Dollar bounce continues but safe havens are still holding support

Market Overview

The dollar has looked to regain some footing in the market in the past few days, but there is still an interesting degree of support for safe haven plays that are nagging away. There is a corrective move on the euro that is developing and the news that the ECB  is not looking to discuss a rate rise, will add weight to the euro offer price today. The FOMC’s Charles Evans continues his assessment that most of his colleagues on the FOMC supported further rate hikes this year. The dollar has clawed back losses against many forex majors in recent days, but it is interesting to see the yen traders refusing to budge. A similar story is coming with gold. It is also interesting to see the recovery in Treasury yields is far more pronounced to the shorter end (which focuses on rate hikes) rather than the longer end (which builds in long run growth and inflation expectations). Sterling remains choppy and struggling to find direction despite the uncertainty of Article 50 now out of the way.

Wall Street closed mixed last night with the S&P 500 +0.1%, whilst Asian markets have remains negative with the Nikkei -0.9%. In forex, the dollar has lost some of its gains formed through the Asian session and forex majors retain a mild dollar positive outlook today. One question as yet unresolved though is whether sterling can begin to outperform with the Article 50 uncertainty now gone. Expect additional volatility in the coming months as Brexit chat will continue to dominate. Gold and silver are marginally lower, whilst oil has help on to its EIA inspired gains.

Traders in the Eurozone will be watching out for the release of prelim German inflation data that is announced regionally throughout the morning before the national is at 1300BST. Interestingly, the consensus expects HICP inflation to drop back to +1.9% from +2.2% last month. The final reading of Q4 2016 US GDP is at 1330BST and is expected to show a very marginal upward revision to +2.0% (from +1.9% in the second reading). There is also the weekly jobless claims at 1330BST which are expected to show 248,000 versus last week’s 261,000.

 

Chart of the Day – GBP/JPY

The market has been trending lower since December and for the past couple of months there has been a consistent downward pressure on the support at 138.50. However, the intraday breaches of the support in the last week have now been confirmed by a closing breakdown. This now opens a test of the key January low at 136.43. There is a slow drift to the decline, however there has been a very definite move lower in recent weeks that has been flanked by the falling 21 day moving average (currently 139.25) which has become a basis of resistance. The breakdown has been confirmed on the RSI which had been supported around 40 previously and now broken lower along with the deteriorating Stochastics. This all suggests that intraday rallies are a chance to sell for pressure on 136.43 in the near to medium term. Resistance of the downtrend comes in today around 139.60. The intraday chart shows an overnight rally has floundered around 138.70 and already started to fall back again. It is rallies like these that need to be sold into., with resistance 138.70/138.90 as a mini sell-zone now. The hourly chart shows resistance is 139.40 increasingly important with 140.50 still key.

EUR/USD

The correction is gathering pace now as a second strong negative candle has meant that the bulls have lost control. This comes as a reaction low support within the trend higher at $1.0760 has now been breached. The momentum indicators are also beginning to deteriorate with the RSI back well below 60, the Stochastics today confirming a bear cross and the MAD lines on the brink of crossing lower. A close below $1.0760 could not be achieved yesterday but the bears are again in the ascendency early today and another bear move is threatening. The importance of the support around the $1.0710 old pivot would be that a breach would now put the sellers decisively back in control. The hourly chart shows more negative configuration now and rallies are increasingly being sold into. The initial resistance is $1.0795/$1.0825.

GBP/USD

With record short positioning on sterling, there is a suggestion that now Article 50 has been triggered, we could get a “sell on rumour, buy on fact” rally. There was no sign of this yesterday with a mildly negative, almost consolidation candle formation. However the market is again stabilising today with some marginal gains so far. This is as the momentum indicators start to settle following the early March run higher. The support of yesterday’s low at $1.2375 will be seen as a key near term level, as a breach would suggest the market is rejecting the “buy on fact” argument. The hourly chart shows a consolidation under resistance at $1.2460/$1.2530. The market has not got the catalyst from Article 50 and is looking for the next prompt.

USD/JPY

The market has formed a consolidation pattern in the past few days as trading has formed between 110.09/111.60. This is turning into an important phase of trading as the dollar has been stronger in recent days, yet the yen has also performed well to prevent a recovery from taking hold. This suggests that if the 111.60 resistance can remain intact then the bears will remain in control of the medium term outlook. However, the hourly chart shows a slightly more positive outlook has taken hold in the past couple of sessions and pressure on 111.60 is mounting. A decisive move above would open 112.50 resistance. If the hourly RSI begins to move back below 40 then this would suggest a range continuation. Initial support is 110.70.

Gold

As with the chart of Dollar/Yen, the rally on the dollar has induced a consolidation that is yet to break the run higher. However, the corrective candles are racking up now and the bulls are under growing pressure. The market has spent the past week consolidating in a $21 band between $1240/$1261. The momentum indicators are plateauing and the daily candlesticks are no longer reflecting a strong market. The hourly chart is reflecting a ranging market with the hourly technical indicators such as the RSI and MACD lines neutrally configured. This is another market to await the consolidation.

WTI Oil

The lower than expected EIA inventories on crude, distillates and gasoline has added to the near term positivity surrounding oil as the recovery continues. A very strong bull candle (the strongest since early January) has improved the outlook considerably. A move to test the resistance of the key reaction high at $49.60 is now in process. However, thhis is not only the mid-March bounce high, but also the bottom of a significant band of overhead supply. The momentum indicators are beginning to decisively improve with the RSI above 40, the Stochastics pulling higher and a bull crossover on the MACD lines. The hourly chart shows a basis of support now growing around $48.30 and more positive configuration on the hourly momentum. Can the near term recovery make any sort of impact on the medium term negativity?

Dow Jones Industrial Average

In spite of the strong bullish candle posted yesterday, there is still a deteriorating near to medium term outlook on the Dow. Yesterday’s small bodied marginal negative only adds to this outlook. The resistance band 20,757/20,777 remains intact and until this is breached any rally can only really be deemed to be helping to renew downside potential in the recent corrective downtrend. The RSI failing around 50 would be a concern for the bulls and if the Stochastics begin to roll over too, then the selling pressure could begin to ramp up again. The hourly chart shows the hourly RSI failing around 60, whilst the hourly MACD lines have simply unwound to neutral and look susceptible to renewed weakness. The old support at 20,532 will be seen as an important gauge again and if this is broken then the sellers would be in control once more. This would open the recent low at 20,412 and a possible further retracement towards the old December/January range highs at 20,125.