This could be a massive Non-farm Payrolls Friday for the market. The hints from Janet Yellen and the FOMC is that December is ery much on the table for a rate hike and today’s payrolls report could be the clincher. Traders are braced for a crucial Non-farm Payrolls as a strong report today could result in the FOMC raising interest rates in December. This would have a significant knock-on impact across the financial world, with implications for not only the US dollar and Treasuries, but other factors further afield such as Emerging Markets currencies and also stock markets around the world.
Global markets tend to settle in front of payrolls amid the caution of the high risk event and this time around seems to be following a similar pattern. Wall Street had a mixed close with the S&P 500 slightly lower at -0.1%, whilst Asian markets also followed suit, although the Nikkei 225 was once more slightly higher (+0.8%) on the back of a weaker Japanese yen. European markets are set to open mixed today. Forex markets are also relatively settled but once more there is a hint of dollar strength as the European trading session takes over. This is also reflected in the straining breakout of Dollar Yen to a new 10 week high. Gold has found some support once more in the Asian session, but it will be interesting to see if the bears return again. Oil has also found a touch of support.
Non-farm payrolls, announced at 1330GMT, are expected to come in at 180,000 which would be an improvement on 142,000 last month. As ever though watch for the revisions of prior months (which was a negative in the October report). Also watch out for the average hourly earnings which the Fed would be looking gat as ideally picking up more than the +0.2% month on month expected. Also watch for unemployment which is forecasta t 5.1% again and the participation rate which is at 62.4 currently (again would ideally pick up).
Traders will also be looking out for the UK manufacturing production at 0930GMT which is expected to dip slightly to +1.3% from +1.9% on the year on year basis. Also the UK trade balance is released at 0930GMT which is expected to -£10.6bn from -£11.2bn. However these releases are a minor distraction prior to the main event this afternoon.
Chart of the Day – DAX Xetra
I have been looking at the DAX over the past couple of weeks and discussing the fact that the 38.2% Fibonacci retracement of the 8355/12,390 rally still has a role to play. Markets will tend to consolidate around key Fibonacci levels and this one around 10,850 is still a nuisance for the bulls as they still cannot break successfully clear. In 8 of the past 10 sessions, the DAX has traded around this level. However momentum indicators have continued to drift higher with the RSI still around 70 but never really being able to drag the DAX price higher with them. I have been discussing whether the DAX was running out of upside impetus and this could still be the case as on the hourly intraday chart the RSI and MACD lines are bearishly diverging still. However, interestingly the 89 hour moving average has been a basis of support in the past few weeks and it will be interesting to see if the DAX starts to trade below this it could signal that the upside is waning. The overhead resistance is at 10,963 and 10,989 today. Support below the 38.2% Fib level is at 10,800 and then key near term at 10,700. A close above 10,989 would reopen the 23.6% Fib level at 10,439.
With such a strong downside shift in the previous session it is not uncommon for a session of slight consolidation to be seen. This has resulted in rather a neutral looking “spinning top” candle (very small body and small upper and lower shadows. However this does little to suggest there is any imminent rally about to be seen and more than likely it is a consolidation in front of a test of the key support at $1.0810 today. The momentum indicators remain set up in a bearish configuration with rallies seen as a chance to sell. The big caveat to all this though is that Non-farm Payrolls are announced today and this will create significant near term volatility. A strong report will put pressure on the $1.0810 support and depending upon the strength of average hourly earnings there could be a defining breakdown of the support to the lowest since April and this would be suggesting that the market was moving towards pricing in a December rate hike. A weaker report would result in a rally back towards the key pivot band $1.1050/$1.1100 once more. Near term resistance band comes in at $1.0935/$1.0965.
The big dovish shift in the outlook from Mark Carney and the Bank of England has had a profound impact on Cable and could have a long term defining impact. The sell-off of around 180 pips yesterday has blown out initial support at $1.5240 and the pressure is on the key reaction low at $1.5200. Closing bang on the support yesterday could be significant however the move lower has not quite stopped there yet and the pressure has remained to the downside today. A breach seems to have opened the key range support at $1.5105 which was seen at the end of September. The momentum indicators confirm the break lower and the outlook is now under serious bear pressure as the daily RSI still shows plenty of downside potential, whilst the Stochastics are in sharp deterioration and the MACD lines have also turned lower too. Non-farm Payrolls create risk today to any direction, however there is now a 40 pip band of resistance $1.5200/$1.5240. A move back above the old support now turned resistance at $1.5300 improves the outlook again.
Looking at the daily chart would certainly suggest the bulls are gaining in confidence now. Yesterday’s move above 121.70 was a significant move, with an intraday peak at 122.00 and a close at 121.74 it now looks as though the bulls are breaking the shackles of this range that dates back to late August. The implication of this is that the market is positioning for a positive payrolls report and potentially a December rate hike. Technical momentum indicators are positively configured, with the RSI looking to be push above 60 and becoming increasingly strong. The hourly chart shows the consistent higher highs and higher lows over the past few days and although I am still slightly mindful of hints of bearish divergences on the hourly RSI and MACD for now I am backing the upside break. Initial support is now 121.35/121.50. The break above 121.70 implies upside towards 123.00.
Once again the slight early morning rebound in the Asian session has turned into another bout of selling pressure. This has left gold with a seventh consecutive bearish candle and another close around the low of the day. The minor chink of light at the end of the tunnel though is that the candle was not as vicious to the downside as previous candles have been. Is this because momentum indicators are becoming stretched now (RSI around 30, Stochastics looking to bottom). Or is this anticipation of the big risk event, Non-farm Payrolls? The early Asian session has once more seen gold bounce a touch and it will be interesting to see if yesterday’s high at $1112.20 is breached as that would be the first time a previous day high had been overcome since the FOMC meeting. The resistance is then around $1122. I also notice that the momentum indicators on the hourly intraday chart are showing hints of improvement too, especially the hourly RSI which is the highest since that FOMC meeting. Ultimately I still favour pressure on the key support band $1098/$1104 but today’s Non-farm Payrolls data will have a big say in near term direction. A weak report would likely result in a sharp rally. There is a lot of recent downside to unwind.
A second consecutive negative candle seems to have changed the near term outlook once again as the oil price begins to fall again. The concern is that falling to a 3 day low yesterday the Stochastics have now crossed back lower on the daily chart which is the first time this has happened on the past 4 weeks, with the last time this happened resulting in a 2 week consistent decline. The intraday hourly chart shows the near term importance of the support band at $45.00/$45.60 as a breakdown would re-open the old range low at $43.20 again. The hourly momentum indicators have though already taken on more of a corrective outlook and the price is trading below all the moving averages, so the bears (near term at least) are increasingly gaining control. It would now need to hold a break back above $46.65 to abort what is becoming an increasingly corrective outlook again.