Once more Donald Trump has driven market direction. However, this time for the dollar, it was less about what he said and more about what he did not say. Trump has been the catalyst for a correction on Treasury yields and the dollar which is impacting across forex and commodities. In his first formal press conference since his acceptance speech back in November, markets were looking for some further clarity over his spending plans, the prospect of which had previously provided such rocket fuel for Treasury yields and hence the dollar. Subsequently, markets were left in limbo and Treasury yields have fallen away, with the two year yield back towards 1.15% the lowest since mid-December (well down from the 1.30% high) and the 10 year yield below 2.32% and the lowest since the end of November (back from the 2.64% high). The U trade weighted dollar has also been hit and is over 1.5% back from yesterday’s high.
Wall Street managed to edge higher into the close with the S&P 500 +0.3% at 2275, however, Asian markets have been under pressure with the Nikkei (-1.2%) especially impacted by the yen strength. European markets have opened once more in cautious mode. In forex trading, the dollar is significantly weaker again this morning across the forex majors, with the yen strength being the standout performer. The commodity currencies (Aussie, Kiwi, Canadian) are also benefitting from the dollar weakness which is helping to support commodity prices. The weak dollar has helped gold to push back above $1200 for the first time since the end of November, whilst oil is stable after yesterday’s recovery.
Once more, traders have a fairly light economic calendar today with one eye on the Eurozone Industrial Production at 1000GMT (+0.5% exp). However the main focus will be on Fed speakers throughout the day. FOMC members Harker (voter, neutral), Evans (voter, dovish), Bullard (non-voting, floating neutral) and Kaplan (voter, neutral) are all due to speak and the market will be looking for any shift to a more hawkish rhetoric. However the most important speaker will clearly be Janet Yellen who is giving a speech in Washington at 0000GMT overnight. This is her first formal communication of 2017 and will be extremely interesting to see how her outlook is evolving especially in light of the incoming President Trump’s fiscal rhetoric that is expected to be significantly expansionary.
Chart of the Day – EUR/JPY
The market has been consolidating sideways in the past few weeks as the yen and euro have both been stabilising against the US dollar. However, it is interesting to see the positive yen bias just starting to creep back in once more. I have been watching the 122.00 support level in the past week, with the number of bear daily candles continuing to rack up. This support finally gave way yesterday with the key 121.65 support also being breached on an intraday basis. The fact that the market did not close in breach of this 121.65 support seems to be merely delaying further pressure as the initial breach has been a warning shot. The momentum indicators are already signalling weakness with the Stochastics falling at 10 week lows. However it would still need a closing breach of 121.65 to complete a top pattern that would imply around 240 pips of further downside in a correction of the bull recovery towards 119.20. The hourly chart shows resistance of a sequence of near term lower highs at 122.25 and 122.60 as the initial resistance and then 122.90. The negative configuration of the hourly momentum also reflects a corrective outlook and rallies being sold into. Below 121.65 the support is yesterday’s low at 121.23 before 120.85.
After a period of consolidation the market looks ready to take on a period of dollar weakness which is pushing EUR/USD higher again. The market is this morning pushing to test the resistance band between $1.0620/$1.0650 which has held back the bulls over the past couple of weeks. This comes with the momentum indicators looking to gain traction once more as the RSI and Stochastics pick up again. The hourly chart shows the rebound late in yesterday’s session which has left a low of support at $1.0452. Some consolidation overnight has now given way to the bulls pushing for gains early in the European session. There needs to be a close above $1.0650 today for the shackles of a recovery to be released, so this is a key factor to watch today. Given that the market has bounced over 180 pips from yesterday’s low, a failed upside break would be disappointing this time round for the bulls.
The selling pressure on the dollar has come just in time to prevent a significant downside break on Cable. After a brief breach of the key support at $1.2080 Cable rebounded well to form an outside day. However it was interesting to see the bulls lose their way into the close and what could have been an impressively strong bull candle became somewhat tepid into the close which has left resistance at $1.2270. The bulls are looking to give it another go today but need to push on. The first aim though will be a close back above $1.2200 which has been an important pivot in the past couple of weeks. The rebound has saved the medium term trading range outlook for now, however it could still just be delaying further downside pressure. The outlook remains negative within the range whilst the market is trading below last week’s high at $1.2430. For now, the near term outlook is just improving however I am still a seller into strength.
The market is now beginning to gain downside momentum and the support in the range that had been holding is giving way. Yesterday’s intraday move below 115.04 support may not have been able to close below due to a late unwinding rally, however the sellers remain in control and are returning this morning. The daily chart shows that the momentum continues to deteriorate with the Stochastics pushing towards bearish territory and the RSI now falling below 50. The market is now back into the support band between 112.84/114.82. The original downside break that completed the top below 116.00 implies a move to 113.40. The bears will be eying yesterday’s low at 114.23 as another near term marker today and a breach would just continue the negative outlook. The resistance is now strengthening between 115.04/115.60. The bulls need a rebound above 116.85 to turn the outlook positive once more.
The weakness of the dollar continues to help the recovery in gold and the gains this morning have taken gold back above $1200 for the first time since the key downside break in late November. This is now becoming a key recovery which is looking to change the outlook. The decisive move clear of the 61.8% Fibonacci retracement of the $1047/$1375 rally now means that the 50% Fib level is next up at $1211. A close back above $1200 today would also be a key psychological breakthrough for the bulls. This also comes as the RSI has pushed clear of the low 60s and is becoming increasingly positive for the near to medium term recovery to continue. If resistance between $1200/$1211 can be breached there is little reason why a pullback towards $1241/$1250 cannot be seen. The hourly chart shows key support now at $1177 whilst the bulls will hope to use support now between $1189/$1192 as a springboard today for further gains if there are any little dips.
The dollar weakness into yesterday’s close helped to support the oil price which rebounded strongly after the previous couple of strong bear candles. Can the bulls hang on to a build another recovery play now? The previous breakdown below the $52.00 support area was confirmed with a deterioration in the momentum indicators and the market continues to have a corrective look to it despite the rebound. Consistent trading back above the $52.00 old support area would improve the outlook once more. However, it seems as though, moreover the market is now trading in a broader range between $49.60/$55.25 and this is part of the fluctuations of a market that is in a state of uncertainty. The volatility remains high with the last three candles all being strong, with big daily ranges. There could be some false directional signals given in the near term, whilst the band around $52.00 could also become pivotal. Near term resistance is with yesterday’s high at $52.80 and needs to be breached to continue yesterday’s rally.