Last updated: May 3rd, 2017 at 09:55 pm
As the US moved towards Thanksgiving the dollar has remained strong and gone on another tear higher into the holiday period in the US. Stronger than expected data on Durable Goods Orders and the flash Manufacturing PMI saw Treasury yields spike higher and the dollar followed suit. This has pulled the greenback through key levels against the euro and the yen, whilst the negatively correlated gold price has broken it key $1200 support. These huge breaks have taken the dollar to even more overstretched levels and whilst the move is strong, it will be interesting to see the reaction of traders to some dollar negative news now. The more overbought the dollar becomes, the more decisive the retracement could be once the elastic starts to snap back. The FOMC meeting minutes have done little to change any expectations of rate hikes, with the market already prepared for rates to rise “relatively soon”. For today though, with it being Thanksgiving public holiday in the US there is likely to be reduced trading volumes however this could mean uncertain trading moves and potentially increased volatility in thin markets. For the UK, reaction to finance minister Phillip Hammond’s first financial update has been relatively supportive on sterling. With Gilt yields ticking slightly higher, the pound has held its ground against a storming dollar.
Wall Street was somewhat subdued through the session with the S&P closing +0.1% higher at 2205. Overnight, Japan was playing catch up to an extent after a public holiday on Wednesday and with a weaker yen the Nikkei was +0.9% higher. European markets are trading around the flat-line in early moves today. Forex markets continue to show dollar strength across the majors today, but it is interesting to see that sterling continues to hold up relatively well. There is no sign yet of a recovery on gold after yesterday’s downside break and is is mildly lower again today. Oil continues to consolidate and will remain sensitive to any newsflow regarding the OPEC production cuts..
The economic calendar is thin today, with German Ifo Business Climate at 0900GMT the only real data of note. The Ifo data is expected to remain similar to last month at 110.6 (110.5 last month).
Chart of the Day – DAX Xetra
Despite Wall Street pushing into new high ground across all its major markets, the DAX just cannot gain traction for a breakout above the key resistance. For months, the DAX has failed to sustain moves above 10,800 and it is no closer to a breakout. Since the hugely volatile day of Trump’s victory, there have been 10 completed candles and 8 of the 10 have had bearish candlestick bodies. The RSI continues to fail around 60 and yesterday had its lowest close (at 53) in that two week period. Furthermore the Stochastics have plateaued and momentum has lost its impetus. However the market continues to find support in the near term band 10,575/10,600 and another test of the support held yesterday. The early moves today could be key again as the pressure is mounting for a correction. A move below 50 on the RSI would be a negative signal, whilst on the hourly chart look for a consistent move below 40 on the hourly RSI. In the last week, a near term pivot has formed at 10,725 which is protecting the 10,767 resistance. Although this is a range that continues, the lack of buying intent and continued intraday bull failures suggest that the pressure on a break down below 10,575 seems to be preferred.
After a couple of consolidation and contemplation over the next move the dollar bulls regained the ascendency to break lower again. The market has now breached the key December 2015 low at $1.0538. Although the market rallied slightly into the close and finished the session above the old support, further downside pressure seems likely. A closing breach of $1.0538 would then open $1.0456 which is the absolutely critical March 2015 low which is the lowest level since January 2003. Momentum indicators remain bearishly configured and with the RSI falling away again there seems little reason for the market to stop at the moment. Rallies continue to be seen as a chance to sell. The hourly chart shows that old support is forming new resistance with the previous consolidation low at $1.0567 initially resistance today and $1.0663 then increasingly important above. Yesterday’s low at $1.0523 is initially supportive but I do not expect this to last for long.
In the face of renewed dollar strength the fact that Cable closed higher on the day will have given the bulls some significant confidence. The support at $1.2330 subsequently remains intact. A positive candle helps to stabilise the outlook with the momentum indicators remaining in mixed configuration. The RSI and MACD lines are almost bang on neutral whilst the Stochastics are still tracking lower. This reflects the outlook which is still under mild bearish pressure but for now hangs on. The hourly chart has taken on more of a neutral configuration in the past few days with the hourly moving averages flattening and the momentum indicators increasingly forming a range bound configuration. Whilst the general support is around $1.2330, the hourly chart shows that $1.2300 would be the confirmation breach to the downside. Overhead resistance at $1.2515 remains intact also. The sterling bulls are hanging on.
With US Treasury yields soaring once more yesterday, Dollar/Yen has taken off once more. After a couple of days of consolidation, the bulls have returned decisively. This incredible move has simply burst through the resistance band 111.45/111.90 which has opened the March highs at 113.80 an 114.55. This huge rally has been so decisive that the RSI at 83 is now the highest since September 2014. It is difficult to back against this market continuing to go higher, but the concern is that there will have to be a corrective move at some stage and the more the elastic band is stretched, the sharper it snaps back. For now though the bulls are happy to continue chasing the market higher. The hourly chart shows consolidation around 112.30 support overnight, with the old resistance around 111.35 also supportive. A break above yesterday’s high at 112.97 simply continues the move higher.
I have now got to step up my bearish outlook on gold. The importance of the support around $1200 was paramount for me and the decisive closing breach yesterday reflects the concern the market now has, and there is likely to be further weakness. Rallies continue to be seen as a chance to sell but now the gold price has broken below its most important support. Momentum indicators reflect this bearish outlook with the MACD lines turning lower from under neutral and the RSI and Stochastics both bearishly configured. There is potential for a near term technical rally but the size of the overhead supply is now huge around $1200/$1241 but more realistically rallies into $1200/$1221 would be a selling opportunity. The hourly chart shows a near term stretched position on the hourly momentum and as they unwind, the sellers will be waiting. The break below $1200 has opened support around $1170 and $1145
The mixed candles are building on WTI after a doji candle yesterday followed a very small bodied candle on Tuesday. Despite this uncertain signal, the outlook remains on the positive side though in the wake of the breakout above $46.50 (which is now a key resistance) and trading above all the moving averages. The momentum indicators are positively configured with the RSI rising above 50 and the MACD lines having crossed higher, however the Stochastics are just tailing off slightly and need to be watched. This is reflected in the momentum on the hourly indicators with the price which has also supported above Tuesday’s low at $47.17. This has been helped by the slight drawdown surprise in the EIA oil inventories, however the newsflow from OPEC countries regarding the oil production cuts will remain a key driver in the coming days. Technically, resistance is initially with the old key high at $48.75 with $49.20 preventing gains toward $50 and the $51.93 major high.
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