The dollar is beginning to come under increasing corrective pressure. Jerome Powell seemed to fire the gun on the move with dovish comments last Friday but he is being backed up by a run of Fed speakers and also now the FOMC minutes. Charles Evans, a voter in 2019, suggested that the Fed may hold off on rate hikes for the first couple of quarters this year. This seemed to be something of a tipping point for the dollar and drove EUR/USD above $1.1500 for the first time in ten weeks. This assessment seemed to be backed up by a strangely dovish set of FOMC minutes last night too (strange in that the December FOMC communication and Powell’s press conference seemed to be far less dovish at the time). Apparently the Fed can “afford to be patient about further policy firming” and that some think that a “relatively limited” number of hikes could be seen now. Once more this adds to the speculation that the Fed is in the process of winding down its hikes and the dollar will struggle now. Aside from more dovish monetary policy, it seems that there were signs of progress in the trade dispute as the US/China meeting seemed to end well, with a constructive dialogue and further discussions. Noises from the Chinese delegation seemed to be more effusive, and that might be needed, looking at the latest data that points to further slowdown in China. China inflation continues to fall and lower than expected, with China CPI down to +1.9% (+2.1% exp, +2.2% last), whilst the China PPI is really concerning at just +0.9% (+1.6% exp, +2.7% last). Back in the US, the Government shutdown is no closer to being resolved, and if anything is getting worse. The President walked out of a meeting with the Democrats after they said that they would not make the funds available for his border wall. No-one comes out really well here. This is playing into a sentiment slip today.
Wall Street closed higher again with the S&P 500 +0.4% but futures have slipped back by -0.5%. This has impacted on Asian markets, with the Nikkei -1.3% and the Shanghai Composite off -0.4%. European futures are taking a step back this morning with FTSE futures and DAX futures both around half a percent corrective. In forex, there is a mixed look to markets, with the yen continuing to outperform, whilst the dollar is showing a variety of moves across the majors. The biggest underperformer seems to be sterling which is once more in the midst of Brexit uncertainties. In commodities, the weaker dollar move from yesterday seems to still be playing out through gains in gold. A big jump on oil yesterday as OPEC production restrictions come through, is being pared slightly.
There is limited further economic data due today, however the ECB’s monetary policy meeting accounts will be watched at 1230GMT. US Weekly Jobless Claims at 1330GMT are expected to fall to 225,000 from 231,000 last week.
There are five Fed speakers on the agenda today, however, top of the bill is certainly Fed Chair Jerome Powell at 1700GMT. After his dovish comments last Friday there has been a considerable move on markets. Will he continue this line? FOMC’s Tom Barkin (non-voter in 2019, mildly hawkish) speaks at 1335GMT, whilst FOMC’s James Bullard (voter in 2019, dove) is at 1730GMT. FOMC’s Charles Evans (a voter in 2019, errs mildly dovish) is at 1800GMT who speaks for a second day in a row, whilst vice FOMC chair Richard Clarida (voter, centrist close to Powell) is last up at 000GMT.
Chart of the Day – NZD/USD
The dollar had a terrible day across major pairs yesterday but one of the key moves came through the New Zealand dollar. As risk appetite has been improving in the past week, the Kiwi has picked up. The move has taken the price back above the key medium term pivot band $0.6700/$0.6720 which now drives the Kiwi into a strong outlook now. This comes as the Stochastics and RSI accelerate into bullish configuration and the MACD lines post their first bull cross since the bottom in October. Breaking the five week downtrend and trading above all the moving averages also helps to create a positive outlook now. This all means that near term corrections are a chance to buy for a test of the next pivot around $0.6850 with resistance at $0.6885. The pivot at $0.6700/$0.6720 is now a key basis of support above which the next higher low is likely to form. The hourly chart shows initial support at $0.6750/$0.6765.
