President Trump has tweeted that “substantial progress” has been made in the talks between the US and China over their trading relationship. This means that Trump will delay the imposition of the additional tariffs that were supposed to be coming into force on 1st March. This is positive for market sentiment, at least in the near term. Whilst the talks are ongoing and the two Presidents Trump and Xi are likely to meet to finalise the agreement (at Trump’s golf resort in Mar-a Lago, Florida), there is still work that needs to be done. Progress made on intellectual property and technology is key, although it is not certain how existing tariffs will be impacted at this stage, nor how long the extension of the deadline will be. For now though, broader risk appetite is positive. Chinese assets are performing very well, with the yuan strengthening to levels not seen since July 2018, whilst Chinese equities are storming higher today. Furthermore, higher risk currencies are performing better today, with the Aussie dollar finding recovery traction as a broadly dollar negative vibe sweeps through major forex pairs. The dollar gained ground on its safe haven status through the trade dispute, but this could begin to unwind now.
Wall Street closed with decent gains on Friday with the S&P 500 +0.6% at 2792, whilst US futures are another +0.3% early today. Asian markets have been strong, especially in China, with the Shanghai Composite +5.4% whilst the Nikkei was +0.5%. In Europe, early moves also look decent with the FTSE futures +0.2% and the DAX futures +0.4%, seemingly set to outperform. In forex, there is a mild early move against the dollar, with the Aussie and Kiwi the strong performers around +0.3% higher. In commodities, the dollar negative vibe is helping gold to maintain support, whilst oil is just stuttering initially today.
It is a very quiet day for the economic calendar today, with Bank of England Governor Mark Carney being the main event at 1000GM
Chart of the Day – FTSE 100
The rally on FTSE 100 has been strong until the past few sessions. With markets such as the DAX and CAC still pulling out for further new multi month gains, it was interesting to see the FTSE 100 stall. Perhaps the negative correlation with the stronger sterling has not helped, but the technicals on the FTSE are beginning to look a little precarious near term. A bear cross on the MACD lines is threatening just as the Stochastics are crossing back lower below 80. The market will be keeping an eye on the RSI which is still positively configured in the high 50s, but if this now goes below 50, along with a MACD cross and bear traction in Stochastics it could begin to pressure the index. For now, the slip back will just be seen as another chance to buy. Candlesticks have been mixed in recent days bit the selling pressure has not taken off yet. On gauge will be taken with a move back into the 7200/7300 pivot band which will improve the outlook again. A move above 7260 would open the upside once more. The key low to watch is the higher low at 7065.
After several days of procrastination, perhaps the market is ready to take on the recovery once more. Each of the past four sessions have all closed within 7 pips of one another. However, there has been a cross higher on MACD lines, whilst Stochastics are tracking higher and the market has started the day on the front foot. After three consecutive very small bodied candlesticks, is there about to be an upside break? If the bulls can close and trade clear of the $1.1345 old resistance it would be a positive signal that the market was ready to rally within the range once more for a move towards the mid-range pivot at $1.1420. Continually trading above $1.1300 improves the outlook too for the bulls. Watch the hourly char indicators for signs of a move coming, with the hourly RSI above 60 being a sign of developing bull momentum. Initial resistance at $1.1370 now.
Similar to EUR/USD, we have Cable that has stalled in recent days, closing for four sessions in a row within 13 pips, accompanied by very small candle bodies. This reflects uncertainty. However, this does not tell the whole story as Friday’s candle tested lower only to be bought into the close in a move that has left support at $1.2965 before rallying back though the $1.3000 psychological pivot. A rally through the $1.3050 resistance is threatening today and a closing breakout would begin to generate upside traction which has stuttered in recent sessions. The rally high at $1.3110 is the intraday resistance with an upside break being a real signal of intent that the bulls are gaining control again. The big resistance remains at $1.3215 with $1.3160 being a lower reaction high.
The dollar rally has stalled again in the past couple of sessions. The market had been pulling higher from the 110.25 reaction low but a run of mild positive candles has slipped into a run of more negative candles in recent days. Hitting a high at 110.95 (just under the rebound high of 111.12) the market is now slipping back. This is being reflected on the momentum indicators with the Stochastics beginning to track lower. This is in isolation as a negative signal, for now, but if the MACD lines bear cross and RSI drops back below 50 it would really increase concern. Initial support is at 110.25 which is above the 110.00 medium term pivot breakout which is supportive. A move below 110.00 would increase the importance of 111.12 as resistance and begin to seriously question the continuation of the recovery.
The bulls remain in control and corrections are a chance to buy. The unwind back from $1346 found good support back inside the previous range to propel the market back higher for a bull candle on Friday. This has left a low at $1322 which is now a potential next higher low. There is a strong configuration across momentum indicators with the RSI again finding buyers returning between 55/60 as weakness continues to be seen as an opportunity. The now 14 week uptrend comes in to support the market at $1310 today which means that the market is now positioning consistently above the key $1300/$1310 long term pivot. A retest of the $1346 recent high is preferred now. The hourly chart shows initial resistance is now at $1337. Holding back above the old breakout at $1326 would strengthen the bulls position.
Intraday corrections on WTI are a chance to buy. The breakout above $55.75 is supportive now but it was interesting to see the buyers were tempted back in almost at the first sign of a negative candle last week. Having traded consistently clear of the 38.2% Fibonacci retracement at $55.55 now means that the 50% Fib at $59.60 is the next target area. However, in the meantime, there is a long term pivot at $58.00 to overcome. The bulls will be confident with the RSI into the high 60s and at a four month high to confirm the strong bull move. The hourly chart shows continued strong configuration on hourly RSI which is still turning higher around 50, whilst the hourly MACD lines are consistently above neutral. Initial support is at $56.35/$56.75. A close above the pivot would open the 50% Fib level at $59.60.
Dow Jones Industrial Average
The bulls continue to see any weakness as a chance to buy. Thursday’s retreat towards the 76.4% Fibonacci retracement at 25,715 found a low at 25,762 and the bulls have formed yet another strong positive candle to push the market into new multi-month highs again. The fact that the market has pushed higher from the 76.4% Fib level bodes well now for a full retracement too. There is strength across the momentum indicators with the RSI continually up around 70, MACD lines rising and Stochastics strong. Throughout this recovery over the past couple of months, there has never really been a time where there has been a run of negative candles formed. Every time the bulls get an opportunity it is snapped up. On the hourly chart, anything between 35/45 on RSI, or MACD lines above neutral are such an opportunity. Initial support at 25,915. Next resistance is 26,278.