The rolling over of the recent rally on risk now means that markets are around a key crossroads. We have seen increased flow back into safe havens through much of this week and this move is threatening to gather momentum now. Yesterday’s sharp decline of over -4% on major equity markets, along with Treasury yields falling and the dollar rising is a red warning light flashing now. If this move continues over the next couple of sessions it could turn into a flood of renewed selling pressure once more. It is interesting to see major markets with little significant direction this morning, but there is a minor positive bias coming as oil has rebounded. Traders seem to be cautious ahead of what could be another eye-wateringly large US Weekly Jobless Claims number today. Last week saw a mammoth 3.28m claims, with even more expected today. Market reaction to any negative surprise could be key for the coming sessions. When markets sell bad news, it is because there is a feeling that even worse is to come around the corner. There will also be half an eye on tomorrow’s Non-farm Payrolls numbers too. The big mover today comes with a sizeable rebound in the oil price. A bounce of over +10% has been seen coming into the European session, after comments from Donald Trump that some sort of agreement between Saudi Arabia and Russia (two of the three largest oil producers) could be seen in the coming days. Russian President Putin also said that a solution should be found. The rebound on oil is helping the commodity currencies this morning.
Wall Street closed decisively lower last night, with the S&P 500 -4.4% at 2470. However, US futures have stabilized this morning and are around +1.5% higher. This has helped to temper selling in Asia, with the Nikkei -1.4% but the Shanghai Composite +1.1% higher. European markets are also looking relatively stable with FTSE futures +0.4% and DAX futures +0.3%. In forex, there is a quiet start across the majors, although it is interesting to see EUR still struggling under a shadow of the debate over the mutualisation of “coronabonds”. The commodity currencies are performing well and looking to unwind recent losses with CAD, NZD and AUD all higher. In commodities, the big mover is oil around +10% higher, but silver is +1.0% whilst gold is trading around flat.
Thursday may become a key day every week on the economic calendar now as everyone looks at the US Weekly Jobless Claims. The data at 1330BST is the most up-to-date look at the US labor market and is expected to show 3.50m claims in the week ending 28th March (3.28m in the previous week). The US International Trade balance for February is at 1330BST and is expected to show a deficit of -$40.0bn (improved from -$45.3bn in January). There are also US Factory Orders for February at 1500BST expected to show growth of +0.2% on the month (after a decline of -0.5% for January).
Chart of the Day – USD/CAD
Dollar strength seems to be resuming as safe haven forex begins to perform much better again. There is a clear performance correlation between the Canadian dollar and oil, meaning that USD/CAD has been rising in recent sessions. The US dollar slip of late March has found support with USD/CAD at 1.3920 and the market is now building a run of daily higher lows again. Volatility remains huge on the pair, with the Average True Range around 280 pips right now. However, we now see intraday corrections as a chance to buy again. With oil higher early today, we are seeing another intraday dip on USD/CAD, but this should provide another chance to buy. The rising 21 day moving average has been an interesting gauge of support in the past six weeks (around 1.4050 today). Hourly momentum also shows positive configuration to buy into weakness, with RSI consistently holding above 40 in recent days. There are a couple of levels to watch of note today. The bulls will need to hold on to support at 1.4010 to maintain the run of higher lows, whilst ideally maintaining a position back above the old pivot around 1.4145. Resistance is initially at 1.4200 and 1.4270, whilst we expect to see pressure on 1.4340 (a pivot of the past two weeks).
The euro remains under corrective pressure as a third consecutive negative candle was formed yesterday. This is beginning to weigh on daily momentum indicators which is seeing the RSI and Stochastics roll over around their neutral points and MACD lines doing similar a shade below neutral. The hourly chart shows a sequence of lower highs and lower lows now forming, with a classic negative configuration set up on momentum. The hourly RSI is failing around the mid-50s and pulling back towards 30, whilst hourly MACD lines are struggling under neutral. Resistance has strengthened at $1.1040/$1.1050 as an area of key lower high now (under $1.1145) but also now the prospect of another lower high resistance area $1.0950/$1.0970. This would be around the old $1.0950 pivot and suggest negative pressure of selling into strength. With intraday rallies failing we expect pressure on $1.0885/$1.0900. Trading clear below the 38.2% Fibonacci retracement (of $1.1492/$1.0635) also brings into focus the 23.6% Fib around $1.0835.
Whilst the euro struggles, there is an interesting strength to sterling. This is helping to hold Cable up against the renewed safe haven flows of the dollar. Cable has built a consolidation in the past few sessions. Whilst the rally has found resistance at $1.2485, it is interesting that support has built around the 50% Fibonacci retracement (of the $1.3200/$1.1405 sell-off) at $1.2300. The RSI is hovering bang on its neutral point now, but there is still a positive bias though the continued recovery on Stochastics and MACD. The hourly chart shows this as a trading range between $1.2250/$1.2485 for the past four sessions, which considering the Average True Range is still over 300 pips (c. 307 pips this morning) suggests a remarkable calming of the market volatility. Hourly RSI is now ranging between 40/65, whilst hourly MACD lines are dead flat at neutral. We still wait for a decisive breach of either support at $1.2300 or resistance at $1.2485. We trade an implied target of +/- 185 pips in the direction of the break.