With markets now able to put the immediate geopolitical risk of US/Iran conflict on the back burner (notwithstanding the potential fallout from circumstances surrounding the Ukrainian Airlines crash), traders are beginning to look forward again. On the immediate agenda that means the US jobs report today. However, traders will also be mindful of what is supposedly going to be the signing of a “phase one” US/China trade agreement on Wednesday 15th January. Although there are suggestions that the official signing could still be delayed, markets are still fairly sanguine about “phase one”. For now though, the hurdle of Non-farm Payrolls needs to be overcome. There is a broad feel of consolidation on major forex markets today. This comes as Treasury yields have begun to settle down. The spike higher in yields has allowed the dollar to regain some lost ground over recent sessions. However, this move may once more struggle for sustainable traction if the rebound on yields peters out. Dollar/Yen has been particularly correlated to the US 10 year yield recently. The one asset class that is seemingly unencumbered is equities, as Wall Street moved once more to all-time highs, whilst futures are looking at more of the same today. Consensus suggests that the US jobs report is unlikely to contain too much to rock the boat, so traders could quickly turn attention back to “phase one”.
Wall Street closed one more strongly higher with the S&P 500 at 3275, whilst US futures are another +0.3% higher today. Asian markets have been a little more cautious, with the Nikkei +0.4% and Shanghai Composite -0.1%, but European indices are taking the move forward in early moves (FTSE futures +0.4%, DAX futures +0.2%). In forex, there is a mild sense of positive risk once more, but broadly stuck within a theme of consolidation in front of payrolls. JPY is one more an underperformer, whilst AUD is bouncing and GBP is also mildly higher. In commodities, there is a slight slip back on gold and oil, but in the context of recent moves, these markets look to be far more settled than earlier this week.
Today’s economic calendar is dominated by the US Employment Situation report for December at 1330GMT. The headline Non-farm Payrolls number is expected to moderate somewhat back towards trend at 164,000 (back from 266,000 in November). The Average Hourly Earnings are expected to grow by +0.3% on the month which would hold the yearly growth at +3.1% (+3.1% in November). Unemployment is also expected to stay at 3.5% again (3.5% in November).
Chart of the Day – EUR/NZD
Market sentiment has been cautious throughout the opening days of 2020 but one of the trends has been for the higher risk commodity currencies to come under pressure. Whilst the euro has also suffered there is an interesting reversal potentially in progress on EUR/NZD. The strong downtrend of the past three months is coming under pressure again following the strong rebound yesterday. This comes as the overhead supply of the early December lows (around 1.6800/1.6830) brings a confluence of resistance with the downtrend. However, looking at the momentum indicators, there is a decisive recovery already forming. The RSI is bottoming out and is around two month highs, whilst the MACD lines are advancing following a bull cross and the Stochastics are at two and a half month highs. A mini uptrend has formed in the past week of the recovery and the bulls are looking primed. One caveat is that Wednesday’s bearish engulfing candle just muddies the waters slightly, whilst another initial test of 1.6800/1.6830 has been rebuffed again this morning. A close above 1.6830 would be a positive sign but there would need to be a close above 1.6865 to be a confirmed bull signal now. This would open 1.7000 initially. Wednesday’s low at 1.6690 is a higher low and is supportive, whilst the mini uptrend comes in at 1.6700 today.
The pair continues to hold around the old $1.1100 pivot. Given the magnitude of recent negative candlesticks, the bulls are certainly battling hard to hold on to this area of support. It is a near term watershed moment, but with momentum indicators slipping, it would be a strong achievement to stem to current tide. Perhaps some of the consolidation arises from Non-farm Payrolls today, but essentially the market is back around key neutral areas on a near to medium term technical basis. Below $1.1100 puts the $1.1065 key higher low under scrutiny, below which is a far more corrective outlook once more. Momentum indicators have been positively configured on a medium term basis, but this could all change if the market were to trade decisively below $1.1100 again. Initial resistance at $1.1125/$1.1130 is keeping a lid on a recovery for now, with $1.1170 subsequent resistance.
Sterling struggled yesterday as the Bank of England Governor Carney seemed to open the door to rate cuts. However, we see this as something of a miss-read by the market and could throw up the next opportunity. There is a strong support band $1.2900/$1.3010 and we still see weakness towards here on a medium term basis as a chance to buy. The 23.6% Fibonacci retracement (of $1.2193/$1.3515) at $1.3010 coinciding with the key October breakout as the first line of support. It was interesting to see Cable bounce off this level yesterday and the bulls are seemingly still happy to support weakness. There has been a mild negative shift on momentum, but given the slip back over the past week or so, this is still well contained within the positive medium term momentum configuration on RSI and MACD. On a near term basis, the bulls need to break the sequence of lower highs, so $1.3130 is initial resistance under $1.3170 and the more considerable $1.3200.
Another decisive bull candle has the yen bulls under pressure again as USD/JPY has continued to climb strongly higher. With mild early gains once more today, the market is eyeing a test of the key 109.70 resistance area of the old December highs. On a medium term basis we have seen more of a range configuration forming in recent weeks, but the strength of the candles and the move higher now threatens this. Momentum indicators have upside potential with the RSI tending to run towards 65 in the bull legs of the past few months. Also, the Stochastics continue to accelerate higher and the MACD lines are ready to bull cross. The conditions are set for an upside test. However, the big caveat with a break above 109.70 is that time and again the breakouts in recent months have struggled in the subsequent sessions before a retracement has set in. Given how the dollar has struggled for sustained strength in recent months, we would see this happening again. The hourly chart shows a band of support 109.00/109.20 initially.
The retracement on gold since the $1611 high of early Wednesday morning has been considerable, but is now showing signs of a more considered move. After such a strong run higher, the market is still in unwinding mode and the bias is lower. There has now been a 38.2% Fibonacci retracement (of $1445/$1611) to $1448 and a decisive close below would open 50% Fib around $1528. The hourly chart shows how a corrective outlook is still in place, with resistance between $1553 (old gap) and $1557 (old September all-time high) now finding sellers to restrict recovery. Hourly indicators are correctively configured too. Initial support at yesterday’s low of $1540, below which would confirm the continued retracement. It may be the market just settling ahead of payrolls but there is an element of consolidation forming now. We still have a positive medium to longer term outlook on gold for the weeks and months ahead and once the volatility settles down, we expect to see weakness as a chance to buy.
After the wild session on Wednesday there is more of a settled feel to oil forming. The geopolitical drivers of oil (at least the immediate ones) have lessened and there are signs of a more considered approach to the market. Throughout recent months, there has been a pivot band around $57.50/$57.85 which is a basis of support now. This comes with a three month uptrend support (rising at $57.90 today). It was interesting to see yesterday’s initial move lower starting to find support too. The hourly chart shows initial support then at $58.65 whilst a move back above $60.45 would suggest the market is beginning to show more positive signs again.
Dow Jones Industrial Average
The bulls run on Wall Street remains strong and little seems to be able to knock it at the moment. Another positive candle and the market has now closed back at all-time highs again. Positive momentum indicators are resuming their position of strength with the RSI rising in the high 60s (there is upside potential to over 70 still), whilst MACD and Stochastics turn higher again. The old breakout at 28,872 is now initially supportive, whilst the importance of 28,375 as a higher low also grows. With near term corrections continually being bought into we remain buyers into weakness.