In the normal course of events, an ISM Manufacturing data slide into contraction territory below 50 would cause the markets to have something of a wobble. However Wall Street closed with a strong 1.1% gain and Asian markets have also been holding up overnight. This is because the markets are not deeming the data as bad enough to derail a Fed rate hike but it may cause the members of the FOMC to shallow the pace of future rate hikes. The yields on Treasuries reflect this with the 2 year back this morning to around where it has been trading for the past few days and the 10 year Treasury yield feeling the real force. The US dollar was hit initially yesterday but has recovered much of the lost ground and is trading positively again today. The ISM data may question the pace of rate hikes but seemingly December still remains the month for the Fed to make its first move. The weak ISM seems to have failed to derail the dollar bulls and could subsequently simply give them another chance to buy.
Asian markets have been mixed overnight with the Nikkei just slightly lower at 0.4%, whilst the European session has begun with slight gains. In forex trading the dollar is looking to claw back some of the losses from yesterday. It also means that gold and oil are slightly lower once more today.
Traders have lots to look out for today with the flash estimate of Eurozone CPI at 1000GMT with an expectation of an increase to +0.2% (from +0.1% last month). There is also the ADP employment report at 1315GMT which is expected to show 191,000 jobs (up from 182,000 last month) and this is often seen as an indicator for Non-farm Payrolls (although last month payrolls were significantly better than the ADP). There is also the Bank of Canada giving monetary policy at 1500GMT which is expected to hold rates steady at 0.5%. The day is also marked by four FOMC member who are speaking, with Brainard, Lockhart and Williams (all of which could be considered to be potential candidates to vote for a hike) and also Fed Chair Yellen. So lots of views to move markets too.
Chart of the Day – NZD/USD
The Kiwi has broken decisively back above what has become a key near to medium term pivot level at $0.6615. This has turned the outlook to more positive once more. It is interesting that this is coming after the Kiwi has been holding up pretty well in the past couple of weeks in the face of what has been continued strengthening of the US dollar. The improvement is being backed up by the improvement in momentum indicators with the Stochastics accelerating higher and the RSI confirming the move at a 4 week high. There also seems to be further upside potential in the momentum. The suggestion is that corrections should be seen as a chance to buy. After a strong bullish candle it is not uncommon for at least an intraday dip back which could give a chance to buy again and the initial weakness today could give that opportunity. With an initial support area between the key pivot at $0.6615 and an intraday low from yesterday at $0.6640 any dip is a chance to buy now. The next price resistance on the daily chart comes in at $0.6790. Further key support comes in at $0.6520.
The euro had a decent bounce yesterday, a move that was certainly helped higher by the weaker than expected ISM Manufacturing data for the US. The rebound added over 60 pips on the day, with the solid bullish candle breaching a 4 week downtrend. However as yet not much has been achieved and I do not see this rally gaining much traction in front of the ECB announcement on Thursday. The momentum indicators on the daily chart remain bearishly configured with the RSI still below 40 (as it has been throughout the past month). The intraday hourly chart shows the improvement in near term outlook has hit the buffers at $1.0640 which was interestingly the rally highs from Wednesday/Friday last week. The overnight Asian session has seen the euro begin to slide again an hourly momentum indicators are now in reverse once more. I expect the drift lower to resume today and possibly even retest the low at $1.0565. The risk to the outlook is clearly the ECB meeting and this needs to be considered when trading in the next day and a half.
Cable rallied over 130 pips in the bounce from Monday’s low at $1.4990, but this has done little to change the outlook. The initial resistance at $1.5135 could not be breached and the rally seems to now have rolled over. Even the disappointing ISM Manufacturing data could not encourage the Cable bulls back to the table in any great size. This would suggest that in front of Friday’s Payrolls data Cable will be trading neutral at best. The daily chart does not imply a rally is on the cards and in fact the rebound simply looks to be another chance to sell. I expect the bears to resume control and for support levels to come under pressure. Initially this means the reaction low at $1.5050 but I would not rule out a retest of $1.4990. Initial resistance at $1.5135 has been strengthened over the past few days with overhead supply up towards $1.5190.
I concluded yesterday that the Dollar/Yen pair is fairly balanced in a new range phase between 122.20/123.67, however there is a slight bullish bias to the technicals which is likely to drive an upside break eventually. That is not to say that I think that the range will go on for a long time. My belief is that there is likely to be an upside break on the Non-farm Payrolls data on Friday. The clutch of data in the next few days could make it a choppy ride but I do not expect an upside break in front of the key payrolls data. Yesterday’s corrective candle seems to have been undone already as the bulls have returned in the Asian session today. The daily momentum indicators remain bullishly configured and the intraday hourly indicators also back this assertion. There is a near term resistance band 123.20/123.25 to be overcome prior to a test of 123.67. I would look to be buying intraday dips still with support at 122.60/122.75.
Gold has been a sell into strength for several weeks and at peak of the latest rebound, gold had rallied around $22 from the $1052.50 low prior to just beginning to stutter once more yesterday afternoon. The question is whether the improvement in the daily momentum indicators is enough to justify a change in strategy. My feeling is that much more needs to be done. The rallies during the past few weeks have tended to be around $20 before the sellers resume control again and for now I have to view this with a similar outlook. The move is back into the resistance band $1065/$1084.50, with the hourly chart showing the initial resistance at $1074.50 holding up yesterday’s gains. The hourly chart also shows the rally having rolled over on momentum indicators, with a loss of impetus in the move also evident. The near term support at $1063 will be eyed today as a breach would suggest the sellers are once more in control which is the direction that I favour now. I would be looking to use this rebound as a chance to sell once more.
I spoke yesterday above the gradual deterioration that is coming through on the price of WTI once again. The technical outlook has suffered in the past few days as the overhead supply of the resistance in the band $42.60/$43.70 has stopped the bulls once more. The momentum indicators on the daily chart are struggling and there is a sense that this recent rebound has just once more been used to unwind oversold momentum and will be used as another chance to sell. The bearish lean of the candlesticks in the past 3 days adds to this outlook, whilst on the hourly chart there deterioration is also evident with a bearish configuration on the hourly momentum indicators. Trading below the big resistance band will continue to be a problem for the bulls and the drag lower looks to be coming back to test the initial support at $40.40 with further support at $39.90. Above $43.50 to improve the outlook.