It plays into the British sense of delusions of grandeur when it seems as though a major factor driving risk appetite is the Brexit progress (or lack thereof). Market sentiment has been hit as UK Prime Minister Theresa May lost her latest attempt to get her Brexit deal past Parliament. The result is a heightened sense of uncertainty for any markets of UK assets and gives an excuse for traders to sit with caution once more. However there is another vote in Parliament today which could at least help to improve sentiment once more as MPs decide on whether to reject the prospect of a hard, “no deal” Brexit. If this is seen then the avenues towards a softer and more market friendly form of Brexit (or perhaps no Brexit at all). Disruption and uncertainty of a no deal Brexit do not sit well with broad risk appetite. However, softer Brexit options are sterling supportive and it is interesting to see Cable holding on to $1.3000 amidst all the huge volatility yesterday, whilst pushing ahead this morning. As for Mrs May herself, she limps on as Prime Minister, for now. Under normal circumstances, a second enormous defeat of a Government key piece of legislation would be terminal for a PM, but under Brexit, normality flew out the window long ago. Outside of the UK, the mild miss on US CPI has taken further wind out of the sails of the dollar bulls. This has helped to drag gold into the long term key pivot band $1300/$1310 and EUR/USD back towards $1.1300 (also a key pivot area). So the dollar is at something of a crossroads.
Wall Street was mixed last night with the S&P 500 +0.3% at 2791 and the Dow -0.4% on continued selling pressure for Boeing, whilst US futures are flat today with traders looking cautious. Asian markets have reflected this with the Nikkei -1.0% and Shanghai Composite -1.1%. In Europe, markets are looking at a slightly lower open too, with the FTSE futures and DAX futures both around -0.3% lower. It will be interesting to see if the negative correlation of FTSE 100 and sterling continues to play out today. In forex, there has been a mild move higher this morning for sterling, whilst the cautious risk sentiment has hit for Aussie and Kiwi underperformance today. In commodities, the recent slip on the dollar and cautious sentiment has helped gold to tick above $1300 today. Oil is also supported due to suggestions that the Saudis would restrict oil exports.
On the economic calendar, UK Chancellor of the Exchequer Phillip Hammond releases the Spring Statement at 1230GMT (UK government spending review) which will have an impact potentially on sterling (although Brexit outcome remains paramount). At the same time the US Durable Goods Orders are at 1230GMT which are expected to show core ex-transport Durable Goods to growth by +0.1% in January (+0.1% in the month of December). US factory gate inflation, the US PPI is also at 1230GMT and is expected to show headline PPI slipping back slightly to +1.9% in February (from +2.0% in January), with core PPI remaining at +2.6% (+2.6% in February). The EIA weekly oil inventories are at 1430GMT and are expected to show crude stocks increasing again by +2.9m (+7.1m last week) with distillates in drawdown by -1.6m barrels (-2.4m barrels last week) and gasoline in drawdown by -3.0m (-4.2m last week).
Chart of the Day – AUD/JPY
The tight range that has formed over the past two months depicts very well the swings back and forth in broad risk sentiment. A range between 77.50 and 79.80 has been in place now for two months and a rally in the past few days above 78.55 (a mid-range pivot area) now brings the potential for a test of 79.80 once more. Momentum indicators have swung positive once more with the RSI and Stochastics both giving positive near term signals. Throughout this range the RSI has oscillated between 40/60 and rising from 40 with upside potential towards 60 give the bulls some impetus for a move higher again. Coming as the Stochastics have bull crossed again (similar to the early February low in the range) is also another near term bull signal. The initial support area comes with the pivot at 78.55 whilst the hourly chart shows support at 78.30 meaning a near term buy zone around 78.30/78.55. Initial resistance at 78.90 and 79.35 protects 79.80.
