After a brief period of contemplation over Thanksgiving last week, in the thin markets of trading on Friday, the dollar bulls seemed to be ready to take the reins once more. Plummeting oil prices, equity markets under pressure, uncertainty over US/China trade relations and political risk in Europe, all add up to increased fear in global financial markets. The dollar will perform well in these times. And so we see that despite Treasury yields remaining subdued, net CFTC dollar futures continue to move dollar positive. The sustainability of this dollar strength remains a medium term question (and likely to be a Q1 or even Q2 2019 story). This dollar strength is pulling through the G4 major currency pairs, whilst preventing a continued gold rally. This morning there has been a slight improvement in risk appetite, helped by a 1% to 2% rebound on oil. Sunday’s snap EU Council Summit which signed off on the draft Withdrawal Agreement between the EU and UK, is allowing a degree of positivity through European markets. However, if this is the case, then it may be short-lived as it is within the UK Parliament where the deal is made or broken. Upside traction has been hard to come by in recent weeks as early session rallies have been sold into. This will be a key test for the bulls early this week.
Wall Street closed a short session lower again on Friday with the S&P 500 -0.6% at 2632 but with futures half a percent higher early today this is stabilising sentiment this morning. Asian markets have been a shade mixed, with the Nikkei +0.8% and Shanghai Composite -0.3%. European markets are going with the US futures and are showing mild early gains. In forex, the more positive risk appetite on Monday morning is shown through the euro gains on suggestion the Italian government may tweak its spending plans, yen and dollar underperformance and outperformance of the commodity currencies as the Aussie and Kiwi begin the week positively. In commodities, the dollar slip amidst improved risk is helping gold and silver higher, whilst oil is looking to unwind some of the near 8% losses of Friday’s session.
The German Ifo Business Climate remains a key indicator of German growth trends and will be keenly watched at 0900GMT this morning. Consensus expects a drop to 102.2 (from 102.8 in October) which would be a four month low and a move back to the levels of the summer.
Chart of the Day – EUR/CHF
The Swiss franc is seen as a safe haven play, certainly more so than the euro. The sense of negative sentiment across markets is subsequently playing out through EUR/CHF moving lower. As the market has trended lower in recent months, there has been a break below an old pivot support at 1.1350 which completed a small top pattern and implies 120 pips of further downside now. It was interesting to see that the 1.1350 breakdown has subsequently now also became a basis of resistance. A close back under initial support around 1.1300 would continue the move lower towards an implied target of 1.1230 which would suggest a retest of the September lows 1.1180/1.1220 should not now be ruled out. Momentum indicators are increasingly correctively configured to suggest that rallies should now be seen as a chance to sell as the MACD lines fall below neutral. Around 1.1350 is an ideal chance to sell, with key resistance at 1.1435.
After a couple of muted sessions which included Thanksgiving, the dollar bulls seemed to come back to the market with renewed vigour on Friday and a strong negative candle was the result on EUR/USD. Closing below $1.1355 (which was the previous low from last week) was an indication that after a period of uncertainty due to the breaking of the downtrend channel, there is still a preference for dollar strength to be a drag on the pair. Momentum indicators which at the early stages of last week had threatened a sustained recovery, have now started to track back lower again, rolling over around levels where the medium term bears will consider an opportunity. The move on Friday has left key near term resistance at $1.1470 and now a lower high at $1.1430 (which is also an old pivot). The hourly chart shows negative configuration on momentum now with intraday rallies now struggling around 60 on RSI and neutral on MACD lines. A move below $1.1300 old support would confirm the bearish control and a retest of the November low at $1.1213 would be then likely.
The strong positive candle of Thursday went some way to being unwound by Friday’s corrective candle but also shows that Cable rallies continue to struggle for traction. Newsflow is still key to near term direction but a downtrend has formed in recent weeks and momentum indicators remain negatively configured. However, there is a suggestion that some of the bearish momentum has dissipated slightly, with the Stochastics and RSI flattening off as the market has still not retested the $1.2722 low. Despite this, sterling remains muted on the upside and it will take some significant positive newsflow over Parliamentary arithmetic on Brexit to generate sustainable upside.
A couple of uncertain candles over Thanksgiving seem to have given the dollar bulls a chance to recharge batteries, as they have pushed higher on Monday morning to move above 113.15 initial resistance. A close above here tonight would be a really positive way to begin the week and point to 112.65 being a higher low above 112.30 and argue that the bulls are ready to push higher again. Near term corrections continue to be seen as a chance to buy within the medium term bull trends and an open move towards a test of 113.70 and the November high at 114.20 would be the result.
Friday’s mildly negative candle just pushed the brakes a little more on a rally that is threatening to run out of steam under the $1236 key resistance. The pivot support at $1217 becomes an important near term level to watch now as this has been a pivot which is supportive and has been underpinning the market in the past week. If this level is breached on a closing basis it would open the potential that the run higher has indeed lost momentum and a more of a ranging phase could be kicking in (rather than the uptrend channel of the past three months). Initial resistance is already at $1230 and is growing in recent sessions, with $1236 being the key medium to longer term pivot that is resistance.
Thin markets and a shortened session did not help oil on Friday but another huge down day has continued to pull WTI lower to levels not seen since October 2017. With such a decisive breach of initial support at $52.75, the psychological $50 level is within touching distance now. This is a sell-off punctuated by sharp declines where the unwinding rebounds are just unable to gain any sustainable foothold in the market. The old support at $52.75 is now a basis of overhead supply initially, with $54.75 adding further supply for a sell-zone of $52.75/$54.75. Momentum indicators have been so oversold and stretched for so long, that it is difficult to say anything other than they are still extremely bearish an are no closer to calling a recovery that they were weeks ago. Initial price support at $50.15 with the next reaction low at $49.10 from October last year.
Dow Jones Industrial Average
A shortened session on Friday with clearly reduced volume and thin trading, as not helped the outlook which continues to look extremely weak. With bearish momentum configuration across the indicators, a retest of the October low at 24,122 is increasingly likely now. Initial resistance today is at Friday’s session high of 24,409 and although there is a suggestion that the market may be stretched initially, intraday rallies are really struggling for traction, as shown with the run of candles showing the close below the open. The main resistance band runs at 24,800/24,900 which is close to a confluence of trendline resistances. Selling into strength is increasingly key now.