Donald Trump’s presidency should be perpetually prefaced with a caveat. “Progress is being made, but…” always seems to be an appropriate sentence to type for many situations. So moving swiftly to the latest developments in the trade “spat” (I will not be referring to it as a “war” quite yet) with China. Comments from Trump’s administration officials, such as Wilbur Ross seemed to help calm market nerves earlier in the week when he talked about the likelihood of a compromise. However, now Donald Trump has started to talk about another $100bn of tariffs! Will the market be able to look past this latest move from Trump and still reach a conclusion that “compromise” remains the most likely course of action? China has vowed to fight the tariffs “to the end”. Market response has been relatively muted once more in the forex space with only a slight strengthening of the yen, whilst gold has found support but little buying pressure yet. Perhaps the added uncertainty of today’s Non-farm Payrolls is playing a part here, but maybe any miss on expectations in this afternoon’s jobs report would drive a strong dollar negative move? Once more though it is in the equities space where the pain is being felt, with Wall Street futures around a percent lower and European equities also lower.
Wall Street close in positive territory again last night with the S&P 500 +0.7% at 2663, but with futures lower there is a negative impact across Asian markets (Nikkei -0.2%) whilst European markets are also lower. In forex there is a broad consolidation (again perhaps payrolls related) with little real direction across the majors aside from some marginal slip on the Canadian dollar. In commodities, gold is all but flat, whilst oil has slipped back again.
Traders’ attention will finally be turned away from trade wars today with the focus squarely on this afternoon’s Non-farm Payrolls. The US Employment Situation Report is at 1330BST and as ever will mean increased volatility across financial markets. The headline Non-farm Payrolls are expected to come way down to 193,000 from last month’s huge 313,000, however could there be a downward surprise given the significantly colder March? Also watch for revisions to the hugely surprising February data too. The initial algo-driven move will come off the headline payrolls, but the real attention will come with the Average Hourly Earnings growth which is expected to be +0.2% MoM (+0.1% in Feb) and a tick higher to +2.7% on the YoY (up from +2.6% in Feb). Unemployment is expected to continue to track lower to 4.0% (from 4.1% in Feb) whilst the U6 Underemployment will also take some focus if it again holds up at 8.2% again. Also watch for Labor Force Participation rate which jumped to 63.0% in February. Aside from payrolls, FOMC chair Jerome Powell gives a speech at 1830BST.
Chart of the Day – EUR/CAD
With the euro struggling to find bull traction as Eurozone economic data continues to disappoint and the Canadian dollar strengthens at the prospect of a NAFTA deal, we see a significant turnaround in the outlook for EUR/CAD. The pair decisively broke a ten week uptrend last week and has been busy posting a run of bear candles since. The move has now formed a four week top pattern on a break below the support at 1.5760 which implies 360 pips of further downside. That suggests a target of 1.5400 in the coming weeks. The next support is at 1.5515 but the potential is now there for a retreat back to the breakout support of the old 1.5370 key high. Momentum indicators have turned decisively corrective, with the RSI, and Stochastics increasingly negatively configured, whilst the MACD lines are accelerating lower too. This all suggests that rallies are now a chance to sell. The resistance from yesterday’s high is at 1.570 with neckline resistance at 1.5760 and another a reaction high at 1.5800 earlier this week, leaving 1.5700/1.5800 looking to be a decent near term area to sell. The move remains corrective move within the long term uptrend, which does not come in until 1.5100 currently, so there is plenty of room for this near to medium term correction.
The pair continues to slip back and is now breaching the support of the long term 12 month uptrend. Pushing below the mid-March low of $1.2235 yesterday took the market to a four week low and opens the $1.2155 low now. Although the break could not be sustained into the close there is a real sense now that the euro bulls have lost their grasp on the market now. The three month range between $1.2155/$1.2555 is increasingly becoming the key medium term factor in this market. The momentum indicators are dragging lower and the euro bulls are being gradually ground down. There is a degree of consolidation this morning, being payrolls today, so there is likely to be some elevated volatility this afternoon. Some near term direction could be found from this move but unless it is a hugely strong report then sustainable direction is unlikely.
