Markets are looking to re-establish their recovery trends this morning after something of a bull failure came late in yesterday’s session. The threat of a risk reversal has appeared after Wall Street failed in a breakout to multi-week highs. However, as the FOMC meeting looms today there has been a decent early reaction across risk assets. With Treasury yields holding ground, we see US futures ticking higher again, whilst the dollar has slipped lower once more (after paring losses yesterday). There is nothing decisive about the early moves though, with the Fed decision due later. The Federal Reserve embarked upon three emergency moves in March, so the prospect of a scheduled meeting seems a little odd. However, we are not expecting too much from the Fed tonight, with a wait and see approach likely. Today’s US growth for Q1 is expected to be bad, but will in no way lay out the full picture of the economic impact of COVID-19 (which will be felt far more significantly in Q2). The Fed may opt to tinker with its asset purchases, with the potential for some sort of Japanese-like yield curve control (however, this could be something more for future meetings as hey know more of the economic impact). Limiting yields from rising would certainly weigh on the dollar in the months ahead as economic recovery begins to kick in and subsequently could jolt the dollar lower today. It would be positive for risk appetite too, and could play into the recent tick higher in sentiment. In front of the Fed though, we expect markets to remain fairly settled today. Watch for the latest EIA inventories as volatility remains elevated for oil.
Wall Street closed disappointingly lower with the S&P 500 at -0.5% (at 2863). However, with futures rebounding (E-mini S&Ps up +0.8%) we see a mixed to positive steer from Asia (Nikkei -0.1%, Shanghai Composite +0.3%). European markets are also looking reasonably well supported with FTSE futures +0.3% and DAX futures +0.2%). In forex, we see USD drifting off once more, with a positive risk edge as AUD and NZD outperform. In commodities, gold and silver are around the flat line, whilst oil has rebounded this morning with WTI +13% and Brent Crude +3%.
A first look at Q1 US growth and the Fed meeting are key on the economic calendar today. The US Advance GDP (Q1 annualised) is at 1330BST and is expected to show a decline of -4.0% (after a final growth of +2.1% in Q4 2019). US Pending Home Sales at 1500BST are expected to decline by -10% in March (after growth of +2.4% in February). The EIA Crude Oil inventories are always a market mover now, at 1530BST and expected to show another huge build of +10.6m barrels last week. Finally the FOMC monetary policy decision is at 1700BST with no change expected to the Fed Funds range of 0.00%/0.25%. The FOMC statement will be looked at for hints at potential further action to come.
Chart of the Day – NZD/USD
Having seen the Aussie outperforming impressively in the past few sessions, it is interesting to see the technical outlook for the Kiwi is faring less well. However, we have seen NZD/USD picking up and it is once more testing the key resistance band between $0.6070/$0.6130. This has been the barrier to gains for the past month, restricting the bulls last week but is now coming under growing pressure today. Are the bulls capable of sustaining an upside break. Momentum has been ticking higher in recent sessions, and is edging towards breaking higher. RSI is beginning to break to multi-month highs (above 55) to lead the breakout, whilst MACD and Stochastics are also rising (although MACD needs to pull above neutral to add conviction). The bulls will take heart from the reaction to initial weakness at resistance yesterday that has left a near term higher low at $0.5990 yesterday. The hourly chart shows near term breakout support at $0.6040/$0.6090 today and the bulls will want to build on signs of improvement in hourly momentum indicators. This is a market that needs to close above the 50% Fibonacci retracement (of 0.6755/$0.5470) around $0.6110 to break the tendency for repeated bull failures between $0.6070/$0.6130. This would then open $0.6200/$0.6265. The hourly chart shows a band of support $0.5980/$.06000 which the market has gravitated back towards throughout the past month of consolidation.
The euro recovery had the reins pulled on it yesterday as the old April pivot around $1.0890 once more proved to be a barrier to gains. Losing -70 pips from the day high into the close will have been a disappointment for the bulls and seriously questions the potential for a sustainable EUR/USD rally. The legacy of this candlestick (which is effectively a bearish shooting star) will now hold whilst the high at $1.0888 does. For some time, rallies have been used as an opportunity to sell and it is interesting to see yesterday’s bull failure once more around $1.0890, has formed a four week downtrend. The market has picked up once more this morning, and it will be interesting to see how the bulls react around the downtrend (falling at $1.0875 today) and what is an increasingly important pivot at $1.0890. The hourly chart will give the bulls some hope as more positive configuration on momentum (hourly RSI consistently above 40) and once more support around $1.0810 (an old pivot) having been built. For now we still favour selling into strength under $1.0890 and another failure of $1.0810 would open $10.725 again.
