Risk sentiment continues to improve as there are ongoing signs of improvement in daily death rates of Coronavirus and discuss begins to turn to exit strategies for some countries. This helped to spur renewed appetite for risk that ran strongly higher throughout the US session yesterday. Treasury yields have turned a near term corner and are continuing to driver higher today. The US 10 year yield has increased by 13 basis points now from Friday’s close. This helped drive Wall Street markets strongly higher and the legacy of +7% gains is being felt across equities early today. The dollar which has been acting as a safe haven is subsequently under corrective pressure today against all major currencies. This is true even of sterling which had an initial knee-jerk sell-off yesterday on news of Prime Minister Johnson being moved into intensive care due to breathing difficulties. The Reserve Bank of Australia monetary policy decision was reportedly in the balance but the RBA opted to maintain rates at +0.25%. This has helped the Aussie to outperform today. It will be interesting to see how long the broad positive bias lasts for major markets, but for now, risk is back on again.
Wall Street closed with huge gains as the S&P 500 jumped +7.0% into a close of 2663. US futures are also building on this move early today with gains of +1.3%. This has helped Asian markets stronger with the Nikkei +2.0% and Shanghai Composite +2.0%. In Europe, the outlook is decent early in the session with FTSE futures +1.8% and DAX futures +2.7%. In forex, there is very much a risk positive, USD negative move. The big outperformers are the commodity currencies AUD and NZD, whilst the safe havens of JPY and CHF are mild laggards within the dollar correction. In commodities, volatility on oil continues to play out with gains of +2% ahead of the OPEC+ meeting on Thursday. Silver continues to jump higher whilst gold is consolidating yesterday’s huge gains.
It is fairly light on the economic calendar today. The JOLTS jobs openings at 1500BST catch the eye as another interesting insight into the state of the labor market in the US. Job losses are huge, but what about openings? Consensus expects openings to have fallen back by over -5% in February to 6.60m (from 6.93m in January).
Chart of the Day – Silver
Gold broke out yesterday in a sharp move higher, but has silver matched its move? Silver has been consolidating over the past week and a half in a mini-range between $13.77/$14.70 but with two strong bull candles in the past three sessions the bulls have re-taken control. What was interesting to see that the breakout above $14.70 was initially tentative yesterday, but once the bulls got clear, the move really accelerated higher. This formed a hugely positive bull candle in a move which has continued today. This decisive close above $14.70 has completed a range breakout would imply around $0.95 of upside towards $15.65. The less conservative of the bulls would also be looking upon the breakout as that of a bull flag which would imply $17.00. Whatever the implication, the bulls are on track now for continued recovery. The next key resistance of overhead supply is now not until $16.50. Momentum indicators confirm the breakout, with an acceleration higher of Stochastics and MACD lines rising and RSI at a five week high above 50. The 50% Fibonacci retracement (of $18.93/$11.62) is around $15.28 and a potential consolidation point today, but once clear this opens 61.8% Fib at $16.14. We look to now buy into weakness with the breakout at $14.70 a great support area now. The bulls are in control whilst above $14.20.
With the sell-off and struggles of the euro in the past week, the pressure to the downside on EUR/USD has continued. But an intraday rally this morning is now threatening a near term improvement and EUR/USD could be at an interesting crossroads. It was interesting to see that whilst many other majors rallied against the dollar yesterday, the euro continued to struggle. However, overnight, a pick up of around 50 pips is testing resistance around $1.0830 once more. This is also around the 23.6% Fibonacci retracement (of $1.1492/$1.0635) at $1.0835. The negative outlook on momentum is abating slightly but needs more to suggest a turnaround is decisive. However, it is the hourly chart where the move this morning is really threatening. An intraday move to a two day high, whilst breaking a six day downtrend has been seen. Also, the hourly RSI is above 60, something not seen during the latest sell-off; whilst the hourly Stochastics and MACD are also increasingly in recovery mode. The 55 hour moving average has been a great gauge for the outlook in the last two weeks and in the past few hours the euro rebound is above it and trying to lead it higher. A break above $1.0865 would add credence to a recovery, but also sustaining consistently above $1.0830 too. A break above $1.0865 opens $1.0900/$1.0950. The support at $1.0765/$1.0780 is growing in importance as protection against a full retracement to $1.0635.
