The dollar bulls have made a decisive breakout, the question is now whether they can hold their nerve. Amidst the backdrop of continued slowing global economic trends, the dollar has been a favoured (high yielding) safe haven currency. Traders seem to be looking past the dovish move from the Fed recently, to focus on the relatively positive US economic performance within the threatening global cyclical slowdown. The dollar strength has now driven EUR/USD below $1.1300 which has been a basis of a key floor for several months, whilst pulling Dollar/Yen above 110.00. Treasury yields have ticked mildly higher, but by no means match the run for the dollar. This does leave some question marks over the sustainability of the dollar move. It will be interesting to see if the dollar can continue higher as risk appetite has rebounded today. Add to this, a rebound on equities, which comes on chinks of light in the US/China negotiations, however again to be sustainable this needs something concrete to be agreed. The latest is that there could be some sort of meeting between Trump and Xi in the US next month. This would suggest traction in the negotiations and would be a positive for risk appetite if true. This could go some way towards explaining the heavier blue colour across the markets board today. Something that has also helped to improve risk appetite today, has been the suggestion that an agreement has been struck between the Democrats and Republicans that will prevent a further US Government shutdown on Friday. If substantiated then this would take one risk factor off the table at least.
Wall Street closed a mixed session higher last night (S&P 500 +0.1% at 2710) with US futures higher by +0.5%. Asian markets were broadly higher with the Nikkei +2.6% and the Shanghai Composite +0.7%. European markets are also risk positive today with the DAX futures leading the way +0.8% and FTSE futures +0.2%. In forex, the risk positive move with the yen being the main underperformer, whilst the dollar strength is seeing a degree of unwind today. The Aussie and the Canadian dollar are performing well. In commodities there is support found with silver performing well, whilst oil is a half percent higher.
There is a light economic calendar today with the US JOLTS jobs openings for December are at 1500GMT which are expected to tick a shade higher to 6.90m (from 6.89 in November). However, it is also keeping an eye out for the comments of the Bank of England’s Governor Mark Carney at 1300GMT, whilst Fed chair Jerome Powell is speaking at an event at 1745GMT. Furthermore, overnight in the early hours of tomorrow morning there is the Reserve Bank of New Zealand which updates on monetary policy at 0100GMT which is expected to hold rates at +1.75%.
Chart of the Day – USD/CHF
The spike weakness on the Swiss may have been on something of a “fat finger” trade, but the outlook for the Swissy does not look great on USD/CHF. For several months the Fibonacci retracements of the 0.9540/1.0128 September to November rally have been an excellent gauge for consolidations, pivots and turning points. Recently the market rallied on dollar strength through the 23.6% Fib level at 0.9989 which has now formed the basis of support. This move also now opens a full retracement to the 1.0128 high. Holding above parity is important but the momentum indicators are maintaining a strong configuration, with the RSI ticking higher above 60 around three month highs, and the MACD lines continuing to climb. The only caveat would be the rolling over on the Stochastics but with yesterday’s strong bull candle the outlook for a push higher towards the November high at 1.0128 is growing. Weakness is a chance to buy with a pivot around 0.9990 being a basis of support now. The hourly chart shows support between 1.0020 and 1.0030 and any move that helps to renew immediate upside potential would be a chance to buy. A continuation of trading above parity will only strengthen the outlook further.
It is now crunch time for the euro. On so many occasions the buyers have returned as EUR/USD has hit $1.1300. However, with the strength of yesterday’s bear candle, it seemed as though something was different this time. A lowest close since November, along with confirmation on the RSI below 40, whilst MACD lines fall and Stochastics are negative. This was also the sixth consecutive negative candle. A failure to show any kind of bull response today would suggest an acceptance of the downside break. A move back to the key low at $1.1215 would result. $1.1300 is subsequently a near term resistance today and the hourly chart shows consistent failure of any unwinding rallies of the past few days with the hourly RSI unable to push above 50 and MACD lines under neutral. There is now considerable near term resistance $1.1320/$1.1360 that needs to be overcome for any sustainable recovery to be considered.