As the dollar has slipped a touch in recent sessions (broadly since the payrolls report), the euro has also managed to stabilise and this is helping to pull a rebound on EUR/USD. The question is whether it is a retracement move into overhead supply which houses a whole bunch of sellers, or as part of a medium term range with last week’s downside break being false. The key will be the reaction to $1.1300. This for so long was the basis of a where key support was housed in the range, but if this starts becoming a barrier to gains, it will be clear that this old support is new resistance. Yesterday’s first look at $1.1300 was rejected into the close and the market is again trading just shy of $1.1300 this morning. Momentum indicators are edging higher tentatively as the market has picked up in the past few sessions. But is this a sustainable rebound? It still looks to be an unwind in a bear phase on RSI and MACD. The hourly chart signals are tentative in their recovery too. Initial support at $1.1250 holding helps the bulls. A decisive close above improves the outlook for a recovery.
It was a wild and choppy ride on Cable yesterday with huge uncertainty throughout the session. The market closed lower on the day, but there is an increasing reaction around $1.3000 which is becoming a gauge for sentiment on sterling surrounding Brexit. This is currently supportive. There is another vote in Parliament which is likely to again be a cause of elevated volatility today, but also likely to underpin sterling for a softer Brexit and subsequently help to lift Cable. Technicals are largely irrelevant during these times, especially on a daily basis, however, it is interesting to see able operating in 50 pip increments on the hourly chart. Support has formed at $1.2950, $1.3000 and now $1.3050. A move above $1.3100 opens $1.3150 as the market has edged a shade higher this morning. There is also an old pivot around $1.3200.
The candlesticks on Dollar/Yen are once more becoming small bodied and tight in daily range. A mild rebound has been seen in the past two sessions, to stem the tide of last week’s drift lower, however, there is a lack of conviction in the buying. Support has formed at 110.75 above the 110.25/110.35 reaction lows of mid-February. This has come around the rising 21 day moving average (currently at 111.10) to maintain the positive positioning within the recovery uptrend channel. Daily momentum indicators retain their positive medium term bias, which suggests that weakness is a chance to buy, still, but it could be a slow burner. There is near term overhead supply around 111.60 and key resistance around 112.10/112.25.
A near term consolidation has begun to break to the upside again as the gold bull look to get the recovery back on track. Last week, a $10 consolidation area between $1280/$1290 broke to the upside and now a consolidation between $1290/$1300 has done a similar move, which opens a test of $1310. The downtrend of the past three weeks has been broken as a positive candle formed yesterday. A cross higher on Stochastics is beginning to pull higher (albeit tentatively) which will encourage the bulls, whilst if the RSI can hold above 50 it would suggest that positive momentum is building again. The market is now into the key $1300/$1310 long term pivot band which is a crucial gauge for the outlook. The importance of the support at $1276 is growing stronger and the hourly chart shows higher low supports around $1280 and $1290. The bulls will look to use $1300 as a staging post for today’s session too. A close above $1300 would be a statement of intent by the bulls.
As another (mildly) positive close pulls WTI higher again, the outlook within the consolidation is improving once more. The key test remains the medium term pivot at $58.00 but can the bulls make the breakout? Momentum indicators are indeterminate for the breakout but are improving now as the RSI and Stochastics have ticked higher from the moves of the last two days. Yesterday’s candlestick also suggests a cautious market still, as the market just edges slightly higher again today. A closing breakout above $58.00 would be needed to confirm breakout which would imply a $3.50 upside projection target from the range towards $61.50. The 50% Fibonacci retracement at $59.60 would be the next barrier though. The positive medium term configuration of the momentum indicators suggests that corrections are a chance to buy and implies a bull breakout will be seen in due course. The hourly chart indicators are still very ranging, so there may need to be some sort of catalyst to make the bulls move. Initial support at $56.40/$56.75.
Dow Jones Industrial Average
After such a strong session on Monday, yesterday saw the bulls just with a bit of a stutter again. A mild negative candle and a close lower on the day has done little to change the outlook, but it was interesting that the rebound could not overcome the 76.4% Fibonacci retracement at 25,715 which is now a basis of resistance. Coming at the underside of the 21 day moving average (currently 25,741) also raises an eyebrow. This could be an important session for a prospective recovery today. The hourly chart shows the rebound has unwound the hourly momentum indicators to levels where the sellers would be eyeing an opportunity in a corrective market. The hourly RSI failing around 60, hourly Stochastics with a near term sell signal and the hourly MACD lines unwinding to neutral. There is resistance in the band 25,610/25,760 now. The importance of Monday’s low at 25,208 is growing.