With US markets shut for Martin Luther King Day we are seeing limited direction this morning. The broad bias of a dollar positive move is still hanging over from last week as the strong US data is still fresh in the mind. There is little to steer markets today, with the People’s Bank of China standing pat on rates and little else of note on the calendar. The big mover seems to be the resumption of weakness on sterling, with the continuation of chatter about potential rate cuts in the wake of a fairly terrible stream of UK data last week and dovish comments from Bank of England members. Given the dollar strength, the reaction of Cable around the support of recent lows at $1.2900 and $1.2950 will be seen as a key watershed in the outlook for sterling.
Wall Street closed higher on Friday with the S&P 500 at +0.4% (at 3329) and this has helped Asian markets to a positive session today (Nikkei at +0.2% and Shanghai Composite +0.7%). European markets have slipped a shade early morning, but with little real direction. In forex, there is almost no direction to speak of aside from the weakness on GBP. In commodities, gold continues to build support, another +0.2% higher, whilst oil has opened positively today as supply in Libya has been knocked by civil unrest.
There are no key economic data releases today. US markets will be shut for Martin Luther King Day public holiday.
Chart of the Day – French CAC 40
Equities in Europe have had a choppy start to 2020, but there was a decisive move across the major markets on Friday. A strong bull session has driven a breakout on the French CAC 40 to a new 12 year high. The market has been trading in a range between 5955/6072 for the past five weeks, but a gap higher and storm through the resistance and form a big bull candle well clear of 6072. This range breakout implies an upside target of 6189 in the coming weeks. Momentum indicators have been in consolidation recently and The RSI pushing towards 70 confirms the breakout, and whilst the Stochastics and MACD may be a little slower to respond, there is also a positive reaction coming. The breakout at 6072 is now a basis of support and with a breakaway gap back at 6059 there is a band of support initially 6059/6072. The 2007 high of 6168 is the next resistance.
The bulls will have been disappointed by Friday’s latest retreat. The move is now testing important support of the $1.1085 January low but also the rising three and a half month uptrend. The positive medium term outlook for the euro is under growing pressure now. In the past few weeks, the decline back from $1.1240 has be giving some mixed signals, but the magnitude of the bear candles compared to those on the positive side is a growing downside risk. Near term trends both lower and higher have been breaking in recent weeks but there is a growing slip back towards a three and a half month uptrend that comes in at $1.1070 today. Momentum indicators remain in positive medium term configuration but equally seem to be set up around medium term crossroads levels, with the RSI around 45 (lows of recent months have been between 40/45) whilst MACD lines are back around neutral. A close below $1.1065 (the late December low) would be an outlook changer. Until then, hovering around $1.1100 (an old pivot) will be seen as an opportunity for the bulls.
The recovery outlook has taken another hit as a decisive negative candle has scuppered another rebound from the $1.2900/$1.3000 support area. The support is back under pressure again this morning. Momentum indicators are again hovering around some key levels, suggesting that the outlook is once more back around a key inflection point. The support of $1.2950 helped to bolster $1.2900 as a key low, but if the RSI starts to pull below 40 along with MACD lines under neutral, these supports are likely to be seriously tested. The hourly chart shows an edge of bearishness forming now. Turning lower from $1.3115 the market is back decisively below $1.3000 and shaping to test $1.2950 again this morning. A closing breach would open $1.2900. Hourly chart indicators are now in deterioration with an increasingly corrective outlook now taking hold as initial resistance is at $1.3010 develops.
The dollar bulls had a decent session on Friday, holding on to Thursday’s gains, but the shackles are still on the breakout. The market needs to pull decisively clear of 110.20 to suggest there is momentum in the breakout above 109.70. Previous breakouts have struggled around 30/50 pips above a breakout level but this move is threatening to be different. It just needs that final push through the previous rally high of 110.20 to release the shackles for 110.65 (the May 2019 high). Momentum indicators are similarly standing on the brink with the RSI edging towards the high 60s and this is the move that would confirm another bull move higher. The hourly chart shows 110.20 is still a basis of resistance this morning and whilst there is still a positive configuration on hourly momentum, there is still the risk of mild loss of impetus. Whilst the support of 109.70 remains intact there will still be a sense that the bulls are in control. This support is increasingly important now. Beyond 110.20 the next test is 110.65.
Gold continues to consolidate in a near term sideways band between the recent low of $1536 and lower high of $1563. However, when considered alongside what was a very strong session for the dollar on Friday, the performance of gold reflects a growing underlying support forming once again. A positive candle for gold on Friday is being followed by further gains today. Momentum indicators continue to bottom in a way that suggest the recent corrective slide may also now have played out. The Stochastics flattening off around 40, along with the RSI still above 60 is a positive for this outlook. As such the importance of the support at $1536 is growing. We continue to believe that the corrective move back from $1611 would have been an unwinding retracement within a strong medium term outlook. Subsequently the correction is a chance to buy. Support forming around the 38.2% Fib retracement (of $1445/$1610) at $1548 is encouraging too. This level has been a basis of support in recent days. The bulls do though need a move above $1563 to open the upside momentum again. This move is threatening today and a closing breach would be a strong signal for renewed buying pressure. Initial resistance would be $1583 before the $1611 high. For now, there is a still mix of candles on a daily basis and there needs to be patience.
We have been discussing the potential turning around of sentiment on oil in recent sessions. With the selling pressure slowing and the configuration of daily candles turning more favourable for the bulls, the price has begun to see improved outlook again. Higher daily lows are now forming, whilst it is possible to redraw a three month uptrend (to a shallower advance). The basis of support with what is a pivot band around $57.35/$57.85 is growing too. A gap higher today has failed to really push forward initially and there is a move to fill an initial gap at $59.00. However, there is a growing sense on momentum that a near term corner has been reached (with RSI and Stochastics turning higher). We still await a confirmed Stochastics buy signal but a test back of the resistance of the pivot around $60.00 and 38.2% Fib (of $51.00/$65.65) at $60.05 should be building now. Key support at $57.35.
Dow Jones Industrial Average
Another positive candle on Friday and another close at an all-time high. Momentum with this run higher continues to build into strong configuration now. Although with marginally stretched momentum there will be a corrective move at some stage,