A surprise jump and better than expected Chinese PMI surveys have boosted market appetite for risk this morning as traders begin the second quarter on a positive note. The official Chinese composite PMI improved to 54.0 (from 52.4 in February) whilst even the unofficial Caixin data for the manufacturing sector surprisingly bounced back into expansion back above 50 (to 50.8). These surprises suggest that the fiscal stimulus that the Chinese government has injected around the turn of the year is beginning to reap rewards. After three consecutive months of declining PMIs, one month needs to be turned into several, but it is certainly welcome news after a string of data disappointments out of the economic powerhouse of Asia. This data surprise is helping to lift major bond yields and commodities whilst also boosting risk currencies (such as the Aussie and Kiwi). The safer end of the scale such as the dollar and especially the Japanese yen are underperforming. With improved risk we see equities also benefitting. It is another key day for Brexit, where the UK Parliament again gets a say in the potential way to end the log jam. Another session where the indicative votes on potential Brexit solutions (customs union, second referendum) will be debated and voted upon in an attempt to garner a majority of support from MPs and find an acceptable resolution to the puzzle that has proved so hard to solve.
Wall Street closed solidly higher with the S&P 500 +0.7% at 2834 whilst US futures are similarly higher today. Asian markets have had an excellent day in the wake of the Chinese PMIs, with the Nikkei +1.3% and Shanghai Composite +2.5%. European markets look to be positive today, with FTSE futures +0.4% and an outperformance on the DAX futures +1.0% as the exposure to risk seems to be benefitting. In forex, the broad move is for positive risk appetite, with the Aussie and Kiwi around 0.4%, whilst the yen and Swiss franc are underperforming. In commodities, there is a slight slip on gold and silver, whilst oil is benefitting from the positive sentiment.
Being the first day of the month, this is a hectic day on the economic calendar. The Eurozone final Manufacturing PMI for March is at 0900BST and is expected to be confirmed at a very weak 47.6 (47.6 flash, 49.3 final February). The UK Manufacturing PMI is at 0930BST which is expected to fall back to 51.0 (from 52.0 in February). Eurozone flash inflation for March is at 1000BST which is expected to see Eurozone headline HICP remaining at +1.5% (+1.5% in February) with Eurozone core HICP slipping back to +0.9% (from +1.0% in February). US Retail Sales are at 1330BST which are expected to show core retail sales, ex-fuel to rise by +0.4% in the month of February (+0.9% in January). The US ISM Manufacturing at 1500BST is expected to drop a shade lower to 54.1 (form 54.2 in February).
Chart of the Day – EUR/CAD
The euro has come under pressure in the past week and EUR/CAD has subsequently broken to a one month low and is moving back towards a test of the key February low at $1.4870. This move below the basis of support of the pivot at 1.5030, which had held throughout much of March, now means that the way is open for further weakness. The decisive negative candle on Friday continued a run of lower daily highs in the past week, deriving a mini downtrend, leaving resistance around the 61.8% Fibonacci retracement of the 1.4760/1.5645 rally at 1.5100. The momentum indicators have taken a decisive deterioration with the RSI confirming the downside break to a one month low (below 50) whilst the MACD lines have bear crossed lower and the Stochastics are accelerating lower towards negative configuration. The 76.4% Fibonacci retracement at 1.4970 is initial support but a test of the February low at 1.4870 is increasingly likely. Rallies such as this morning’s mini bounce are a chance to sell, with an intraday resistance band 1.5030/1.5100.
It has been interesting to see the support of the old key November 2018 low at $1.1213 has been a basis for lows in each of the past two sessions whilst continuing today. Is this the bulls beginning to put support together again? The market has previously been considered a medium term range, but this was tested following March’s breakdown. However, frequently during recent months, the market has found the RSI bottoming between 35/40 to engage the bulls once more for a phase higher. This is a possibility once more as this rebound this morning has broken a downtrend on the hourly chart. A move above $1.1260 would improve the outlook, as would hourly RSI pushing above 60 and hourly MACD lines above neutral. Friday’s low at $1.1207 is building as a low to protect $1.1175.
The downside break on Cable below $1.3000 could not be sustained on Friday and the bulls are looking to respond today. However, the warning signs are certainly flashing red, with the momentum indicators deteriorating significantly now. This is a market on the limit of a breakdown and a closing move with a $1.2 handle would be a signal to the market that sterling is under pressure. The support has held already this morning but the hourly chart shows the need to break through resistance in the band $1.3100/$1.3135. The hourly momentum would also need to hold an improving configuration.
Pressured by a more positive outlook for broad risk appetite, the yen is under pressure. This comes with Dollar/Yen being dragged higher over recent sessions in a move that is back above 111.00 again which looks to be clearing the 110.75/111.00 resistance band. The next resistance becomes the lower high of the old bearish engulfing candle from mid-March at 111.70. It will be important to watch the momentum indicators with the MACD lines bottoming at neutral and the RSI now recovering above 50. If these can continue to improve with RSI above 60 then the improvement in the outlook will be back on track. The hourly chart shows support initially at 110.50/110.70.
The reaction to the huge bear candle from Thursday was encouraging for the bulls. However, with the rebound failing at the $1300 level (which has once more become a basis of resistance) this is still a concern. Can the recovery find the traction to push through this renewed resistance? Momentum indicators do not look especially promising with the bear cross on MACD lines, and acceleration lower on the Stochastics. There is initial support at Friday’s low of $1286 which will help to protect the crucial support band $1276/$1280 which marks a crucial multi-month head and shoulders top if breached. The hourly chart suggests that the move on Friday was an unwinding move (at least for now) and that much more needs to be seen for a recovery to be trusted. There is a minor pivot area at $1290/$1291 to keep an eye on now as support, but unless there is a marked and sustainable improvement in hourly signals (hourly MACD above neutral) the rallies will continue to struggle. Holding a move above $1300 is vital now.
A positive session on Friday is being maintained with further gains today to suggests that the bulls are breaking free for a breakout of the recent range. Whilst the intraday move above $60.40 could not be sustained into the close on Friday, the move still closed as a four and a half month high. The RSI is holding above 60 (important for sustaining a positive configuration) and Stochastics are above 80. The shallower three month uptrend comes in as a basis of support at $58.00 today which is the support of the previous breakout. This suggests that there is a continued mild optimism in the outlook for buying into weakness. The next resistance of note is $63.60. Support is between $59.75/$60.40.
Dow Jones Industrial Average
After a few sessions of indecisiveness, the bulls seem to be running higher once more. A move clear of the 76.4% Fibonacci retracement at 25,715 means that a test of the mid-March high at 26,110 is now open. However, with the momentum indicators ticking higher again, this test of resistance should be the bare minimum now and a move towards 26,240 which is the 2019 February recovery high should now be seen if the bulls are to properly gain control. The RSI moving into the low 60s would be a signal that this move is taking hold. Support now coes with the basis around the 76.4% Fib at 25,715 whilst there is a higher low at 25,425 above 25,372.