President Trump’s announcement to delay the deadline on the trade talks initially bumped sentiment higher, but the hot air seems to have cooled as markets await further concrete news of a resolution. Some of the risk rally that was seen yesterday has subsequently unwound a shade this morning. Treasury yields have pulled lower, the yen has performed well and equity futures are weaker. This is nothing drastic though and is more likely to be a sense that the market is cautious for now. However the big mover today is sterling which has gained on, yes, you guessed it, Brexit related factors. The UK is now 32 days away from leaving the EU and there is no deal agreed that the UK Parliament can get behind. However, there is now a move from the opposition Labour Party that could push for a second referendum. This increases the potential for not only a delay to Article 50 (i.e. that the UK does not leave on 29th March) but also would dramatically increase the potential for the UK not leaving the EU at all. Although uncertainty continues, Sterling is happy in all these scenarios. However, with a stronger sterling, also tends to come a weaker FTSE 100 on the negative correlation with the currency. One thing to keep an eye on today is that Fed chair Powell testifies to the Senate Banking Committee today at 1500GMT. Powell has cut a pretty cautious figure in recent times and it will be interesting to see if this continues.
Wall Street closed mildly higher last night with the S&P 500 +0.1% at 2796 whilst US futures are calling stocks lower by around -0.3% early today. Asian markets have been cautious this morning, with the Nikkei -0.4% and the Shanghai Composite -0.7%. In Europe, markets are looking equally cautious as FTSE futures and DAX futures are both -0.7% lower. In forex, the big gainer is sterling which is +0.4% higher, whilst the yen is also performing better. In commodities there is consolidation on gold, whilst oil has continued to slip after falling over 3% yesterday on the latest comments from Trump to try and get OPEC to keep prices down.
On the data front, the main event comes this afternoon with the Conference Board’s Consumer Confidence at 1500GMT. Consensus expects a recovery to 122.8 in February (from 120.3 in January) which would break a run of three consecutive months of significant deterioration.
Chart of the Day – EUR/CAD
The downtrend channel of the past six weeks is still intact and within this, rallies remain a chance to sell. This comes as the market has continually breached support to form lower lows and leave lower highs in the recoveries. Friday’s strong bear candle took the market to its lowest levels since November, and although there was a sharp rebound yesterday it has simply unwound the market back to the resistance of the 76.4% Fibonacci retracement around 1.4970. With the falling 21 day moving average (today around 1.5000) consistently acting as a basis of resistance and the six week downtrend channel (today also around 1.5000), this looks a chance to sell. Price resistance of a lower high comes in at 1.5060 with the resistance of Friday’s big bearish engulfing candlestick at 1.5010. Initial support is at 1.4870 with the key October low at 1.4760 likely to be tested in due course.
After a period of consolidation for much of last week, the market has tried to move the situation on. A solid positive candle added 20 pips into the close and the market is now starting to trade clear of the support band $1.1300/$1.1345. This comes with momentum indicators swinging higher as the RSI moved to 50 for the first time in three weeks yesterday, the Stochastics are accelerating higher and MACD lines have crossed higher. The market will now look to use the pivot at $1.1345 as a basis of support now to push on for a move towards the main mid-range pivot around $1.1420. The hourly chart shows good support now at $1.1310 whilst hourly momentum is more positively configured for suggest a bull bias and buying into weakness.
The politics of Brexit remains a key driver of sterling for sure (Labour moving towards a call for a second referendum puts remaining in the EU back on the table which is sterling positive). So subsequently, there has been a positive candle yesterday and further gains into today. This has pulled the market out to a three week high again, whilst leaving pivot supports in its wake. Moving above $1.3110 the market is now testing initial resistance at $1.3160 whilst the key January high at $1.3215 is also back in range. The momentum indicators are positively configured, with the RSI pushing towards the mid-60s (a four week high) whilst MACD and Stochastics are positively configured. The hourly chart reflects positive momentum with intraday weakness being bought into. There is near term breakout support at $1.3090/$1.3110 whilst a move back below $1.3050 would question the current positive outlook now. Below $1.2965 would signal a change in tack.
After more than a week of very mild drift higher, there has at least been some action on Dollar/Yen in the past 24 hours. A solid bull candle formed yesterday to add 40 pips and take the market above the February high of 111.12 to open the 111.35 medium term pivot. Although the market has slipped back slightly this morning, there is still a sense on the hourly chart that there is a more positive momentum configuration now. With the RSI continually bottoming out between 40/45 and finding buyers, the market looks set to form another higher low above 110.55 for the next pull higher. Pressure on 111.35 is still preferred. The support at 110.00 remains key, with a higher low at 110.25.
With last week’s correction from $1346.70 seemingly contained, the market has started to build support once more. Finding a low at $1321, gold is looking to build on the support around the old breakout at $1326 again to maintain the positive momentum of the recovery. The support of the now 14 week uptrend is rising at $1312 today which is above the long term pivot at $1300/$1310. Although there is further room for the market to potentially unwind, it seems as though the bulls are positioning to regain the ascendancy again. The RSI is back into the 60s, with the MACD lines positively configured still suggesting that the corrections are a chance to buy. There is minor resistance at $1333 from Friday’s reaction high which needs to be broken for the bulls to gather their stride once more. A close back above here would help to generate the upside momentum. The hourly chart shows the RSI needs to move back above 60 though and the hourly MACD lines hold back above neutral. For now there is consolidation around the breakout at $1326 above the $1321 support.
How the bulls react to yesterday’s strong corrective candle could be key to the near to medium term outlook. The breakout above $55.75 and the 23.6% Fibonacci retracement at $55.55 was a key move and this old resistance is now a basis of support. However, if the selling pressure builds off yesterday’s candle, then the outlook could turn more corrective near term. The Fib level should be seen as a basis of consolidation now, with further breakout support at $53.30/$54.25. Momentum remains strongly configured on a medium term basis, with the RSI just unwinding into the high 50s and positive whilst above 50, and the MACD lines still positively configured. For now this is a move that the bulls will still likely see as another chance to buy in due course, but building support and preventing momentum in the correction is an important first step. Holding above $53.30/$54.25 is key to this.
Dow Jones Industrial Average
The pull higher on Wall Street has the market frequently now making new three month highs as the recovery pulls clear of the 76.4% Fibonacci retracement. Another positive close during yesterday’s session, but this one was far less convincing than others, giving up 150 ticks from the day high to close almost at the day low. This may put the pressure on initially for today’s session (US futures today also suggest this could be the case). However, corrections remain a chance to buy. The 76.4% Fib at 25,715 is a point of consolidation, whilst the support of a seven week uptrend comes in at 25,770 today. There is also the recent breakout around 25,980 which is supportive. With momentum indicators still positively configured corrections remain a chance to buy. Initial resistance is yesterday’s high at 26,240 under the 26,278 November high.