With the dollar weakness of the past week the bulls have been developing a degree of control. However, it was not until yesterday afternoon as the US session took control when market really started to take off. A decisive break above $1.1500 has been seen on a closing basis, with a bullish candle. This is a ten week high in a move that is confirmed on the RSI above 60 and increasingly positive momentum on MACD lines. This seems to be a key breakout. The move completes a base pattern which implies 200/285 pips of upside in the next couple of months. This suggests that $1.1700/$1.1785 will be the implied target area. The immediate resistance at $1.1550 has already been breached today and $1.1620 is next to be tested. Near term corrections back towards $1.1500 are a chance to buy. There is now breakout support $1.1475/$1.1500, with the bulls in control above $1.1420.
Cable rallied yesterday with the dollar correction. However it is interesting to see that resistance is still coming in around $1.2800/$1.2815. The bulls still have that handbrake on for the rally and with Brexit political uncertainties, this is likely to remain the case in the coming weeks. That said though, there is a positive bias to the outlook, which reflects the increasingly corrective look to the dollar. The momentum indicators continue to improve, with the RSI above 50, MACD lines rising to neutral and the Stochastics also positively configured. There is initial support around $1.2700 which marks the top of a band of support between there and $1.2600. However, the next step is a closing breakout above $1.2815, which would mark a five week high. That would then put Cable into the next test which is a whole clutch of resistance between $1.2850/$1.2920. The mild positive bias is reflected on the hourly chart but the resistance is still considerable.
We were focusing in yesterday’s report on the potential for the recent unwinding rally to fail around the resistance of what is now a four week downtrend, and the trendline has come in extremely well to continue lower. The doji candle (uncertainty) from Tuesday has been followed by a bear candle yesterday which has resumed the move back below 108.00 support. An old key low from 2018 came in at 108.10 and there had been a basis of support that was building around 108.00 earlier this week. However, the renewed dollar selling pressure has breached this support and the market looks ready to resume its trend lower. The rally has failed at 109.10 and adds a potentially lower high under the old support at 109.75. Momentum indicators are rolling over in worrying positions with the Stochastics close to a renewed sell signal around neutral and the RSI crossing back below 30. A close below 108.00 would open the downside once more, with the higher reaction lows in the wake of the flash crash at 107.40, 107.10 and 106.75. The hourly chart shows rallies are a chance to sell now, with initial resistance at 108.45 now.
The recent consolidation had been hinting at a near term corrective move on gold, however the support band $1276/$1281 has continually held firm in the past week. Yesterday’s bull candle has again put the bulls in the driving seat for the continued recovery. Momentum indicators had been threatening to roll over, but the intraday bullish turnaround yesterday maintains the strong configuration on RSI, Stochastics and MACD. Holding the topside of the old uptrend channel (today at $1279) was important and the bulls are ready again. A move above $1298 would be a positive break but immediately means a challenge of the old long term pivot band $1300/$1310. Only a decisive close above $1310 would signify a decisive breakout. The importance of the support at $1276 is growing.
Another strong session yesterday and a decisive bullish candle that continues the oil rally. A close well clear of $50.50 is also a key move which means that the price has pushed through the old support band $49.40/$50.50. This now opens the December high at $54.55. Pushing above the 23.6% Fibonacci retracement (at $50.50) of the $76.90/$42.35 sell off also opens the 38.2% Fib at $55.55. Momentum indicators are increasingly strong with the acceleration higher in the Stochastics into strong configuration, the MACD at 8 week highs, and RSI above 50. This all points towards using corrections as a chance to buy now. Moving clear of the 21 day moving average (bottoming around $48 now), means that this is a basis of support whilst the breakout above $49.40/$50.50 is now supportive and an area to watch for a next higher low. Initial resistance now at $53.25.
Dow Jones Industrial Average
Another positive session and another push higher in the recovery. Now for the test of the resistance around 24,000. What is interesting to see is that the intraday range has been getting much smaller in recent sessions as volatility (see the VIX falling below 20) has reduced. With the Average True Range at 625 ticks, yesterday’s range was just 210 ticks, with the previous session at around 285 ticks. Momentum remains strong, on both daily and hourly charts but there is just a hint at a slowing of the bull run, which could induce some consolidation near term. There is support around 23,345 and this would be ideal for the next higher low area should a slip set in. A closing break above 24,000 opens the next pivot around 25,000.