The US dollar is beginning to really feel the squeeze once more as a string of factors play into a move away from the Greenback. Firstly, the dollar is suffering in its considered safe haven status as the US/China trade talks seem to be moving in the right direction. Fed chair Powell may have been relatively positive above the US economy at his Congressional testimony yesterday, but re-iterated the FOMC’s patient stance. With Treasury yields dropping back, the dollar suffered. Powell has to go through it all again today with the House Financial Services Committee, but do not expect too many fireworks as much of his outlook will now be known. Finally the dollar is coming under pressure from a resurgent sterling as it now seems that Brexit is on either a much softer path, or perhaps even no Brexit at all. The prospect of a no deal fall out of the EU has been reduced as Prime Minister May outlined a series of votes yesterday which could officially take no deal off the table, whilst also could extend the Article 50 date from 29th March. With the Labour opposition set to back a second referendum, the prospect of perhaps the UK even remaining in the EU is now very real once more. To add into the mix, Donald Trump meets with North Korean President Kim today in Hanoi, Vietnam, although unless the announce unilateral North Korean nuclear disarmament, markets may not be all that interested, whilst the escalating tensions between India and Pakistan could be taking some risk appettie out of the market this morning.
Wall Street closed a shade lower yesterday with the S&P 500 -0.1% at 2794 with US futures also cautiously lower again today, by-0.2%. Asian markets are sitting more positively, with the Nikkei +0.5% whilst the Shanghai Composite was +0.1% higher. In Europe, markets seem to be taking a steer from the US today with FTSE futures and DAX futures both around -0.4% weaker. In forex, there is very little real direction albeit a slightly cautious look to major pairs, with mild yen outperformance hinting, In commodities, there is a lack of direction on gold still, although the slight caution is hitting silver slightly lower. Oil has seemingly found a bid overnight, with OPEC production cuts still supportive.
It is another fairly quiet day of data up until the US session with Pending Home Sales at 1500GMT which are expected to contract by -1.9% in January (after a -2.2% contraction in December). US Factory Orders are also at 1500GMT and are expected to grow by +0.9% in December (after a -0.6% decline in November). EIA Oil Inventories are at 1530GMT and are expected to show crude stocks increasing again by +2.6m barrels (after an inventory build of +3.7m barrels last week). Today is also day two of Jerome Powell’s Congressional testimonies where he sits in front of the House Financial Services Committee.
Chart of the Day – EUR/JPY
With a broader more risk positive outlook on the US/China trade talks, is the yen about to suffer? The euro has been edging more positively in recent sessions and this is manifesting in a move towards a near term breakout on Euro/Yen. Having held above the pivot around 125.40 this has now also been coupled with Monday’s closing break above 125.95. This also confirmed a broken five month downtrend, whilst also being confirmed on momentum indicators. The daily RSI has been struggling around the mid-50s since October, but Monday’s breakout hit 60, whilst the MACD lines have pushed above neutral also for the first time since October. Is yesterday’s slip back now giving another chance to buy? A drop into the near term “buy zone” 125.40/129.70 with the old downtrend now a basis of support, as is the 55 day moving average (today at 125.33) could be an opportunity. The hourly chart shows positive momentum configuration and the drop back has come into an area where hourly RSI and hourly MACD lines have been consistently been attractive buyers in the past week. Initial resistance at 126.30 whilst holding the recent breakout would now open a recovery into the 127.10/127.50 next pivot area.
The positive candlesticks are beginning to take hold as a second consecutive bull candle formed yesterday to add another 25 pips and begin to develop the upside traction. This comes with the low of yesterday’s session now using the old pivot at $1.1345 as a basis of support as intraday weakness is now being bought into. Momentum indicators are increasingly positively configured, with the Stochastics accelerating higher and RSI above 50. A move towards the next pivot at $1.1420 is developing. The hourly chart is now showing a far more positive near term momentum configuration with the hourly RSI continually improving from 40/45 and pushing above 70, and the MACD lines consistently hold above neutral. There is now a near term buy zone between $1.1345/$1.1370.
