Market sentiment has become increasingly cautious as traders appear unwilling to take a view ahead of the ECB monetary policy meeting (tomorrow) and Non-farm Payrolls (Friday) which loom large on the horizon. As sentiment has drifted negatively on equity markets, the dollar has continued to strengthen. The yield of the US 2 year Treasury is again beginning to track higher as the market becomes ever more sure of a rate hike at next week’s FOMC meeting. This is helping to drag the dollar higher too which is impacting across forex majors and put commodities such as gold and silver under pressure. The surprise deficit in the China Trade Balance is also leaving traders cautious. The data was a significant miss on forecasts due to an enormous beat on imports came with an enormous miss on exports, meaning that the Trade Balance posted a deficit of -$9.1bn versus an expected surplus of +$25.8bn. Exports were down by -1.3% (+12.3% exp), whilst imports were a massive +38.1% and well ahead of expectation (+20.0% exp). Today is Budget Day in the UK and traders will be watching movements in UK assets this afternoon.
The steam has come out of the bull run on equity markets with Wall Street drifting back marginally lower. However this just looks to be a pause for breath for now, as even though the market has made huge gains in recent weeks, traders appear unwilling to take profits entirely off the table, despite the prospect of a Fed hike. The S&P 500 closed -0.3% lower at 2368 whilst Asian markets were slightly lower (Nikkei -0.5%) and European markets have also started the day on the back foot. Forex markets show there is a slight consolidation of recent dollar gains, but nothing that would suggest the bulls have lost control. Gold has managed to stabilise after yesterday’s decline, whilst oil is lower by 0.5%.
There is a fairly quiet day of economic data ahead. The UK Chancellor of the Exchequer (Finance Minister) Hammond delivers the Annual Budget today, so movement on sterling and Gilts can be expected. The ADP Employment change at 1315GMT (+190,000 exp) has been a decent harbinger of Non-farm Payrolls recently and the dollar is likely to be supported if the consensus is hit. The EIA oil inventories at 1530GMT continue to be a driver of volatility as the crude stocks have been growing for the past 8 weeks and once more are expected to grow by +2.0m barrels. The distillates are expected to drop by -1.0m barrels, whilst the gasoline stocks are expected to also drop by -1.1m barrels.
Chart of the Day – Dollar/Swiss
The phase of dollar strength is ongoing as the market continues to make ground back above parity. An uptrend has formed over the past few weeks, once more breaking out above near term resistance at 1.0145 during yesterday’s session. The failure to close above this resistance should only prove to be an opportunity to buy at lower levels now. The momentum indicators continue to improve with the RSI pressuring to move above 60, whilst the MACD lines are rising above neutral and the Stochastics are strongly configured. The bull trend comes in at 1.0068 today, flanked by the supportive 21 day moving average and corrective moves should be seen as a chance to buy. The hourly chart shows a band of support between 1.0105/1.0130 will be seen as a near term “buy zone” with the hourly RSI between 40/50 being consistently used as a level for the bull momentum to resume. The support at 1.0060 is now key near term, whilst on a medium term basis the 50 pip band between 0.9950/1.0000 is the key support to maintain the bullish outlook. A decisive move above 1.0145 continues the move higher to test 1.0250 and the key December/January highs at 1.0335.
The market drifted back lower for a second consecutive negative candle as the positivity from Fridays strong bull candle continues to drain away. There is no significant selling pressure but the buyers are not strong enough to prevent the price from slipping back lower again. The momentum indicators reflect a fairly steady market though and it is likely that today will be another rather dull and indecisive trading session, coming in front of the ECB on Thursday and Non-farm Payrolls on Friday. The hourly chart shows a market that is neutrally configured but with a marginal bear bias, where intraday rallies are a selling opportunity. Resistance is between $1.0590/$1.0600 initially which is now protecting $1.0640. The initial support at $1.0540 is protecting the key lows at $1.0490.