The dollar clawed back earlier losses yesterday to leave the Cable rebound to ponder the negative implications of a shooting star candlestick formation. Firstly with yesterday’s price action, the importance of resistance at $1.2515 is growing. We have spoken previously about the importance of the support around $1.2300 and the 50% Fibonacci retracement (of $1.3200/$1.1405), however, we can now add the 61.8% Fib at $1.2515 as a basis of resistance now. The bull run skid to a halt at the 61.8% Fib level. However, the bulls have taken that disappointment well today and used the increasingly important pivot around $1.2405 as support for renewed early buying pressure. Momentum indicators retain their hint of encouraging momentum, but how the market reacts around the 61.8% Fib again will be key. If Cable is seen is seen as a range, then this resistance around $1.2515 will again weigh. RSI is edging back above 50 once more, but remains in a month-long oscillation between 45/60. MACD lines are also all but at zero again. It still suggests playing the range, a strategy that we prefer right now. This means that rallies are still likely to fade. Above $1.2515 opens the key April high of $1.2645 again, but given the neutral technical signals it is difficult to see rallies lasting too long.
The run of negative candles on Dollar/Yen continues as the dollar comes under increasing strain now. The swing lower has begun to form candles with a greater negative magnitude in recent sessions and support levels are now being breached. We have spoke about eh importance of the April lows at 106.90 (a level tested twice during runs in earlier April). This support has been decisively breached now and momentum is beginning to accelerate downwards. Moves below the 50% Fibonacci retracement (of 112.20/101.20) at 106.70 are also adding to the weighing negative sentiment too. Downside moves now have the erratic levels of mid-March to deal with. There is little real reliable support from this time until 103.10 or even the full retracement to 101.20. However, there are old levels to consider around 105.85 and then 104.45/105.00. The 38.2% Fib is also around 105.40 so is a decent target area for the next consolidation. The one main caveat to this is the FOMC meeting tonight, which could clear shift the narrative for a recently corrective dollar. The hourly chart shows that 106.90 is old support turned new resistance, whilst 107.25/107.35 is further overhead supply.
The positive outlook for gold has become far less secure in recent days. We turned neutral on gold yesterday as the pivot at $1702 was breached. A rally into the close left the door ajar for the rally, but with three negative daily candles now in a row, the downside pressure is growing. Momentum indicators are beginning to show the strain, with a bear cross on MACD lines and Stochastics also beginning to find traction lower. Once more we see the market gravitating around the $1702 this morning and although there has been no breach, the hourly chart is beginning to show a more corrective configuration forming. The market seems to be on hold to an extent today, with the FOMC meeting today (and arguably the ECB tomorrow too). For the bulls to get back on track, there needs to be a closing move back above $1717. For now though we are cautious over how this recent decline has developed within the context of what could still be considered a range formation between $1660/$1746. A breach of initial support at $1690 would open $1660/$1670 again.
Brent Crude Oil
We remain bearish on oil, but the bulls have fought to build some important near term support in the past 24 hours. A downside break of $19.90/$20.00 looked to be regaining momentum of the trend lower, but a rally into the close has continued this morning and the sharp two and a half week downtrend has been broken. For now, this looks on the daily chart to be playing as part of a near term consolidation. It is remarkable to say, but the candlesticks are actually still relatively small (even if daily swings are still extremely volatile. We still see a band of resistance between $21.65/$24.50 which captured last week’s rebound high. This morning’s rally is now approaching the lower bound of this band. At least the negative momentum appears to have slowed for now, as Stochastics and MACD lines moderate, whilst RSI even begins to tick higher. Support is now in place at $18.75 as a marker for the bulls, whilst the hourly chart shows a near term pivot forming support around $19.90/$20.00.
Dow Jones Industrial Average
A negative close on the Dow last night after an initial breakout has raised the prospect of a failed upside break in a “bull trap”. An initial move through resistance at 24,265 turned back from 24,512 and closed back in the resistance again. We now need to be on the lookout for signs of exhaustion in the bull run higher. US futures are looking fairly decent early today, so initially there is little need to panic for the bulls, however, we will be watching an uptrend (dating back to 3rd April) which sits around 23,920 this morning. Hourly momentum has ticked lower on yesterday’s pullback, but nothing overly negative yet. The 50% Fibonacci retracement (of 29,567/18,213) at 23,890 will also be watched as the Fibonacci retracements of the big sell-off have played a key role as significant turning points in this recovery. Daily momentum is still strong too. For now, yesterday’s session should serve as a warning, but if this runs into three or even four negative sessions/candles in a row, then the bulls will need to be worried. Below 23,418 turns near term corrective.