Financial markets are consolidating this morning as pensive traders keep their powder dry for some interesting days ahead. As a meeting between Donald Trump and President Xi approaches at the G20 it is likely that he will feel compelled to make some sort of remark on the trade dispute. Press reports suggest that in the event that the meeting does not go well, Trump is ready to engage the increase of tariffs to 25% in January and enact tariffs upon the remainder of Chinese exports to the US. This should not necessarily come as a surprise but if so, will not endear him to the Chinese either. The dollar would likely be responsive to any newsflow on this in the coming days. However, also keep an eye out for the implications for monetary policy of the Federal Reserve too. Richard Clarida vice chair of the FOMC discusses the need for “data dependence” today, ahead of a speech by Fed chair Jerome Powell tomorrow. How strongly Clarida advocates a data dependent Fed (he is known to be close to chair Powell) would potentially be a dovish signal and would open the potential for the dollar strength to wane. The only real direction this morning is coming from sterling, which is facing early pressure as traders respond to a suggestion from Donald Trump that a US/UK trade deal may not be possible given the deal that Theresa May has struck with the EU.
Wall Street rebounded strongly last night with the S&P 500 +1.5% at 2673 and although futures are a giving back some of these gains (currently S&P 500 futures are -0.2%) there were gains in Asian markets (Nikkei +0.6% and the Shanghai Composite was a tick lower). European futures are though a touch cautious in early moves today. In forex, the early selling pressure through sterling is the key move, as there is little direction elsewhere. In commodities, the consolidation is seen also through gold and silver, whilst oil is giving back over half a percent of the yesterday’s gains.
The economic data on the calendar is very much US centric, beginning with the S&P Case Shiller House Price Index at 1400GMT. The data is expected to show September house prices slipping back again to +5.3% (from +5.5% last month) which would be a six consecutive month of decline and also the lowest growth since November 2016. Then the Conference Board’s Consumer Confidence is at 1500GMT which is expected to drop back to 135.5 (from a record 137.9) which would still be a hugely impressive number. The Reserve Bank of New Zealand publishes its financial stability report at 2000GMT. Aside from the data points there are also a couple of FOMC speakers to look out for today. Key focus will be on Richard Clarida (permanent voter, centrist) at 1330GMT as he is still very new to the committee but is also considered to be close to chair Powell. Any dovish tilt will be picked up on. Also look out for the Atlanta Fed’s Raphael Bostic (voter, leans slightly dovish) at 1930GMT.
Chart of the Day – NZD/USD
The strong performance of the New Zealand dollar has been questioned in the past few sessions. Is the latest rolling over of NZD/USD once more part of the buy into weakness recovery seen since early October, or is it the beginning of renewed correction? As the market has now posted lower daily highs in each of the past six sessions, the momentum in the recovery has lost its way. Subsequently we see momentum indicators beginning to tip over the crossroads as they pull the market lower. A bear cross on the MACD lines and the Stochastics finding traction lower does not bode especially well. However, the RSI is in the mid-50s and the market is in effect just unwinding back to the breakout support band $0.6700/$0.6720. The momentum indicators are a warning, but without a failure below $0.6700 this is still simply another unwinding move within the recovery (which remains above all the moving averages). Watch for an intraday move above $0.6820 which would be a positive signal, especially on a closing basis. Yesterday’s low at $0.6750 is initial support that is building today.
The euro bulls are beginning to struggle for traction once more. Having set up a recovery a week or so ago, the euro has lost its way in this pair and it seems that intraday rallies are increasingly seen as a chance to sell. Yesterday’s negative candle is a case in point, where the early rebound of over 40 pips could not be sustained and the market ended by closing the session 15 pips lower on the day. This continues a run of lower highs in recent days where $1.1430 is building as resistance below the $1.1470 November high. A slight tweak to redraw the downtrend leaves EUR/USD ultimately still in a downtrend channel and with momentum indicators rolling over (RSI and MACD) or tracking lower (Stochastics) the downside pressure is building. A move below $1.1300 (old key low) opens a test of the key low at $1.1213.
The fact that sterling found no positive traction from the latest Brexit progress (?) tells a lot. Cable is slipping lower again as the rebound of Thursday last week has failed to ignite and the move is fading back once more. Given the context of recent weeks, the moves on Cable in the past week have been largely restrained, but there is a continued bear bias that eyes a test of the November low at $1.2720. The lows of the medium term range $1.2660/$1.2695 are also likely to come under fire (especially if politics turns against UK Prime Minister May). Technically, the momentum indicators continue to show negative configuration and imply that rallies will struggle for traction. Resistance is therefore at $1.2925 but with lower daily highs now forming, yesterday’s high at $1.2865 is initially the barrier. A break below last week’s low at $1.2760 opens $1.2720.
A solid bullish candlestick in a positive session for the dollar has seen USD/JPY begin to generate upside momentum once more. In the period prior to Monday’s strong session there had been a week of uncertainty, but yesterday’s unambiguously positive session has helped to break the shackles of consolidation. With momentum indicators ticking positively once more from their strong medium term configuration, there is a sense of buying into weakness now. It all points towards renewed momentum that should now open for a test of the November high at 114.20 and maybe even the 114.55 October high. The hourly chart shows that over recent weeks a pivot band of 112.90/113.10 will now provide the basis of near term support for any intraday unwinding moves. Friday’s low at 112.65 is a higher low, whilst the key near term support is now at 112.30. Initial resistance is at 113.70.
Another muted candlestick formed yesterday as the run higher from the $1195 low has continued to lose momentum in recent sessions. Effectively the market has gone nowhere in the past five sessions now and subsequently previously positive momentum indicators are rolling over. The Stochastics and MACD lines are close now to crossing lower again which, if confirmed, needs to be watched. The support band $1208/$1217 remains a key basis of underlying demand from the late summer and will be a big test now. Furthermore, the support of the uptrend channel comes in at just under $1203 today. It seems that this consolidation under the $1236 key long term pivot is threatening to become a lower high, with resistance at $1230 building. A move below $1195 would be bearish now.
The oil price rallied over 2% yesterday but looking at the chart, this is a move that has done very little to shift the very negative outlook. It just looks to be noise within the downtrend. With oil falling over 10% last week there needs to be a sustained run of positive sessions to really suggest there is any traction in a recovery. Today’s session is therefore important, to build upon yesterday’s move. The early slip is not a great start though. Technically, there is also very little to go on yet, with the momentum indicators all deeply bearish still and showing little sign of a recovery (much more is certainly needed on the RSI). Resistance overhead at $52.75/$54.75 initially, with a downtrend resistance at $54.70 today. Rallies have to continue to be a chance to sell for now. Support at $50.15.
Dow Jones Industrial Average
Can the bulls build upon yesterday’s recovery session. In the wake of recent selling, a solid bull candle has given the bulls some hope once more. However, there is a lot of overhead supply to get through before a recovery can be called. Initially 24,700 has been a basis of resistance in recent days, but the main near term resistance comes around 24,800/24,900 which is a bulk of old lows. A two week downtrend also comes in at 25,030 today, so essentially for now this is another unwinding move within the sell-off. Momentum indicators have acknowledged the tick higher from yesterday’s session, but again need more. A positive session today would be a good start. The hourly chart shows 24,466 is initial support.