Cable tentatively fell into the close yesterday on the news of UK Prime Minister Johnson being admitted to intensive care in hospital with Coronavirus. However, the sterling decline has only proved to be short-lived overnight as recovery has set in. We hope the same for the Prime Minister in due course. However, the technical outlook for Cable retains a mild negative bias with the legacy of Friday’s decisive negative candle still the over-riding near term signal that is a drag on the outlook. A failure to recover through overhead supply $1.2300/$1.2350 suggest s downside bias towards an initial implied target of $1.2130.and potential retreat towards the 38.2% Fibonacci retracement (of $1.3200/$1.1405) at $1.2090 in due course. Momentum indicators beginning to fall over will be a concern too, with the RSI faltering under 50 and more pertinently, the Stochastics threatening to bear cross for a sell signal. An overnight rebound has left initial support at $1.2160 but a failure to build on this rally overnight through $1.2300 would be a renewed sell signal as a run of lower highs and lower lows is beginning to form. Today’s session could be key for the near to medium term outlook of Cable.
The dollar rebound of the past few sessions has just run out of steam slightly this morning. We have been discussing recently whether the recovery on Dollar/Yen would be a renewed run higher or fizzle out into a consolidation. The rally rolling over around 109.30 (which is also around an area of overhead supply) leaves the move at a key stage today. Daily momentum indicators have been left in limbo as they are quickly tailing off recovery moves around their neutral points. The importance of what is increasingly becoming a pivot around 108.70 is also growing. Having previously been resistance it is now supportive this morning and can be considered a gauge for the recovery. A failure under 108.70 turns this into a consolidation, whilst back under 108.15 gives the market more of a negative bias once more. Hourly RSI needs to hold up above 40 and hourly MACD ideally above neutral to sustain any semblance of positive bias still. The move now needs to hold 108.70 and then pull above 109.30 resistance to continue the recovery. A key crossroads for the near term outlook on Dollar/Yen.
A huge positive candlestick has put the bulls in control of gold once more. The positive candles have been building in recent sessions, but the reaction to an early gap lower on Monday morning was for the market to buy consistently throughout yesterday’s session. Technically, the outlook is strong once more, with the decisive close clear of the resistance at $1642 which also means clearing the 23.6% Fibonacci retracement (of $1445/$1702) at $1642. Momentum indicators are decisively positive now, with RSI confirming the breakout and above 60 whilst MACD lines are accelerating above neutral and Stochastics bullishly configured. After such a strong candle (which added $45 on a close to close basis and $65 from the day low) there can be a tendency for at least an intraday pullback, which could be seen today. However, we look to use intraday weakness as a chance to buy, with the breakout at $1642 as a key support area now. There is an uptrend of the past two weeks rising at $1604 today as a gauge for the near term outlook, but the bulls will certainly now be eyeing the multi-year high of $1702 again. Initial resistance is the overnight high of $1671.
With the volatile recovery of last week still bubbling away, moves on WTI remain not for the feint-hearted. Another session of intraday swings started a week sure to be packed with ongoing volatility (at least until we get a decision from OPEC+). However, an “inside day” that left a sharp close lower but a doji candlestick on a day of $3 of range reflects the near term uncertainty. The recovery is though technically on track with momentum indicators still tracking higher and the legacy of those two massive bull candles still in the market. The hourly chart shows the wild swings settling to an extent this morning, with momentum on hourly RSI and MACD beginning to stabilize around their neutral areas (c. 40/60 on RSI). Initial support is at $25.90 but the bulls would not be confident if they lost the old $25.25 pivot which is now supportive. A minor lower high comes in at $28.25 under Friday’s high of $29.13.
Dow Jones Industrial Average
The positive reaction of yesterday’s session could be significant on a medium term basis. Posting a hugely strong positive candlestick that saw the market breaking to a three week high has significant technical implications. First and foremost it means that the recovery is well on track. The bulls had been wavering throughout last week, but a key higher low has now been formed at 20,735 and technically this means a new bull trend formation of higher lows and higher highs. The recovery may go through ups and downs from here, but whilst the support at 20,735 is intact as the first major support, the recovery is still building. Momentum indicators confirm the breakout, with RSI at a six week high (around 50), whilst Stochastics and MACD accelerate higher. The reaction today will though be important, as after a breakout the bulls would at least look to back up this move with at least a solid session of support. The breakout support at 22,480/22,595 is the first buffer, although given an Average True Range of 1268 ticks, the intraday volatility may well take this out. So yesterday’s traded low at 21,670 is next before a pivot and breakaway gap at 21,470. These are levels the bulls will certainly look to be holding now. Moving clear of the 38.2% Fibonacci retracement (of 29,567/18,213) at 22,550 would be bullish and open 50% Fib at 23,890 as a target area. The next resistance is 23,190/23,330.