The corrective momentum that have been developing on the dollar in recent sessions has just been put on pause for now in the wake of last night’s FOMC minutes for the January meeting. The minutes did not contain any real surprises, but with regard to the balance sheet normalisation there was a section to say that “almost all participants thought it would be desirable to announce before too long a plan to stop reducing…asset holdings later this year”. The minutes also reflect a more sensitive Fed given global economic conditions. This suggests that the Fed will not be engaging in a massive run-down of its balance sheet and will help to maintain liquidity. Treasury yields have pulled higher on the Fed minutes and this has helped to lend some support to the dollar. This has pulled the reins on the rallies on EUR/USD and gold especially. Equities have also held some support with this, although Wall Street has only given tentative gains on the futures. Perhaps more than anything, it now means that markets can breathe a sigh of relief that the Fed is not going to be aggressive with its balance sheet normalisation and attention can turn back to the US/China trade negotiations.
Wall Street closed mildly higher last night with the S&P 500 +0.2% at 2785 with US futures similarly higher today. There has been a mixed session in Asia, with the Nikkei +0.2% and the Shanghai Composite -0.3%, however, European markets are following the line from the US with the FTSE futures +0.2% and DAX futures +0.6% higher. In forex, there is a slight claw back of some of the dollar losses of recent sessions, with the yen a very mild outperformer. The Aussie is under pressure despite pretty solid looking employment data, with some chatter about reduced rate expectations from Westpac. In commodities, there is a nod to the slightly stronger dollar as the rally on gold has just stalled for now. Oil is again supported higher.
Today is jam packed with data on the economic calendar and a day where the flash PMIs are once more a key focus. First up are the key Eurozone economies throughout the early part of the session building to the Eurozone Flash Manufacturing PMI for February at 0900GMT which is expected to deteriorate to 50.3 (from a final reading of 50.5 in January), whilst the Eurozone flash Services PMI is expected to improve to 51.4 (from a final reading of 51.2 in January). The Eurozone flash Composite PMI is expected to tick mildly higher to 51.1 (from a final reading of 51.0 in January). The UK’s Public Borrowing Requirement for January is at 0930GMT and is expected to claw in +£11.1bn of net tax receipts (January 2018 +£11.7bn). The ECB monetary policy meeting accounts are t 1230GMT. US Core Durable Goods (ex-transport) is at 1330GMT which is expected to grow by +0.3% on the month of December (having fallen by -0.4% in November). The US Flash PMIs are at 1445GMT with US flash Manufacturing PMI expected to slip a touch to 54.7 (from 54.9 in January) whilst the flash Services PMI is expected to improve a shade to 54.3 (from 54.2 in January). Existing Home Sales at 1500GMT are expected to improve to 5.00m (from 4.99m in January). The EIA weekly oil inventories are at 1600GMT which are expected to show crude stocks building again by +3.0m (from 3.6m barrels) with distillates expected to (from +1.2m last week) and gasoline stocks expected to build by 0.4m).
Chart of the Day – Silver
We have had the breakout on gold, but is silver going to follow suit? A run of five positive closes in a row with the market rallying around 4% from the pivot at $15.46 to now eye the key long term pivot and $16.18 January high. This is a very similar set up to gold of a few sessions ago just prior to its own breakout. The momentum indicators have turned more positive from strong medium term buying opportunity levels. The RSI recently turned up from 50 and is now around 60 with further upside potential (the two January rallies took the RSI into the low 70s). The Stochastics have bull crossed higher and the MACD lines are also now also looking to bull cross above neutral with upside potential. A slight slip back this morning could now give another chance to buy. There is a mini pivot at $15.87 which will be a gauge of support today, whilst a re-drawn uptrend sits around $15.60 currently. A closing breakout above $16.18 would be a key move and open the upside once more. Essentially the $17.35 key Q2 2018 highs would then be open, with initial resistance at $16.49. Weakness is a chance to buy, with the hourly chart showing initial support at $15.85/$15.95 and the hourly momentum indicators having unwound to renew upside potential.