As can often be the case when the market drifts indecisively in one direction, there can be a change of sentiment and the market can move very quickly to retrace. Yesterday’s strong negative candle proves this to be the case again, leaving resistance at $1.4095. The move has also broken back below the psychological support at $1.4000 and is now challenging the support of a five month uptrend that dates back to November (comes in around $1.3950 today). Although this is not the biggest uptrend (that is an 18 month uptrend that comes in down around $1.3660 today), it would still be a key development should it be broken. The concern for the bull control grows with the deterioration in the momentum indicators which comes with the RSI falling back below 50, MACD lines crossing lower and the Stochastics crossing down too. Yesterday’s low at $1.3963 is initially supportive and a closing break below here would certainly turn the market corrective again (arguably forming a bear flag too). Payrolls could be crucial to the near term direction and a strong (earnings driven) report would turn Cable corrective now. Next support $1.3885 and then $1.3780.
The forex markets have yet to really react to Trump’s latest threat to escalate the trade spat with China, but there is the slightest of edging back into the yen on the move. However, in the past three sessions there has been an impressive move of dollar strength that has shifted the outlook. Suddenly we are seeing lower highs being broken and the market seems to be forming a recovery. Taking out first 107.00 and then (more importantly) 107.30 has really shifted the emphasis. The momentum indicators are increasingly positive on a near to medium term basis with the RSI rising above 50, Stochastics in strong configuration and the MACD lines also accelerating higher. The low at 105.65 is now a higher low and the bulls are eyeing 107.90 which would be a key confirmation of a breakout if broken. Can the bulls sustain the move? A strong payrolls could be key to the answer today. Support around 107.00 initially now.
A second successive negative candle turns the outlook more negative once more within the range and a test of the support at $1321 is back on. However the market has bounced slightly early this morning on the back of the threat of further escalation from Donald Trump. The question is whether the market runs with this throughout today’s session. Essentially this is still a very rangebound market with little real direction. Daily shifts in sentiment come on the newsflow of the trade tariffs. As such the support at $1321 has been bolstered by a bounce from yesterday’s low at $1322. The resistance is at $1335 initlally (from yesterday’s high) but Wednesday’s peak of $1348 is more considerable. Add in the uncertainty and volatility from Non-farm Payrolls and this adds up to a market with no idea of direction still.
Having encouragingly held on to the support of the seven month uptrend on Wednesday, the bulls spluttered in their renewed move higher yesterday. A small bodied negative candle suggests there is still more to do to convince the market that a decisive move higher is resuming. Today’s early drop back on renewed fears of escalating trade tariffs add in to this. Furthermore, momentum indicators which have been slipping backwards with the recent corrective move, are still deteriorating, with the RSI and Stochastics flat around 50 and the MACD lines recently crossing lower. The hourly chart shows perhaps why this is though, with the momentum configuration still neutrally configured at best, whilst the resistance band $63.75/$64.25 remains a key near term pivot area which is a barrier to gains. A break above $64.25 would help to improve the outlook but for now the market remains neutrally configured and struggling for bull traction.
Dow Jones Industrial Average
The strength of the recovery in the past few sessions shows an appetite for buying is still present in this market, if newsflow would allow it. Wall Street futures are again pointing for a sharply lower open today after the comments from Donald Trump on escalating the trade tariffs. So hence the question, is this simply a near term move or is it something more sustainable that breaks what is still a developing nine week downtrend? There is a pivot around 24,535 which could be key to the prospects of the recovery. This pivot has been in place since early March and although the recovery is in full swing, could still scupper the bulls. The momentum indicators are improving now with the crossover buy signal on the MACD lines and Stochastics swinging decisively higher. However the RSI is only back to 50 and needs to show much more improvement to convince that the bulls are back in control. Breaking decisively above 24,535 would certainly improve the outlook, but the downtrend since the January all-time high comes in at 24,735 today and also needs to be breached. The hourly chart shows strengthening momentum configuration whilst the previous late March highs at 24,314/24,445 will be seen as the first band of support now.
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