Sterling remains in fully corrective mode as the two bear candles of that last couple of sessions have dragged the price below $1.2212 to another multi-week low and now the lowest since the key support at $1.1980 back in mid-January. Momentum indicators are negatively configured but also show further downside potential, with the RSI only at 35, the MACD lines in bearish decline and the Stochastics camped in strong bear territory. Intraday rallies are increasingly being sold into, with yesterday’s high at $1.2250 adding a lower resistance to the $1.2300 and the key overhead supply at $1.2345. Yesterday’s low at $1.2167 is initial support but should provide little protection as the price remains under pressure towards the range lows. Today is likely to have more volatility with it being the UK Annual Budget announcement at 1230GMT, however rallies remain a chance to sell.
In front of the major risk events of the week (ECB and Non-farm Payrolls) the pair has become increasingly devoid of direction. Dollar/Yen has a tendency to go through phases of consolidation prior to the next trending move, and right now the market is in a 400 pip consolidation range with little real direction. The momentum indicators are becoming increasingly neutral, whilst the candles of the past two sessions have been almost entirely neutral and indecisive, culminating in yesterday’s 44 pip range which was the smallest since late December. The hourly chart shows that the pivot at 114.00 has again become an important reference, and although the early Asian session has seen some minor selling pressure there is still a lack of direction. The initial support at 113.45 remains intact and this continues to protect 112.75 and a retreat to 112.50 again. This is a market that certainly now needs a catalyst, but with plenty for traders to think about in the next two days there is little suggestion that today will provide any indication for direction.
The ongoing trend of dollar strength continues to drag gold lower and the medium term outlook has deteriorated as a result. The uptrend since December has been decisively broken this week and now with further selling pressure the old key breakout support at $1220 has been breached. This support was key throughout February and now means that gold looks to be building a new negative trend. The closing breach of $1220 now opens a band of support with a key low at $1180 and the old psychological and price support at $1200. The momentum indicators continue to deteriorate and rallies are now seen as a chance to sell. The hourly chart shows the downtrend of the past seven sessions continues to drag the price lower. The hourly momentum shows the RSI failing at 60 consistently and the MACD lines failing at neutral, which is also classic downtrending technicals. The old support of $1220 now becomes a basis of resistance and there is a near term overhead supply $1220/$1222.50. There is minor support at $1207 but the correction is now on.
The support continues to build from the band $52.60/$52.70 and despite there being a mild positive bias within the range $50.00/$55.25 with the run of higher lows over the past three months, the market remains very indecisive. A second consecutive neutral (almost doji) candle reflects the uncertainty that is in the market, whilst the momentum indicators continue to fluctuate. There is a consistent failure for sustainable traction and the price has been posting a run of lower highs in the past 10 days that has formed a small downtrend. Yesterday’s intraday rebound failed at $53.80 and there is a threat that this trend could now continue. The hourly chart shows how there is a near term pivot around $53.75 which has frequently come into play over the past few weeks, whilst attempted bull moves really struggle under a weight of selling pressure as near term positioning continues to be preferred. Another lower high under $54.40 would be a concern once more for the bulls. The support at $52.60/$52.70 is taking on an increasingly important near term significance, with a breach re-opening $51.22.
Dow Jones Industrial Average
Tight trading conditions continue as the market seems to be waiting for the next catalyst as the Dow has posted a third consecutive neutral, almost doji candle. From a technical basis the slip in the momentum indicators are beginning to really threaten a corrective move, or in the least, a continued consolidation. The MACD lines are close to crossing lower, whilst the Stochastics are close to a near term profit taking signal. The gap remains open at 20,812 with the initial support of the previous high at 20,850. The candlesticks in the past three sessions have been increasingly tight on the daily range, with yesterday’s session of 69 ticks a little more than half of the Average True Range of 113 ticks. With the succession of doji candles this shows how uncertain the market moves are now. The hourly chart shows resistance is initially with yesterday’s high at 20,986 whilst a move back above 21,018 would begin to drive upside traction once more.