Given the yield curve inversion, the renewed strength of the dollar has been remarkable. Traders seem to be positioned where whatever negative economic implications may be signalled, the US is still an outperformer. Therefore, sell everything else over the dollar. US final Q4 GDP was revised back to +2.2% which was lower than expected, but with US Jobless Claims falling away again, Treasury yields bounced for the first time in several days and the dollar maintained a position of strength. There are suggestions that there is room for give and take still in the US/China trade dispute and this has helped to support US equities too. Given the strength of the dollar and a rebound on US equities, this puts pressure on gold, with the yellow metal dramatically falling out of favour yesterday. This now runs the risk of being a decisive outlook changer if the support at $1276 is broken. Over in the Brexit bubble of Westminster, UK Prime Minister May is set to get her Withdrawal Agreement (minus the Political Declaration this time) voted on for a third time in Parliament today (at 1430GMT). Expectation is still for a defeat, but supposedly this is going to be much tighter this time around. Without the support of the DUP and some of its own backbenchers, the Government will be relying on around 20 to 30 opposition MPs to come over. A tough ask. The way that sterling sank yesterday, it seemed as though there was a feeling that this could be moving towards a general election if this vote does not pass. In this scenario, it would be sterling negative (unless there was a vote close enough to get an MV4?). As ever, Brexit uncertainty is likely to continue.
Wall Street closed tentatively higher with the S&P 500 +0.3% at 2815, whilst US futures are a shade higher again today, currently +0.2%. The Asian markets looked very strong overnight, with the Nikkei +0.8% and the Shanghai Composite +3.1%. European markets are following US markets with FTSE futures +0.4% and DAX futures +0.5% higher. In forex, there is a degree of unwind on the dollar but also with a risk positive feel. Sterling has clawed back some of its losses from yesterday, as has the euro, with the Aussie and Kiwi outperforming. In commodities, gold remains under pressure whilst oil continues to hover.
Sterling traders will be eyeing developments in Parliament, but will also be keeping one eye on the lookout for the size of the UK Current Account deficit at 0930GMT today. Expectation is that the deficit in Q4 2018 will have reduced to -£23.09bn (from -£26.5bn in Q3 2018). The UK final Q4 2018 GDP is also at 0930GMT and is expected to remain at +0.2% (+0.2% at the second reading) with the year on year GDP at +1.3%. The Federal Reserve’s preferred inflation measure, the core Personal Consumption Expenditure (core PCE) is at 1230GMT and is expected to grow by +0.2% in January which would keep the year on year reading at +1.9% (+1.9% in December). The final March reading of Michigan Sentiment is at 1400GMT which is expected to be confirmed at 97.8 (97.8 prelim, 93.8 in February). New Home Sales are at 1400GMT and are expected to improve to 625,000 in February (from 607,000 in January).
Chart of the Day – Silver
The prospect of a recovery in silver has been dealt a significant blow in the past few sessions. The market has been moving gradually higher over the past couple of weeks but with three consecutive decisive bear candles the recovery has been smashed. Taking the stairs up but the elevator back down? A massive bear candlestick from yesterday now puts the market in for a test of the key neckline breakout of $14.90. This means that silver is on the brink of a significant deterioration in outlook. The concern for the bulls is that there are now a series of bearish signals on momentum indicators, with the RSI failing at 50, MACD lines crossing lower below neutral and another bear cross sell signal on Stochastics. All of these indicators also have downside potential. The March low at $14.96 held the initial test of support yesterday and again this morning, but how the market responds into today’s close will be key. There is a pivot band around $15.10/$15.15 which is a basis of resistance now for an intraday recovery today. Unless the bulls reclaim this pivot, then the $14.90 support will remain under pressure. A close below $14.90 opens $14.45.
On the breach of $1.1300, the fear has been for the market to slip back towards the recent lows of $1.1213 and $1.1175 again. With momentum indicators corrective, this is being seen. Yesterday’s traded low was $1.1212 before an early bump higher this morning. There is still a corrective bias and a sense that intraday strength is a selling opportunity. This is with the run of lower highs and lower lows that have formed throughout January. A move below $1.1175 seems to be preferred under this continuation. The hourly chart reflects this run of weakness, with a downtrend of the past six sessions coming with the hourly RSI failing consistently between 50/60 and hourly MACD failing under neutral. There is minor resistance at $1.1260/$1.1285, whilst $1.1300 is once more a key gauge.
After a period of uncertainty Cable traders began to take more interest yesterday. A decisive bearish candle has broken the recovery uptrend of the past 12 weeks and seen a close below the rising 55 day moving average for the first time since mid-January. Coming with the sliding medium term configuration on momentum indicators (RSI the lowest since mid-Feb, with MACD and Stochastics falling away), this move is a concern for the medium term positive outlook now. The key gauge for sentiment remains $1.3000 on a closing basis, and yesterday’s strong move has not breached this as support. However, bulls will be keen to rebound above $1.3100 again quickly (an old pivot). For now the hourly chart shows that this move is just a warning, and the momentum indicators are looking to unwind some of the move lower. However, initial support at $1.3030 needs to hold now. Above $1.3100 opens $1.3200 again.
Despite the strong dollar move across forex majors, it was interesting to see little real traction against the safe haven yen. There is still a degree of uncertainty over the outlook as the dollar struggles under 111.00 pivot area. The daily momentum indicators are an uncertain bunch, with the RSI hovering a shade under 50, MACD lines flattening at neutral and a recovery in Stochastics just tailing off. Given the recovery in the past few sessions, there is a very slight positive bias that is pulling the market to test 111.00, however, given that this is a recovery into a clutch of flat moving averages, there is little real conviction now. Support at 109.75/110.00 is growing, but can the bulls find upside traction?