Macron’s victory but the euro pares its gains

Market Overview

Emmanuel Macron has won the French presidential election with another blow to the spread of the populist movement in Europe. However, the euro has pared early gains and perhaps much of the rally has run its course? Winning with 66% of the vote, Macron’s victory was decisive, but now the real work lies ahead. The parliamentary elections in June need to return him a strong prime minister, but this is questionable given the nascent formation of his “En Marche” movement. The market reaction has suggested that the result was fairly well considered nailed on and perhaps there is limited immediate upside potential in the euro off the back of French politics. With the impact of Fridays Non-farm Payrolls report still factoring in, there is a questionable outlook to sentiment. With Treasury yields mildly higher, the dollar is fighting back again and perhaps there are some retracements due on several of these major charts. It is interesting that gold has also stabilised after last week’s sell-off. Overnight the China Trade Balance expanded more than expected to $38.0bn although both imports and exports missed estimates, with imports growing by +11.9% (+18.0% exp) which was down from the previous 20.3% growth, whilst exports were +8.0% (+10.4% exp) which was also down from the previous +16.4%.

Wall Street was positive into the close on Friday with the S&P 500 +0.4% at 2399. Asian markets have been strong across the board, but the Nikkei was +2.5% after playing catch up with two days of public holiday. European markets are strongly higher in early moves, but will the move last? In forex markets there is a mildly stronger dollar, with the euro pulling lower and sterling also slightly weaker. Gold has also found some strength whilst oil has continued its huge intraday turnaround from Friday.

There is very little on the economic calendar to interest traders today with no key economic releases due. Furthermore, France is also on public holiday for Victory Day.

 

Chart of the Day – USD/CAD

Friday’s rebound on commodities (especially oil) has impacted across markets. One key mover was the Canadian dollar which has been under huge pressure against the US dollar. The USD/CAD pair has been storming higher in recent weeks in an incessant string of bull candles. However there was a significant shift in sentiment on Friday which has formed a bearish engulfing candle (bearish key one day reversal). This move now opens the prospect of a Loonie recovery near term. The RSI has given a basic bull sell signal (the last of which worked well back in early March). Ideally there would be the need to see confirmation with at least the Stochastics posting a bear cross confirmed sell signal, but as yet this is very early stage. Despite this though the hourly chart shows a broken trend channel of the past three weeks and the initial support of Thursday’s low at 1.3675 has been decisively broken. Hourly momentum indicators have broken their strong configuration and it will not be interesting to see if USD/CAD starts to form a lower high under a near term pivot of 1.3700. A confirmed breach of 1.3635 support would suggest the bears are gaining traction for a correction. The key breakout support at 1.3600 is now open with a band of support 1.3535/1.3600. Resistance is now key at Friday’s high of 1.3793 and until this is breached this chart will look increasingly corrective.

EUR/USD

Despite the victory for Macron, the euro has failed to kick on this morning and there may be questions of whether the run higher may have lost its way. However, technically, the upside targets remain in play. The breakout above $1.0950 seen on Friday implied another 100 pips near term, whilst the medium to longer term target remains around $1.1350. For now, the technical signals are still positive with all the momentum indicators positively configured. However the initial gains early this morning have been unwound from a high of $1.1022 and a close back below $1.0950 would begin to ask the questions. The hourly chart shows the market still positively configured and the unwind today has found support above $1.0950, whilst momentum indicators are still just unwinding to renew upside potential. For now the bulls still have support for the breakout and whilst this continues, expect renewed pressure on overhead resistance. The big support remains at $1.0850.

GBP/USD

The bulls have regained control following the two bull candles that finished last week and took Cable to new seven month highs. The psychological $1.3000 barrier is next to be tested and despite a minor slip back in the early moves today, the outlook remains strong. The momentum indicators retain their firmly positive configuration, and corrections are still a chance to buy. The formation of the higher low at $1.2830 now gives extra protection to the key long term breakout support at $1.2775. Hourly indicators show that momentum have a bullish bias and holding above support now between $1.2930/$1.2950 will keep the outlook strong. Further gains back above the overnight high of $1.2990 and the psychological $1.3000 opens resistance from September at $1.3060 and $1.3120.

USD/JPY

After threatening to turn corrective late last week, the payrolls report turned the market dollar positive again. This served to bolster the support of the breakout band 111.60/112.20. The opening gap higher this morning has been filled already and it will be interesting to see if the market now holds on to the positive sentiment, or whether the move breaks back lower again. The technicals are set up positively but the Stochastics are looking a touch toppy and a negative close today could begin to question the recent bull control. However, for now the trend higher in the three week recovery remains intact and buying into weakness continues. Initial resistance is the instant opening high this morning at 113.10, before the next resistance at 113.55 and then 114.25 which is the 23.6% Fibonacci retracement of the big 100.07/118.65 bull run. Support is 112.40 initially before 112.05.

Gold

It was interesting that Friday’s candle was a doji with a longer upper shadow. With the fact that the market is again finding support today, this would suggest that the strength of the downside momentum has waned. Could this now be time for a technical rally?  The market has been forming support around $1225 for the past three sessions now and if the bulls can achieve a move higher today there could begin to see a recovery move. The RSI is plateauing in the low 30s, whilst the Stochastics are certainly slowing. This is early days but the potential for a rally is growing. The key to how long it will last for comes with the overhead resistance around $1240. A closing move above $1240 would re-open $1261. However, the first move needs to be a positive candle today. That would show that the bulls have some fight. The hourly chart shows $1232 resistance needs to be broken for the recovery to get going. Momentum is more neutral now.

WTI Oil

An incredibly volatile session on Friday saw the market initially fall by almost 4% to $43.75 only to bounce hard and close strongly higher on the day. This incredible candle decisively breaks a sequence of strong bear candles that have breached key supports in recent sessions. Is this the beginning of a change in sentiment? The RSI has turned higher from 25 to give a basic bull crossover signal, but with the Stochastics still not confirming, this is still very early days. The old support at $47.00 will be considered the first key test today, as old support becomes overhead supply for new resistance. Furthermore, the market remains in a bear trend of the past four weeks which is currently falling at $47.85. Essentially therefore, whilst very short term traders could try to catch the recovery train, the market is incredibly volatile now and this still needs to be treated as a bear market rally. The hourly chart shows support initially at $45.93 and then $44.88.

Dow Jones Industrial Average

The Dow just cannot break the shackles of the resistance around 21,000. However, Friday’s close at 21,006 was the highest close since the day of the all-time high in February. This suggests that the bulls are putting the pressure on. However, this consolidation needs to turn into gains in order to prevent this move from going a bit stale. The hourly chart show momentum indicators beginning to pick up again and after the positive close on Friday, this session could be key for sentiment (especially with the supposed positive impact from the French election). Resistance remains at 21,005 which now protects the 21,070 key near term resistance and the 21,169 all-time high. Support is at 20,848 which now protects the 20,777 pivot.