 jobs in the month of September. The hurricanes Harvey, Irma and Maria are expected to have impacted the jobs growth which is likely to be just around half the usual level. However, traders will be watching for revisions to the August data (which is a notoriously revised month) and probably take the payrolls this month with a pinch of salt due to the highly likely future revisions too. Average hourly earnings will take key focus too then. An expectation of +0.3% month on month growth would mean that the year on year number remains at +2.5% for the third month, with little real wage pressure still there. The Unemployment rate is expected to remain at 4.4%, whilst the U6 underemployment will also be interesting reading following last month’s 8.6%. The participation rate has been trending higher and anything up to 63.0% or above would be dollar positive. There are also a couple of FOMC speakers today with Bill Dudley (centrist, voter) at 1715BST and Robert Kaplan (slight dove, voter) at 1745BST.
Chart of the Day – Silver
The precious metals seemed to be finding support in recent sessions, and silver has been part of this. However, renewed dollar strength and a tendency for rallies to continue to be sold into are a drag on silver. Yesterday’s session looked to be a recovery but the sellers grasped control once more to leave another precarious looking long upper tailed candle. This simply looks to be a continuation of the four week downtrend channel that has been pulling silver lower and turned the medium term outlook corrective again within the 12 month trading range. With the failed attempt of a rally on Wednesday the resistance at $16.89 is key near term, with the resistance from the downtrend falling today at $16.84. The daily momentum indicators retain their corrective configuration with the RSI below 40. The configuration with the MACD lines below neutral and Stochastics still well in negative territory below 20 means that rallies will still be seen as a chance to sell. Expect the low from this week at $16.50 to be retested in due course and the market to continue lower in due course back to test the August low at $16.10. The series of lower highs are a feature of trading on silver now and the hourly chart shows considerable overhead supply between $16.80/$17.05 with $17.25 being the key lower high. Rallies remain a chance to sell.
Renewed dollar strength pulled the pair lower yesterday afternoon to leave another strong bear candle in a move that continues the push back for a test of the key $1.1660 support. The August low is the key support now as a breach would take the market to a ten week low and be a decisive change in the outlook. During a medium term consolidation markets can break initial higher lows, however to break a second and also important higher low suggests a significant shift in sentiment for the market. The original top pattern below $1.1820 implies 270 pips of downside to $1.1550 and a breach of $1.1660 would very much open this target. Momentum indicators are increasingly corrective with the MACD lines tracking now decisively below neutral, the Stochastics solidly below 20 and RSI below 40. The prospect of Non-farm Payrolls today could initially hold up the bears but any positive surprise in the report is likely to drive a breach of $1.1660. Resistance is at $1.1790 initially before the key $1.1820 neckline of the old top.
Cable came under considerable downside pressure yesterday as a double whammy of sterling weakness (concern over the stability of the UK’s Conservative Government) and renewed dollar strength pulled the pair sharply lower. Over 125 pips of solid bear candle decline was seen as the market accelerates lower, and the move does not seem to be done yet. This is for now a near to medium term correction within a medium to longer term bull recovery, however the sellers are strong at the moment. Momentum is sharply corrective with MACD lines accelerating lower, RSI below 40 and Stochastics falling below 20. Within this long term recovery the bottoms tend to be seen with the RSI around the low to mid-30s. I have said previously that I was looking for the next higher low in the $1.3050/1.3250 band, well the lower limit of this band is set to come under threat again. The 12 month uptrend comes in at $1.2945 today. Non-farm Payrolls may continue to drive the market lower if a strong report is announced. Such is the strength of the move lower, the initial resistance is at $1.3220.
The market remains in the 105 pip trading band that has been a feature for over a week now, between 112.20/113.25. However it is interesting that in the past couple of sessions it has looked as though the sellers were beginning to grasp some control, only for the bulls to fight back into the close. This is shown with the long downside tails on the candlesticks, whilst the push higher in the early part of today’s session shows the dollar bulls are confident going into payrolls this afternoon. The momentum indicators on the daily chart are strongly configured with the RSI settled above 60 and Stochastics above 80. The only concern is the MACD lines which have tailed off slightly as this consolidation has set in. Despite this though the run of higher lows and consistent buying into weakness bodes well for an upside break of 113.25, an implied 105 pip upside target and a likely push towards 114.50.
Gold remains stuck in a downtrend channel that is driving lower highs, lower lows and rallies that are being sold into. There is very little on the technical that suggests this outlook will change either. Momentum indicators are firmly negatively configured with the RSI falling below 40, Stochastics firmly negatively positioned below 20 and the MACD lines in decline below neutral. Once more a rally this week has left another lower high at $1282, whilst the downtrend channel resistance comes in today at $1283. Last night’s closing break to a new low has not decisively cleared the support around $1267, but continues the run lower for a test of the next support at $1251. The hourly chart shows the old support levels continue to be used as a basis of new resistance as the trend continues lower. Payrolls will drive volatility today but is unlikely to change the course of the trend lower, meaning any rebounds will continue to be sold into.
The bulls have finally looked to fight back as the trend lower of the past week has been breached. A strong bull candle has formed and now left support at $49.75 which is above the first real reaction low of $49.20 from the previous trend higher. If the bulls can now hold on to the break back above the old resistance at $50.50 then the outlook will begin to look more positive once more. The bulls will also look to the RSI which has picked up from 50 as a sign that the recent move is merely counter to a more positive medium term outlook now that the seven month downtrend has been broken. This all now suggests that on a medium term basis the support band $49.20/$50.50 will be seen as a buy zone. The hourly chart shows that the outlook has turned far more positive with the move above resistance at $50.80 whilst if the hourly MACD lines can sustain a move above neutral the bulls will be looking more towards a push on the resistance band $51.25/$51.75. An initial look at $51.25 was rebuffed yesterday, but the bulls will be eyeing this again.
Dow Jones Industrial Average
There seems to be little that can hold back the bulls as the market has gone straight through the 22,675 breakout target with the formation of yet another positive candle pushing further new high ground. The top of the six month uptrend channel comes in at 22,790 today and may begin to limit the push higher, however the market could simply use it to hug the strong Bollinger Bands, with the upper band rising strongly at 22,765. Daily momentum indicators retain their strong configuration with the MACD lies still rising and the Stochastics strong whilst the RSI is in the high 70s. Continue to buy into intraday weakness with initial support now at 22,645/22,685. The breakout at 22,420 has left further support with 22,179.