Broad sentiment had been boosted earlier this week by suggestions of progress in the US/China trade talks, however, this seems to have been quickly priced in. With a consolidation developing it seems that traders need something more to make further moves. There are certainly encouraging signs in the talks though. If they are arguing over the wording of the translations of the agreement, it would suggest the sides are close to something of a breakthrough. As the two sides continue discussions in Washington, what should traders be looking out for? Watch for China giving ground on intellectual property rights, and a US willingness to roll back on existing tariffs. Upbeat rhetoric from trade hawk Robert Lighthizer would also help to boost sentiment further as he tends to be someone that pours cold water on the progress. The dollar has begun to slip in recent days on a combination of the trade talks progress (which would unwind a portion of 2018 dollar strength) and some mixed US data. This increases the importance of Friday’s non-farm Payrolls and earnings growth data. Markets are looking fairly settled today as traders look ahead to payrolls, however there is always Brexit to add in some volatility. Talks between Prime Minister May and Opposition leader Corbyn over a way to end the stalemate will continue today. The House of Commons passed a bill to try and prevent a no deal scenario, which again adds support for sterling, but is also leading to mild underperformance of the FTSE 100.
Wall Street closed once more in consolidation mode with only minor gains for the S&P 500 (+0.2% at 2873). With US futures a shade lower today (-0.1%) there has been an air of consolidation in Asia today. The Nikkei was all but flat whilst the Shanghai Composite was +0.7%. European markets are a touch lower with FTSE futures -0.3% and DAX futures -0.1%. Forex majors show a mild dollar underperformance amidst very little real direction, whilst the Canadian dollar is also a mild underperformer as oil has slipped in its bull run. In commodities, as the dollar has dropped off gold continues to hang on to support and is a touch higher today, with oil also consolidating.
It is a fairly quiet European morning on the economic calendar until the ECB Monetary Policy Meeting Accounts at 1230BST. The minutes of the last ECB meeting will lay out concerns over the extent of the slowdown and will have an impact on Bund yields and the euro. The US Weekly Jobless Claims are at 1330BST which are expected to increase slightly to 215,000 (after dropping to a nine week low of 211,000 last week).
Chart of the Day – AUD/JPY
With risk appetite and the Aussie recovering, what is the impact on Aussie/Yen which is seen as a gauge for risk in the forex majors? So far, the market remains stuck in its three month range, but the improvement in the past few sessions means that the resistance at 79.80 could come under pressure again. Within the 230 pip range there is a pivot at 78.70 which was an old floor and is a near term gauge to watch. Using this pivot as support in the past three session, yesterday’s bull candle hit a four week high and in a move confirmed by momentum, is now setting up to test 79.80. However, at this stage, there is little suggestion that a decisive move is about to be seen. The RSI is indicative of a range play, floundering consistently around 60. Despite this, the move to a five week high suggests momentum is building, with a positive near term bias. The hourly chart shows a near term band of support 79.00/79.20 is a near term buy zone. If this holds the test of an unwind, then the trend higher over the past eight sessions will continue to build and the importance of support around 78.50 increases as a higher low. A close above 79.80 would complete a 230 pip range breakout and implies a move towards 82.10 in due course.
The prospect of a near term euro recovery is building. After a consistent run of weakness in the past couple of weeks, yesterday’s decisive positive candle seemed to signal a change of tack. This is reflected on the momentum indicators, with the Stochastics crossing higher close to a confirmed buy signal and the RSI back above 40. A further positive candle today would add to this potential. However, there is a barrier of resistance that needs to be cleared for the bulls to really flex their muscles once more. The hourly chart showing $1.1250/$1.1260 being a level above which would effectively complete a small 75 pip base pattern which would imply a move to $1.1335. Initial support at $1.1210 protects $1.1175.
There has been a recovery on sterling in the past few sessions. Once more the support of the floor around $1.3000 continues to strengthen as the market builds higher again. However, what is apparent is that Cable remains stuck in this 380 pip range broadly between $1.3000/$1.3380 and whilst the bulls continue to support at $1.3300 there is enough uncertainty to prevent continued gains. Momentum indicators have ticked higher with the near term bounce, but are increasingly benign. An old pivot resistance at $1.3200 on the hourly chart seems to be building as a near term ceiling in the past 24 hours as markets wait to see the latest development in Brexit politics. There is minor support at $1.3120/$1.3080. A close above $1.3200 would suggest renewed momentum and open $1.3270/$1.3300.
The dollar rally continued yesterday but is gradually beginning to lose impetus. Dollar/Yen is into the band of resistance 111.70/112.10 from early March consolidation and this seems to be a test that the bulls now need to overcome to open further upside. This comes as the momentum indicators on the daily chart retain their positive configuration without being overly strong. The support at 111.20 needs to be watched as a higher low within this recovery and a closing breach of support would suggest the bulls are losing their control. This would be confirmed below 110.80. There is still a positive bias that suggests buying into near term weakness, however to break a medium term ranging configuration the resistance at 112.10 needs to be decisively cleared.
Consolidation continues with the gold chart just losing direction in recent sessions. The failure to break back above $1300 created a negative configuration to the near to medium term outlook. However, the market is hanging on to support formed at $1284.70 earlier this week and the selling momentum is dissipating. With momentum indicators reflecting a negative bias there is a preference for a drift back to test the crucial neckline support at $1276/$1280, but the bulls are fighting to prevent this. Tuesday’s bull candle failed to ignite a recovery and the hourly chart shows a failure around 60 on hourly RSI. However, equally the hourly MACD lines are increasingly benign and hourly RSI holding above 40. Initial support at $1284.70 is protecting the key support $1276/$1280 which would mark the neckline of a multi-month head and shoulders top. The bulls need a move above $1300 to regain some degree of control.
A surprise inventory build on crude stocks from the EIA has seen the oil price rally stall. This comes with the technicals stretched and runs the risk of inducing a potential near term pullback. Despite the strength of the three month uptrend, the RSI is over 70 at six month highs and if there is a near term corrective signal this could drive some profit-taking. The hourly chart shows WTI followed the 21 hour moving average closely higher in the past three sessions and this has now been broken, rolled over and hints at a tick lower. Also this comes as hourly momentum signals roll over. A retreat below $61.60/$62.00 would open a deeper correction towards the 50% Fibonacci retracement at $59.60 again and the recent breakout at $60.40. Yesterday’s high at $63.00 is now initial resistance under the $63.60 old key low and 61.8% Fibonacci retracement at $63.70.
Dow Jones Industrial Average
The Dow continues to consolidate around the resistance of the old March (26,240) and November (26,278) highs. The past three sessions has seen the market testing this resistance without being able to breakout. Momentum remains medium term positive and there is still a suggestion that weakness remains a chance to buy, but for now the bulls are bumping up against a ceiling. A closing breakout would open the all time high again at 26,952. The hourly chart shows the market is using support of recent breakouts and there is near term buy zone 26,010/26,110.