Cable absolutely roasted higher yesterday as softer Brexit options (or perhaps even no Brexit at all) suddenly came into view. Sterling pulled sharply higher with Cable over 160 pips higher on the day. This pulled the market through several resistances, with the closing break above $1.3215 (the old January high) now meaning a move to the highest level since September. The key medium term range (of the past 8 months) is capped around the $1.3300 mark and this would be a crucial breakout if it were to be seen. This would be a resistance not taken lightly and certainly would be a signal of the market pricing for much softer Brexit options. Technical momentum indicators are clearly strong now and there is breakout support band $1.3160/$1.3215 to consider as the market just unwinds a touch this morning. A move back below $1.3160 could mean further slip back into the $1.3050/$1.3110 support band. Today’s session could see further volatility through more action in the UK Parliament on Brexit. Stay close to the newsflow.
It is interesting to see that the dollar is under increasing pressure across the majors again, and even against the safe haven yen despite a more positive risk flow. This is showing with another rejection of a bull candle on Dollar/Yen as yesterday’s 50 pip decline completely aborted any positive aspects of Monday’s rally and now threatens to put a more corrective outlook to the pair. The support at 110.25 will now be key, whilst a failure of the breakout support at 110.00 would be a very telling move. This is coming as the momentum indicators are now beginning to take a deterioration on board. The RSI is at a two and a half week low and is calling for a breach of 110.25 support, whilst the Stochastics are similarly posting a negative near term signal and the MACD lines are threatening to cross lower. If the bulls do not respond today and perhaps even close below 110.25 then there will be a distinctly corrective outlook taking shape. Watch for the hourly RSI dropping below 30 as an early signal. A close below 110.00 opens 109.55. Resistance is now in the range 110.60/110.90.
A day of consolidation and gold continues to build support around the $1326 breakout. A couple of neutral/mixed candles may hint that perhaps the bulls are not quite ready to push on, and this mood continues into this morning with the market still stuck around $1326. However, the configuration of momentum indicators remains positive on a medium term basis and near term corrections remain a chance to buy. The RSI has again held up between 55/60 whilst the MACD lines are strongly configured and the Stochastics which have been slipping back recently are on the brink of crossing back higher again. The support of Friday’s low at $1321 is still in place, but the hourly chart shows that anything supported above $1316 (an old mid-range pivot) will maintain a positive configuration. The bulls will be looking for a move back above $1333 to re-open the push higher for a retest of $1346.70 which was the February high before further moves to test the 2018 highs around $1366. The 14 week uptrend rises at $1314 today and is added support above the $1300/$1310 long term pivot.
A solid reaction of support was seen yesterday in the wake of Monday’s loss of just over 3%. The bulls will note that this basis of support and consolidation came around the 38.2% Fibonacci retracement at $55.55 whilst the band of support between $53.25/$54.25 also remains intact. Momentum indicators may have taken a hit on a near term basis, but the medium term outlook remains very strong still for further recovery and if the market can close above $55.75 which was a previous breakout then the bulls will begin to feel happier again. There is still a risk on the hourly chart that perhaps the recent corrective move has not quite played out, but if the hourly RI can begin to position above 60 again and the MACD lines above neutral then the outlook will improve again. Holding the initial support at $55.00 will help to rebuild any jilted confidence.
Dow Jones Industrial Average
With the strength of the uptrend on the Dow since the turn of the year, the bulls are feeling in control. However, this remains a strange bull run where the market seems to be very tentative in its move. In three of the past four sessions, the daily candlestick have reflected a cautious market, and yesterday’s doji candle lower again shows this. This is coming with the RSI bumping up against 70, and the MACD lines still advancing, however, is momentum tailing off? The Stochastics are strong but again threaten to roll over. The uptrend needs to be watched, coming in at 25,945 today. The 76.4% Fibonacci retracement at 25,715 is supportive and an area to capture a consolidation should one be seen. For now the trend is intact, but a sense of caution with the optimism is taking hold. Resistance at 26,241.