Once more traders come into a new week with thoughts of the US/China trade negotiations on their minds. Press reports from the Wall Street Journal over the weekend suggested that both sides were ready to give concessions that would usher a move towards a potential agreement and signing of a deal possibly around 27th March. Market sentiment has moved around consistently with the trade story. Now, with the US apparently willing to remove many, or perhaps even all of the tariffs that were enforced last year, whilst China are willing to give ground on intellectual property and foreign share ownership, there could be an amicable end to the negotiations in prospect. Risk appetite has been stoked by this news and we see this across equities and forex majors. The momentum of the dollar gains that had accelerated into the end of last week are just being tempered slightly (although it is gaining ground on the euro), with the Australian and Kiwi dollars recovering whilst the Chinese yuan is also positive, whilst the safe haven yen and Swiss franc are slipping. There were gains across Asian markets overnight, whilst US and European equities futures are also climbing. A good start to the week if you are of a bullish persuasion.
Wall Street closed with decent gains on Friday with the S&P 500 +0.7% higher at 2807 with US futures another +0.4% higher. Asian markets have been solidly higher overnight with the Nikkei +1.0% and Shanghai Composite also +1.0%, whilst European indices are following US futures, with FTSE futures and DAX futures both around +0.4% higher. In forex majors, there is a risk positive outlook with the yen slipping back, whist the commodity currencies are looking decent today. The big mover so far is a renewed strength in sterling, which is +0.2% higher after falling in recent days, with Brexit newsflow never far away. In commodities, the accelerated gains on the dollar which have hit gold and silver so hard in recent days has just had the brakes applied this morning, with a consolidation, whilst oil has also found a degree of support after a sharp drop on Friday.
It is a fairly quiet start to the week on the economic calendar, with only really the UK Construction PMI at 0930GMT of any note. Consensus expects very mild expansion of 50.5 which is a shade lower than the 50.6 last month.
Chart of the Day – EUR/CAD
Disappointing Canadian growth hit the Loonie hard on Friday and with the continued positive relative performance of the euro, this pulled EUR/CAD sharply higher. This move has seen a significant upside break from a downtrend channel and turnaround in the outlook with a close above near term resistance at 1.5060. There is confirmation on the momentum indicators now, with a bull cross on MACD lines, whilst RSI and Stochastics accelerate up at eight week highs. The 61.8% Fibonacci retracement of 1.4760/1.5645 (around 1.5100) capped the recovery in early February and needs to be overcome to sustain momentum in the recovery, whilst then opening the 50% Fib at 1.5200. The hourly chart shows the need for the market to find support in the band 1.5035/1.5060 in order for this notoriously choppy market to build a sustainable recovery. Initial resistance is at 1.5140.
Once more we find EUR/USD developing into a phase of consolidation. The move above $1.1345 looked to be breaking the shackles for a move higher but the $1.1420 near to medium term pivot has capped the recovery and for the past few sessions the market has been stuck again. The momentum indicators are tailing off in their recovery and seem to be entirely consistent with a tight, mid-range consolidation which could also be forming a slight negative bias. The support of the pivot at $1.1345 is a near term floor and a breach would put pressure on the old $1.1300 support area again. A consistent failure under $1.1420 will sustain the negative bias, albeit it is only slight.
How the bulls respond to a retreat into the breakout support band $1.3110/$1.3215 will be an interesting indication of how strong the bulls are in this market. Moving back over the past couple of sessions, the market has turned corrective, but essentially this is an unwinding move that has taken some of the big profits built up over the past couple of weeks (from sub $1.28 to over $1.33). Technically, the RSI remains strongly configured, holding above 60, whilst the MACD lines are simply stabilising and Stochastics are still above 80. A previous breakout above $1.3110 is supportive and Friday’s low of $1.3170 is initial support today. The hourly chart shows a mild corrective bias near term, but if the hourly RSI can develop above 60 again, this bias would begin to dissipate. Closing back above $1.3215 (the old January high) would also help to settle the corrective move. Above Friday’s high at $1.3285 would improve prospects again, with the big resistance still $1.3300/$1.3350.
With three strong bull candles in a row, the outlook on Dollar/Yen is increasingly positive again. Closing decisively above the medium term pivot at 111.35 now means that this is a basis of support and the market is positioning for a test of the next resistance at 112.25. There is a strength to momentum not seen for months, with the RSI in the high 60s and the most bullish since October, whilst the MACD and Stochastics are also strong. Weakness is a chance to buy as this market continues to trend higher in the uptrend channel of the past eight weeks. There is a good band of breakout support 111.00/111.25. The hourly chart shows initial support at 111.60. A decisive move clear of the resistance at 112.25 would open upside towards 113.70.
The selling pressure of the past three sessions has completely changed the outlook on gold. From a decent looking consolidation around the old breakout at $1326, the strengthening downside has smashed through the 14 week uptrend and now below the long term pivot band $1300/$1310. Coming with increasingly negative medium term configuration on momentum and the move has decisively shifted sentiment for gold. A closing break below $1302 is the first time since the recovery kicked off in September, that a key higher low has been broken. The support at $1276 is now crucial as this is the next key higher low. If this is also broken then the bears will gather significant momentum in a medium to longer term correction. The long term pivot at $1300/$1310 is now a basis of resistance and again, how the bulls respond to this as an area of overhead supply will be telling for the outlook. Near term rallies will be a chance to sell whilst this mini downtrend of the past nine days is intact (currently $1320).
With another turn back under the medium term pivot at $58.00 the near term outlook is looking less certain for now. This comes with a bearish engulfing candlestick (key one day reversal) which is a negative near term technical signal. There is an uptrend that comes in around $55.25 today but Friday’s intraday failure under resistance will provide the bulls with some concern early this week. Despite this though, momentum indicators remain positively configured and corrections within the uptrend are (for now) a chance to buy. There is a support band $55.00/$55.75 which the bulls will be keen to protect. This support has held I the wake of Friday’s move, but a breach would mean an outlook changer. Initial resistance is at $56.40.
Dow Jones Industrial Average
The bulls have pulled the market tentatively higher once more as the corrective move of the past week seems set to be bought into again. An unwinding move from 26,241 has breached an eight week uptrend but has not broken any significant support and looks to simply be a chance to buy again. However, there is not a huge amount of conviction in the pick up on Friday, with an almost doji candle, adding to a run of either neutral or negative candles in the past five sessions. The support of the 76.4% Fibonacci retracement at 25,715 remains a key gauge for the bulls now and having found support at 25,895 on Friday this is now being defended higher up. With the positive configuration on momentum, there is still very much an outlook to buy into weakness. A move above 26,241 and 26,277 (the November high) would open the 26,952 all time high.