Market sentiment remains cautious as President Trump’s threat to increase tariffs on Chinese imports has been realised. At one minute past midnight (on the US east coast) the US increased tariffs on $200bn of Chinese imports from 10% to 25%. This move ramps up tensions in the trade talks and threatens to escalate the dispute to a new stage of retaliatory moves. Trump has promised more tariffs on a further $325bn of Chinese imports to come. There has been nothing official yet, but how China responds could be crucial. A belligerent response would certainly inflame the situation and threaten a significant negative spiral in relations. However, apparently President Trump received a “very beautiful letter” from President Xi, whilst the talks between the two delegations continue today. All is not yet lost and an all-out trade war can still be averted. Perhaps this letter from Xi is giving markets hope of conciliation. Asian trading has been relatively positive, and whilst there is still a safe haven bias to trading, there is nothing decisive, for now. Oil is higher and also equities are looking reasonably positive today. This suggests traders are maybe looking on the bright side, again, for now. We will know more in the next day as the talks conclude. The response from US Trade Representative Robert Lighthizer (a hawk on China) and of course President Trump could be crucial for the weeks and months ahead.
Wall Street closed weaker, but well of the session lows, with the S&P 500 -0.3% at 2870. Having earlier been lower, US futures have recovered to flat today, helping Asian markets higher overnight. The Nikkei closed -0.3% lower whilst the Shanghai Composite was strong higher by +2.7%. European markets look set for a good bounce in early gains, with the FTSE futures +0.9% and DAX futures +1.0%. In forex, there is a mixed sentiment with little real direction of note on the majors. In commodities, gold continues to consolidate, whilst oil is ticking slightly higher by around half a percent.
US inflation once more takes the focus on the economic calendar today. First of all though a clutch of UK data for March is at 0930BST. UK monthly GDP for March is expected to be +0.0% (+0.2% in February), with the UK Prelim Q1 GDP expected to be +0.5% (+0.2% in Q4 2018). It will also be interesting to see how UK Industrial Production for March sits, with consensus expecting +0.5% on a year on year basis (which would be up from +0.1% for the year in February). The UK Trade Balance is also expected to see the deficit improve slightly to -£13.8bn (from -£14.1bn in February). The big focus for markets will be at 1330BST with US CPI for April which is expected to improve on both headline CPI to 2.1% (from +1.9% in March) and core CPI to +2.1% (from +2.0% in March). It will also be worth keeping an eye out for Fed speakers, with Lael Brainard (voter, dove) at 1330BST and John Williams (voter, leans hawkish) at 1500BST.
Chart of the Day – NZD/USD
The Kiwi was been one of the worst performing major currencies in recent weeks. So with the rebound yesterday is this another chance to sell? The downtrend channel of the past six weeks has taken the market below the support at $0.6590 which now becomes a basis of overhead supply. The trend channel comes in to provide resistance at $0.6620 meaning there is a near term sell zone between $0.6590/$0.6620. An early rebound this morning failing at $0.6613 plays into this. Momentum indicators remain negatively configured and rallies within the channel continue to be an opportunity to sell. The RSI has continually seen rallies fail between 40/45. Currently the RSI is in the mid-30s so there is room to unwind, but expect the sellers to regain control again in due course. Wednesday’s decline on the RBNZ rate cut is likely to see the low at $0.6525 retested in due course, whilst continued weakness within the channel opens the key October low at $0.6420. Key resistance is at $0.6650 with this week’s high at $0.6630 as initial resistance.
The euro is clawing back some lost ground. A recent consolidation is beginning to pull higher and break the resistance of a seven week downtrend. Yesterday’s positive candle made the initial move and the bulls are continuing to edge higher today. This is reflected in momentum indicators that are beginning to pull higher, with MACD and Stochastics pulling higher. However, there are still significant barriers to overcome for the bulls to consider this move sustainable. Frequently in recent months, the falling 55 day moving average has been a basis of resistance, today around $1.1265. Also there is a recent lower high at $1.1265 to overcome too which needs to be cleared on a closing basis. The market will also be eyeing the resistance of the seven month downtrend which is a confluence resistance with the old key support (now resistance) at $1.1300. Plenty to overcome. Support is growing around $1.1175.
There is a building consolidation around $1.3000 as a basis of support again. The unwinding move back from $1.3175 is now stabilising but the positive aspect of the recent move higher has been nullified. Momentum indicators have either rolled over (MACD under neutral) or turned lower. A move to consistently close below $1.3000 would put pressure back on the $1.2865 April low. The hourly chart shows a run of pivots providing resistance in the past few sessions. Initial resistance is $1.3035 and then $1.3080. An intraday move below yesterday’s low at $1.2965 would suggest the selling pressure is mounting again.
The safe haven bias continues to be yen positive and a drag on USD/JPY. Another decisive negative candle has breached the support of the March low at 109.70 which if now confirmed on a closing basis would open 108.50. Momentum is increasingly negative as the RSI drops decisively below 30. This looks to be a trending move, so the fact that the RSI is below 30 should not deter from continued downside. MACD lines and Stochastics are also bearishly configured. The hourly chart sows ongoing negative configuration and selling into strength. The initial resistance is at a pivot of 110.25, whilst an early rebound faltered this morning at 110.00. Intraday support at 109.45.
The recent consolidation comes with a very slight near term positive bias. This has now pressured the 11 week downtrend twice in the past two sessions and continues to do so today. Although the downtrend remains intact for now, it comes in at $1289 today and merely continuing the positive bias within the recent consolidation would breach the trend in the coming days. However, it is interesting that even with periods of dollar weakness, gold has been unable to build decisive positive traction. Rallies remain a chance to sell. This phase of trading is all playing out under the $1300/$1310 long term pivot band, whilst the April reaction high at $1310 continues the run of lower highs. Momentum studies are ticking higher to reflect the mild positive bias, but this is still within the scope of negative configuration on medium term indicators. The hourly chart shows $1278 remains a near term pivot and is initially supportive, above the $1266 key lows.
Oil continues to develop the recent consolidation. The move sideways has now broken what has been a two week downtrend, although there is still a corrective bias drive by the formation of a small top pattern from April. Failing around the $62.30/$63.00 resistance, the market is still building a process of lower highs and lower lows. Although the decisive corrective configuration on Stochastics and RSI has just lost impetus, the MACD lines continue to decline to over three month lows. However, whilst the support from earlier in the week around $60.00 remains intact, the next phase of correction is illusive. The April top pattern continues to imply a $58.00 target. The importance of the resistance at $63.00 is growing.
Dow Jones Industrial Average
The corrective bias t trading continues to pull the market lower. However, there has been a positive reaction from the bulls in yesterday’s trading which has seen the market bounce over 300 ticks from the low at 25,517 to close near the session high. Although not a classic set up, this is arguably a bull hammer. The key is now how the market responds today. Renewed selling pressure and a negative close would suggest that the rebound is a little more than a blip within the corrective move. Yesterday’s low of 25,517 takes on added importance near term. The hourly chart suggests the bulls are still under pressure and unwinding moves are just another chance to sell. Initial resistance is 25,885 under 26,118. Below 25,517 opens 25,210/25,370.