Just when it looked as though the “Trump Trade” had run out of juice, the man himself fires back in with another salvo to stock the fires once more of the bulls. Apparently in the next couple of weeks we are to expect a “phenomenal” and “big league” tax plan for businesses. Trump’s “phenomenal” tax plan has been seen as bullish for sentiment, improving the market’s risk appetite, with safe haven plays once more out of favour. Subsequently the yen is weaker, gold weaker and Treasury yields have turned higher. This has all helped the dollar to pick up again as it has improved the prospects of Fed rate hikes. This comes as Chicago Fed President Charles Evans suggested it was reasonable to expect three hikes this year from the Fed. With the trade weighted dollar index higher, the technical analysis of major forex pairs and commodities have all been impacted by a stronger dollar, whilst equities have broken higher once more. The volatility surrounding Donald Trump’s first few weeks as United States President continues. This seems to be a trade to go with for now, but beware because you never quite know what he might come out with next. Market sentiment has also been boosted by the announcement of much better than expected Chinese trade data. The China Trade Balance has been bullish for markets as Exports in dollar terms increased by 7.9% versus the +3.3% expected (and against the -6.1% last month) whilst Imports were +16.7% against the +10.0% forecast (and the +3.1% last month).
Wall Street closed last night at record highs again in the wake of Trump’s taxation teaser, with the S&P 500 +0.6% at 2308, whilst Asian markets were also positive, with the Nikkei boosted by +2.5% on the yen weakness. European markets are looking modestly positive in early moves. Forex majors show a positive appetite for risk as the yen is the big underperformer, whilst the Aussie is performing well on the China data. Gold and silver are lower too as safe haven plays are being shunned, whilst oil is mildly higher.
There is a bit more on the economic calendar to keep traders interested today, however it is still a fairly quiet end to a quiet week. The UK Industrial Production for December is at 0930GMT which is expected to improve marginally to +3.3% year on year (from +3.2% last month). The prelim reading of University of Michigan Consumer Sentiment is at 1500GMT which is expected to dip slightly to 97.9 (from an upwardly revised 98.5 last month)
Chart of the Day – NZD/USD
With the prospect of Trump’s “phenomenal” taxation plans and the jawboning of the Reserve Bank of New Zealand in yesterday’s monetary policy decision, is the Kiwi set for a period of underperformance now that will drag the pair lower? The rally that has been in formation since mid to late December has come under sharp reversal, with a third consecutive negative candle. Furthermore, the selling pressure seems to be accelerating now. The move has broken below the key medium term pivot at $0.7240 which has seen the market top out. This breakdown below $0.7240 will now become a key level of overhead supply and resistance for today’s unwinding rally. The momentum indicators are now deteriorating and giving a range of near term sell signals, with the Stochastics in a confirmed sell signal and the MACD lines also crossing lower. The hourly chart shows the topping out in greater detail, with a previous support around $0.7220 also a level to watch as it came in as resistance during yesterday’s session. The rallies should now be seen as a chance to sell, with a near term “sell zone” between $0.7220/$0.7260. The next support is $0.7115 with $0.7045 an old pivot.
Since topping out just over a week ago the euro has been slipping back towards the key support of the January lows $1.0577 to $1.0617. The move has not been without its mini recoveries, such as Wednesdays bounce from $1.0638, which have questioned the potential for correction, however there is still a consistent theme of lower highs and lower lows forming which suggests that the key support band is about to come under threat. With the deterioration in the momentum indicators, as the RSI has dropped below 50, the Stochastics have given a confirmed crossover sell signal and the MACD lines have also crossed bearishly, the sellers are gradually gaining control. A breach of $1.0577 would complete a bearish break that would re-open the lows from the turn of the year, with first $1.0450 and then $1.0340 as support. The hourly chart shows the importance of the pivot at $1.0710 and the negative configuration on the hourly momentum. The pressure on the $1.0577 support is mounting but until it is breached the bears will not be in full control.
I remain unconvinced by how sustainable a sterling bull run is up at these levels and yesterday’s corrective candle reflects that. The bulls failed at $1.2582 and reversed to close almost at the low of the session to leave a negative candlestick and bring the support at $1.2430 back into play once more. The momentum indicators remain neutral but with the Stochastics still sliding lower there is a hint of a correction. The hourly chart also shows a very neutral near term outlook but the support of the past few days at $1.2470 is growing in importance now. The slide from yesterday has taken the momentum indicators away from a positive configuration into more of a ranging configuration and this means that the resistance now at $1.2580 under the pivot at $1.2600 becomes a key overhead barrier. On a near term basis, direction is likely to now come from a breach of $1.2600 to the upside, or below $1.2430 on the downside.
If the “Trump trade” is back on then it will show in a bullish breakout on Dollar/Yen. Looking at the movement in the chart since yesterday afternoon, this could be a very real possibility now. The resistance that had been limiting to the upside at 112.50 was broken decisively yesterday and a close well clear of the resistance has boosted the bulls. However, there has also now been a bull move today above the initial resistance at 113.45 to really improve the prospects. The RSI has ticked higher as have the Stochastics and the MACD lines are also close. The market is also back above the falling 21 day moving average (currently c. 113.47) which has been a basis of resistance in recent rallies. However the real confirmation of the improvement in sentiment could come today if the resistance of the key near term pivot at 114.00 is broken. This would re-open the old range high resistance at 115.60. In the least, the bulls will look to close above 113.45 to maintain the prospect of a bull recovery. There is further support at 113.00 with 112.50 now key support once more.
Has the gold rally come to an end? The safe haven status of gold plays against it when the “Trump trade” is back in play and this could now be the case. Topping out yesterday at $1244, the candle reversed to form a bearish engulfing pattern. The threat to the recent uptrend has continued today with a further decline. The extent of the damage to the bullish outlook is reflected in the RSI pulling sharply back below 60, and the Stochastics crossing lower. This now has the potential to turn into a corrective move should the breakout support at $1220 be breached on a closing basis. The hourly chart shows that the supports within the uptrend at $1235 and $1225 have already been broken, whilst the hourly momentum has also now turned to more corrective configuration. The rally is over but whether this turns into a corrective move could depends on the next couple of sessions. There is now resistance in the band $1225/$1230 and if this persists then the pressure could mount to the downside. A close below $1220 re-opens $1210 and then $1200 again.
The range continues to play out, however the rebound off $51.22 from Wednesday’s low is now the fourth higher low within the band seen over the past couple of months. This suggests that there is subsequently a mild positive bias within the range, something that is reflected in the RSI consistently above 50 (even if it is struggling around 60), whilst the MACD lines are also above neutral. The second consecutive bull candle yesterday leaves the bulls confident into today’s session. However there is a clear feature of trading this range in the past few weeks, in that moves into the $53.50/$54.35 resistance band have struggled for traction. This suggests that whilst the market retains a mild bull bias, positions are unable to run successfully in a trend for more than two or three days. There is a pivot band around $52.00 which is now supportive.