The momentum of positive sentiment arising from the enormous $2 trillion support package agreed in Congress last week has already begun to wane. With renewed selling pressure, the nascent recovery of risk appetite is already being tested. Focus has turned back to the continued worsening of the spread in Coronavirus and just how long economies will have stringent lockdown measures in place in order to restrict the damage to their populations. After a weekend of sobering headlines of the prospect of months of lockdowns and subsequent social distancing, traders and investors are having to price for the potential that it could be deep into Q3 or perhaps even Q4 before any semblance of normality is restored (and that is without the prospect of a second wave of Coronavirus). There is subsequently a sense of caution and risk negative bias across asset classes today. Treasury yields are lower (especially the 10 year) whilst the dollar is also gaining ground on everything in the majors aside from the yen. Silver is lower and the oil price is diving again. The one anomaly comes in equities, which are holding ground today, perhaps with even marginal gains. Can this continue though, with pretty much everything else pointing to a negative session? It will be hard for the bulls to resist.
Wall Street broke the sequence of recovery sessions as it closed lower on Friday, with the S&P 500 3.3% at 2541. US futures are mildly higher early today (although fluctuating significantly) at +0.5%. This has restricted selling pressure through Asian markets (Nikkei -1.6% and Shanghai Composite -0.9%). European indices are looking positive early today with FTSE Futures +0.5% and DAX Futures +1.1%. In forex, USD and JPY are the standout performers, both around half a percent stronger across the major pairs. In commodities, there is a sea of red, with silver and oil both around -4% lower. Gold is not as bad but still around half a percent off.
There is a whole raft of Eurozone sentiment data for March on the economic calendar this morning for traders to gauge the outlook for the region’s economic growth prospects, all coming at 1000GMT. Remember that the European’s had their daylight savings time shift over the weekend which means that everyone is now back in sync with their data announcements. The Eurozone Economic Sentiment is expected to slide sharply to 91.8 (from 103.5 in February) which would be the lowest since August 2013. Eurozone Industrial Sentiment is expected to drop to -12.9 (from -6.1 in February) which would be the lowest reading since late 2012. Furthermore, Eurozone Services Sentiment is expected to decline to -3.4 (from +11.2in February) which would be the lowest since August 2013. German inflation readings are released on a state level throughout the day and the national level for German HICP is at 1300GMT and is expected to growth by +0.1% in the month of March which would pull the year on year reading down to +1.4% from +1.7% in February. US Pending Home Sales are at 1500GMT and are expected to decline by -1.3% in February (after growth of +5.2% in January).
Chart of the Day – NZD/USD
We continue to look at the commodity currencies as playing out a significant rally against the dollar. This shows strongly in the chart of the Kiwi. A succession of bull candles and intraday weakness being bought into. This has developed a significant rally in the past week with a run of six consecutive positive closes. Furthermore a recovery uptrend is strengthening. Momentum on the daily chart shows RSI at multi week highs, Stochastics rising strongly and as of Friday a bull cross on MACD. The rebound is also taking consideration of the Fibonacci retracements of the big $0.6755/$0.5470 sell-off. The 23.6% Fib was a basis of support at $0.5770 which forms a key higher low now, whilst breaking above 38.2% Fib (at $0.5960) opens 50% Fib around $0.6110 as the next recovery target. However it is on the hourly chart where the technicals really come alive, with the breakout above $0.5910 becoming a neckline for a recovery base pattern. The pullback used this as support almost to the pip on Friday and is now an increasingly key level. Intraday weakness is a chance to buy, with 40/45 on hourly RSI an area where the buyers are interested. The 89 hour moving average is also worth watching as a good gauge and a basis of support, coming in this morning around the $0.5910 support. Renewed buy signals on hourly MACD and Stochastics also leave the bulls well positioned into the new week. The next resistance of note is an old pivot at $0.6160/$0.6200.
We have seen the development of an impressive rally over the past week. Intraday corrections being bought into has been a key feature during a run of strong bull candles. The euro bulls fought back strongly on Friday to close decisively higher, but it looks as though they are going to have another fight on their hands today. The technicals on the daily chart look positive still as Stochastics advance well, RSI has moved above 50 and the MACD lines only just bull cross. However, digging a little deeper, the hourly chart shows negative divergences on the hourly RSI and MACD lines. As the pair has dropped in the Asian session, as the Europeans take over, the old pivot around $1.1050 will be an important first gauge. If this support can hold, then the bulls will begin to find some confidence in the session. Also the rising 55 hour moving average (around $1.1035) has each of the past four corrections in the past week. The hourly RSI falling below 40 and hourly MACD lines falling below neutral would be negative signals too. The key support is at $1.0950 which is a growing pivot now. Resistance is at $1.1145 initially and above that is $1.1240.