There is still an uncertainty surrounding the near term outlook on EUR/USD. The recovery off $1.1230 in the past few sessions has been encouraging for the bulls, breaking through pivot resistance at $1.1345. However, this has not been achieved on a closing basis and yesterday’s candle hinted at a possible false start in the recovery. Closing a handful of pips lower on the day will have been seen as a disappointment for the bulls and the market is again drifting lower early today. There is an improved outlook on the momentum indicators, with the Stochastics ticking higher and MACD lines turning up, so the groundwork for a recovery is there. It just needs the market to continue to build the support in the range $1.1300/$1.1345 and post a solid bull candle through the pivot at $1.1345. This would open a recovery to $1.1420. The RSI above 50 would also be an encouraging sign.
Since Tuesday’s hugely strong bull candle the market has been settling down again, once more into more of a wait and see mode. The mildly negative, but very small bodied candle yesterday reflects an uncertainty within the move higher. This comes with another slip back this morning as sterling continues to just unwind some of those big gains from Tuesday. The mid-range pivots will once more come back into play, with the psychological $1.3000 level first up this morning. A close below $1.3000 would suggest a rejection of the bull candle and a move into more of a neutral stance once more within the range. It would take the market again back between the flat moving averages. It is interesting to see the RSI turning back from just under 60, and having picked up from 40 recently, this suggests a more neutral outlook is taking hold. The MACD lines are coming together a shade above neutral to add to this too. Below $1.3000 opens the next pivot at $1.2920 again. Resistance is at $1.3050 which is another old pivot, with the Wednesday’s high at $1.3110 now growing as resistance.
Mild gains continue to be posted on Dollar/Yen as the market edges back towards the recent high at 111.12. A run of higher lows over the past few sessions continues and there is a solid, if unspectacular, positive positioning on momentum indicators. The RSI is edging towards 60, MACD lines shading above neutral and Stochastics positively configured. The support is growing above the 110.00 breakout, with the recent low at 110.25. Despite the early slip lower today, this is still likely to provide a chance to buy for a continued recovery towards the pivot at 111.35. The hourly chart shows a mild positive configuration on momentum and intraday weakness being bought into. Initial resistance is at 110.95 before 111.12 again.
The breakout has just begun to stall in the past 12 to 18 hours. Following the move above $1326, the run of consecutive bullish candlesticks has been broken by a negative candle that hints at a potential near term profit-taking. Turning back from $1346 the market has left a small negative candle that has the potential to turn some reversal signals. The breakout above $1326 implies $1350 as an initial target which has been all but achieved, whilst the strong medium term outlook is set for a test of the key 2018 highs at $1366 in due course. However near term indicators have become a touch stretched and the RSI is stalling around 70. This is a caveat as it has been an area where the January rallies have been limited. This could begin to limit the immediate move higher. Today’s candle could be key as to whether the market begins to unwind back towards the $1326 breakout support. There has been a consolidation around $1336 overnight and a move below could open the near term correction. The hourly chart momentum indicators are back around levels where support has tended to form recently, with the hourly RSI around 40 and MACD lines around neutral.
The confirmed breakout above $.55.75 to new three month highs has taken the bulls to a new level of the recovery. This comes with momentum indicators which are confirming the breakout as the RSI is rising in the high 60s, Stochastics tracking higher into strong configuration and the MACD lines crossing higher. The immediate resistance is the long term pivot at $58.00, but having accelerated away from the 38.2% Fibonacci retracement of $55.55 this suggests a move to the 50% Fib level is likely now (at $59.60). The $55.75 breakout is supportive and the hourly chart shows initial support at $56.40.
Dow Jones Industrial Average
The Dow continues to edge higher as the market as now overcome (at least on an intraday basis) the resistance of the December high at 25,980. If this move is seen on a closing basis it would open the November high at 26,288. Perhaps there needs to be a slight degree of caution though, with a second very tight daily range of just 140 ticks (the Average True Range is now down at over 4 month lows at 245 ticks). This does hint at a lack of conviction in the run higher, and coming with the RSI at 70, this could lead to some near term profit taking. The latest breakout was 25,625 and is supportive, whilst the 76.4% Fibonacci retracement at 25,715 is also a basis of consolidation. We continue to see corrections as a chance to buy.