There is more of a positive feel to market sentiment to start the week. There was a rather varied reaction to the Non-farm Payrolls report on Friday, however yen weakness on the election victory for Shinzo Abe has added to strength of equity markets today. Also a rise in Treasury yields has helped to pull a more positive mind-set for traders which has filtered into the early part of today’s session. The gains seen on Wall Street with 1.5% added to the S&P 500, which has helped to fuel gains in Asian markets. However the move in Asia was also helped as the Japanese yen has been sold off this morning after the announcement of victory for Prime Minister Shinzo Abe’s ruling coalition in the Parliamentary upper house elections helps to pave the way for further monetary easing measures. European markets are also starting the day higher.
Forex markets have been far more mixed in their assessment of what the payrolls report actually means, with fluctuations higher and lower across the majors. The trade weighted dollar has made gains on the strength of the report but not to the extent that perhaps a headline of 287,000 jobs might suggest. The assessment is that, for now, it will do little to change the path of Fed monetary policy, with much of the data coming in front of the Brexit decision. However, there have been major currencies that have moved strongly, with the Kiwi breaking out to the highest close since May 2015, although it has pulled back slightly this morning. With the improved sentiment today, the gold price has just begun to stutter today, whilst oil is also somewhat subdued and is trading mildly lower.
There are no economic announcements due today but there will be some interest in the FOMC’s Esther George (leans hawkish) who is set to speak today at 1500BST.
Chart of the Day – USD/CAD
The rally on Dollar/Canadian is risk negative and the improvement on the outlook of the chart is getting ready to test a key technical level. Since the May rally peaked at 1.3188 there has been a sequence of lower highs formed. However, this has actually played out as the formation of a stretched symmetrical triangle as there has also been a series of higher lows too. Looking on the momentum indicators though, the market is close to breaking higher. The RSI is putting pressure once more on 60 (above which tends to reflect more positive momentum), whilst the Stochastics have been improving now for the past month and the MACD lines have too. The late June high at 1.3119 is the resistance to watch as a closing breakout would confirm an upside move and a retest of the May high at 1.3188. The hourly chart shows a mild positive bias to momentum whilst Friday’s intraday breakout above 1.305 has given the bulls some impetus. Corrections are now being seen as a chance to buy with support now at 1.2985 and 1.2875 now key. There is minor support at 1.2990.
The euro is still creaking under the bear pressure without really succumbing yet. There is still a definite sense that the sellers are pulling the price lower as the negative candles continue to build. Friday’s low breached the near term intraday support at $1.1022 to hit a low at $1.0999 before again closing around the $1.1050 lower bound of the pivot band once more. This was the second consecutive day closing around this level and still there is no clear path lower. The daily momentum indicators continue to suggest that downside momentum is greater with negatively configured indicators, however Friday’s candle was almost a long legged doji (which would reflect some sizeable uncertainty. It would need a decisive close below $1.1050 to really drive the downside. I am still a seller into strength though, with the hourly chart showing resistance up towards $1.1111.
Another consolidation seems to be building with the low from last Wednesday still intact at $1.2796 and the last few days relatively settled (well at least compared to some of the incredible volatility of recent weeks). There is still an expectation that rallies will be used as a chance to sell and that this is only minor respite before the next downside leg. Momentum indicators remain bearishly configured and there is a resistance building up between $1.3000 and the overhead supply of the late June low at $1.3188. The hourly chart shows that the near term momentum is once more unwinding to an area which will renew downside potential, with the hourly RSI back above 50 and the MACD lines back to neutral. It is likely to be just a matter of time before the next sell signal. There was volatility on Friday in the wake of the payrolls report which has left resistance at $1.3016 under the near term rebound high at $1.3047.
Will today’s rebound give another chance to sell? The rally induced by Shinzo Abe’s victory in the elections in Japan opens the prospect of further monetary easing but is still likely to be another near term blip within the downtrend. The RSI has picked up off 30 again and perhaps it would be best to let this rally run its course before looking to sell again. I would feel uncomfortable trading against such a strong trend of selling Dollar/Yen and would prefer to sell into strength. The MACD and Stochastics are showing signs of a near term bottom though and there is room for an unwinding rally. The hourly chart shows a resistance band around 101.35/101.50 and if this can be decisively breached then the near term prospect will continue to improve as this in effect completes a small base pattern up from Friday’s Non-farm Payrolls spike low form 100.02. (therefore suggesting around 150 pips of recovery which is not far from the ideal sell zone I have talked about previously). There is now some minor support around 100.40/101.00.
Having initially threatened a correction in the wake of the Non-farm Payrolls report, gold recovered is poise to close higher once again and remain positive. There is still the threat of a correction though with Friday’s initial weakness back to $1335.70 a sign that the sellers are still prepared to move. The early weakness today has yet to seriously dent the positive outlook but if the market closes lower tonight then the questions over the trend higher will be mounting. The resistance is still with the recent high at $1374.90, a level which is loosely protecting the March 2014 high at $1391. The momentum indicators would also be questioning the longevity of the bull run if there is a degree of laziness in the bulls. A failure to sustain the momentum, with the RSI around 70 and Stochastics looking as though they could rolls over, could tempt the profit-takers back in. The key near term support is now $1336/$1338 with $1350 initially supportive as the European traders take over slightly on the back foot this morning.
The negative outlook for WTI had more confirmation on Friday as a second day close below the old key support at $45.83 was seen. This has opened the next band of support at $42.60/$43.03 and suggests that rallies are increasingly now being seen as a chance to sell. The momentum indicators are increasingly corrective, but we still await a move on the RSI below 40 which would really confirm the bearish outlook. Having previously posted a series of higher lows in the rally since February, oil is now posting lower highs, whilst the breakdown level between $45.83/$46.00 has started to become the basis of resistance near term. The near term bears will be in control whilst $47.00 resistance is intact, whilst the corrective outlook will remain in place whilst the downtrend is intact, which currently comes in at $49.25. The medium term top pattern implies a target of $41.00. The next support is not until $43.03.