The acceleration higher in the recovery on Cable has been remarkable. The two strong positive candlesticks that ended last week added over +550 pips as the volatility remains enormous. Incredibly, the recovery has been almost as fast as the sell-off just a couple of weeks ago. The hourly chart shows a little retracement in the move this morning, but the bulls still have control. There is a slight caveat into the European session with small negative divergences on hourly RSI. However, throughout this recovery of the past week, the intraday weakness has been bought into. It may not look like much on the hourly chart, but there is an area of good support $1.2125/$1.2300 for the bulls. Holding above 50 on hourly RSI would maintain a sense of strength in the recovery, but losing 40 (along with MACD lines below neutral) would suggest renewed selling pressure. Resistance has been found at $1.2500, but as we noted last week, if this can be cleared there is little real resistance until $1.2725/$1.2765.
The correction on Dollar/Yen continues to develop. A second huge bear candle on Friday has pulled the pair back to eye the congestion of the old Q4 2019 trading lows between 106.50/107.65. The move has now unwound into the realms of the 61.8% Fibonacci retracement (of the original massive 112.20/101.20 sell-off) at 108.00 and the 50% Fib at 106.70. With momentum indicators turning increasingly corrective, the potential for a much deeper correction is growing. A bear cross on Stochastics is confirming a renewed sell signal this morning, whilst RSI is back under 50, suggests that how the market reacts in the early part of this week could be crucial. The huge swings of momentum in the past month open the prospect that now the bears are back in the driving seat, and if volatility remains elevated, a sharp decline could quickly move through the gears. We are seeing ongoing market swings even early this morning, but there is a continuation of the negative bias. We are mindful of the Fib levels, with 50% Fib at 106.70 a target if the 61.8% Fib at 108.00 is breached decisively into the close. The hourly chart shows increasingly corrective momentum, with a downtrend and the market moving lower following the completion of a top below 109.30. The implied move is for c. 107.10 to be tested. Resistance is initially at 108.00 this morning, and a building band 108.20/109.00 growing as key resistance.
The consolidation that we have been seeing develop in the past few sessions, continues to impact on gold This means that the sharp rally has now hit the buffers around the 23.6% Fibonacci retracement (of the original bull run between $1445/$1702) at $1641. Tempering this rally in the past few sessions, is now seeing the momentum indicators moderate their advance. RSI has held around 55 whilst Stochastics are still advancing along with MACD. This leaves a mild positive bias although we are increasingly cautious of the advance now as the market again sells into strength early this morning. The prospective corrective move has yet to play out (holding above $1585 near term support), but if a second consecutive negative candle is formed today, then the move could begin to weigh on the recent recovery gains. The hourly chart shows a mini-range formation between $1585/$1642, but the hourly RSI moving below 40 would be an indication of the positive bias just slipping away again. A close below the 38.2% Fib at $1604 would begin to also weigh on sentiment. For now though gold is in consolidation.
The bears are decisively back in control of oil once more as the price builds renewed downside momentum. Friday’s gathering selling pressure formed a second consecutive solid negative candle in a row and the multi-year low at $19.45 is wide open once more (if Brent Crude is anything to go by then this level is certainly under pressure). Intraday rallies are failing at lower levels now, and a downtrend of the past two weeks is now leaving lower highs. The hourly chart shows this all very well with momentum indicators once more significantly negatively configured to suggest that even intraday rallies are a chance to sell. There is now resistance is forming between $22.00/$22.40 which is a near term sell-zone around the downtrend this morning. Initial resistance is at $23.45 but a rally would need to realistically pull above $25.25 to suggest there is any serious potential of sustainability to a recovery.
Dow Jones Industrial Average
The recovery from the low on the Dow has been impressive, but now the bulls are seeing their first real test of strength. After a record three session climb, Friday’s negative session has put a fly in the ointment. The question is, how do the bulls now react? Friday’s candlestick was negative but has not given an outright sell signal. Also, the support of Thursday’s low has remained intact too. Into the new week, the bulls need to find the strength to prevent a second consecutive negative session. There is still an encouraging look to the improvement on momentum indicators, where Stochastics and MACD lines point higher. RSI holding back above will also help to maintain an improvement. The hourly chart shows that support at 21,470 is the first level to watch but the bulls holding above 21,100 is important as this is the first real higher low of the recovery. The key support to watch if the selling pressure does renew is the band 19.880,20,530 as a pivot for the recovery.