The dollar strength and sterling weakness combined for a strong bear candle on Cable yesterday. The move has seemingly re-energised the slide back of the past two weeks which had threatened to stabilise. Momentum indicators are gathering pace in their downside with the Stochastics in strong negative configuration now and the RSI falling at their lowest since early January. A test of the breakout support band $1.2800/$1.2815 is now on. This could prove to be a key near to medium term moment for Cable as a break of $1.2800 really does increase the downside pressure further within the range. Resistance of lower highs is mounting overhead too, with the $1.3000 psychological barrier and the old pivot at $1.2920. The hourly chart reflects this negative bias and that any near term technical rebounds are being seen as a chance to sell now. The big caveat is anything positive on the Brexit newsflow front would be sterling positive, but in the absence of this, Cable is tracking lower.
At last, after a week of near constant pressure, the dollar has broken out against the yen. A decisive close above the 110.00 medium term pivot which has proved to be a sticking point for the bulls, now means that the way is open for further recovery. The next key pivot is at 111.35. With momentum indicators confirming the strength and the breakout, the RSI is at multi-moth highs above 50, whilst the Stochastics are strongly configured and MACD lines are rising. The 110.00 pivot now becomes a basis of support and the hourly chart shows that any unwinding move into the 110.00/110.30 is a chance to buy.
The near term corrective momentum is still providing the chart with a negative drift within the 12 week uptrend (today around $1296). However, despite the strength of the dollar in recent sessions, gold has held up very well and the move is still likely to be seen as a chance to buy. The breakout above $1298 from late January and the subsequent long term pivot band $1300/$1310 shifted the outlook to a far more positive medium to longer term configuration. So as the market unwinds the breakout there will always be the potential that corrective momentum could continue. For now the support at $1302 has held, however, yesterday’s negative candlestick and an ongoing unwind in momentum indicators reflects a drag on the price. As yet though there has been no negative break in the strength of the medium term technical, and once more the market is finding support today. The bulls are on the lookout for a renewed buy signal, but care needs to be taken as for now this is a consolidation. The hourly chart shows a near term pivot around $1316 which needs to be broken to begin to improve momentum again. The hourly chart is beginning to take on more of a ranging look as the hourly RSI oscillates between 30/70, whilst support at $1302 is holding.
Corrective momentum is a drag on WTI as the run of negative candles builds and technical signals slide back. However, for now this is part of a range consolidation. The RSI is back to around 50 and although it is at a five week low, seems to be relatively settled. The Stochastics seem to also be less aggressive in their correction, whilst the MACD lines are only drifting from their bear cross. This all suggests that momentum is not so aggressive. There is new mini-downtrend formation which comes in at $52.85 today, so this is a key moment as intraday rallies are now being sold into. How the bulls respond at the resistance band $53.00/$53.30 will determine the near term outlook. A retreat below $51.25 initial support would put big pressure on the key reaction low at $50.40 which is all but on the 23.6% Fibonacci retracement at $50.50.
Dow Jones Industrial Average
Wall Street opted against taking part in the equity rebounds that were seen through European markets yesterday, leaving the Dow to once more consolidate. Mild early gains could not ignite the buying pressure and the market drifted back throughout the session to close mildly lower (by around 50 ticks). The 61.8% Fibonacci retracement at 24,950 and the old pivot around 25,000 seem to be around where the market is forming a basis of support now, but this is a move that certainly needs to be watched. There is a mild deterioration in momentum which if allowed to proliferate could turn into something more concerning. The Stochastics have crossed lower and are beginning to track down, whilst the MACD lines have also converged and are threatening to bear cross. Friday’s low at 24,883 will certainly need to hold, especially on a closing basis otherwise this market could quickly see a correction ramp up. Initial resistance at 25,197 (yesterday’s high) is turning 25,200 into a pivot area to watch on the hourly chart.