Market Overview

The Fed minutes may have shown the committee suggesting that rate hikes were unlikely this year, but the FOMC remains data dependent. Vice chair Richard Clarida emphasised as much yesterday. So when the weekly jobless claims fell to their lowest since the 1960s and producer inflation came in ahead of expectations, there has been a boost to the prospects of some sort of hawkish surprise this year. The dollar has had a boost. However, with the fears of a global slowdown still prominent, it is a high bar to overcome for a Fed rate hike. Subsequently, after the initial boost, the dollar will struggle for traction. Yields have popped to the upside, but nothing that would suggest the dollar is about to break the shackles. As the dust settles this morning, the dollar is beginning to pare these gains, with the relative performance of the euro continuing to hold up well. This morning we have also seen trade data out of China that has been mixed. The China Trade Balance recovered strongly in March to +$32.6bn (+$7.1bn exp, +$4.1bn last) with exports rising significantly more than expected at +14.2% (+7.3% exp, -20.8% last). However, this risk positive news has been tempered as imports fell more than expected -7.6% (-1.3% exp, -5.2% last) which hints at concerns over domestic demand.

Wall Street closed mixed last night with the S&P 500 almost entirely flat at 2888, whilst US futures are +0.1% this morning. Asian markets were mixed overnight, with the Nikkei +0.7% and Shanghai Composite -0.4%. Equities in Europe look set for a mixed open, with the FTSE futures +0.2% whilst DAX futures are -0.1%. In forex, the dollar gains of yesterday are being pared to an extent, with the euro recovering again, whilst the yen is the only major underperforming the dollar. In commodities, gold is looking to build some support again after falling over a percent yesterday, whilst oil is also looking to regain some poise after a shaky session.

The prelim reading of the University of Michigan Sentiment takes the focus on the economic calendar today. Announced at 1500BST, the confidence indicator for April is expected to slip back to 98.0 (from an upwardly revised 98.4 at the final reading in March).

 

Chart of the Day – DAX Xetra   

The corrective slip on the DAX over the past week came as momentum became stretched and an unwinding move set in. However, are the bulls looking to regain control already? The long term pivot band 11,725/11,865 has provided an initial basis of support with the lows around 11,850. A move that unwound the RSI back from above 70 has held above 60. This is a move that the bulls will be encouraged by. Now having posted a couple of positive candlesticks, it is important for the near term outlook to hold on to the support of this week’s low at 11,847. Yesterday’s bullish outside day helps to paint a more positive picture too. However, for traction to really build, the rebound will need to push back above resistance at 12,029 in order to propel the market higher within the uptrend channel again. The hourly chart shows how the DAX simply unwound back to find support at the support of a two week uptrend, but also above the 11,824 breakout. The hourly MACD lines crossing higher around neutral is also a positive. In bull markets the pullbacks will tend to be shorter than expected. This is a bull market within the three month uptrend channel.

DAX

EUR/USD

The recovery prospects were tested yesterday and so far are holding firm. There is an uptrend forming over the past two weeks now and with today’s early bounce the formation remains solid. This comes as momentum indicators continue to build recovery traction. Stochastics and MACD lines are rising decisively, and the RSI is above 50. The hourly chart shows the small base above $1.1250 is still intact, with yesterday’s unwind finding support at the neckline as a run of higher lows continues to build. An early move above $1.1290 today is also encouraging and a test of $1.1330/$1.1340 is still likely. The importance of support at $1.1230 is growing.

EURUSD

GBP/USD

As the volatility on sterling continues to diminish, Cable is increasingly stable in its consolidation. The convergence of the four month uptrend (at $1.3020) and four week downtrend (at $1.3125) is now within the limits of the current Average True Range (107 pips). This means that the situation is now coming to a head. Momentum indicators are becoming extremely benign, with RSI stuck in the mid-40s and MACD flat at neutral. The concern is growing for a downside break though. This comes with the run of lower highs in recent weeks and pressure on $1.3000 as a floor. Levels to watch remain key support at $1.3000 and the reaction high at $1.3200. Initial resistance building this week at $1.3120. A closing breach of $1.3000 would re-open the support around $1.2800.

GBPUSD

USD/JPY

After slipping for the past few sessions, the dollar bulls jump back to prominence yesterday. A bull candle added 65 pips on the session and puts the market back into testing resistance at 111.80/112.10 again. This remains the barrier overhead that needs to be overcome for the bulls to be in control again. There is a mixed to slightly positive configuration on momentum. Stochastics are swinging higher around the 80 market which is positive. However, the MACD lines are still stagnant and RSI is simply up towards 60 again, a level which has been a struggle recently. How the market now responds to this band of resistance at 111.80/112.10 is now key. There is support now at 110.85.

USDJPY

Gold

Safe havens suffered yesterday and gold was chief amongst them. This implications for the outlook could be significant. There had been a growing concern during yesterday’s session that the rebound in gold was running a risk of falling over. Resistance of the long term pivot band $1300/$1310 hit almost perfectly, and with acceleration below $1300 the bulls will be worried. This comes as the MACD lines look set to cross back lower under the neutral line, whilst Stochastics are running out of steam around 50. Given the market is now forming a seven week downtrend, the momentum signals are posting increasingly negative signals. Consistently trading back under $1300 again along with bearish near term momentum, opens $1276/$1280 as the key support. The bulls need to respond today. Another negative candlestick and the pressure will mount on $1276/$1280. Initial support at $1289 from yesterday’s low. The old $1300 level is again a basis of resistance.

Gold

WTI Oil

Can WTI continue to build higher? The run of higher lows and higher highs is perfectly intact despite a consolidation of the past few days. Although there has been another failure to move above $64.80, corrective drifts should continue to be seen as a chance to buy. The breakout above $63.00 is the first basis of support and the formation of another low above $61.80 would maintain a strong technical outlook. The support of the three month uptrend comes in at $60.40, whilst the rising 55 day moving average is also supportive around $61.00 today.

WTI

Dow Jones Industrial Average

The market continues to trade with a cautiously optimistic outlook. A slip back in the past few sessions has not damaged the positive configuration to the technicals, but the bulls seem reluctant. A dip back into the support band 26,110/26,277 which were the old breakouts is holding firm, but the negative candlesticks in recent sessions show little appetite to push on again. The market is in wait and see mode, perhaps to see how earnings season will kick off in earnest today. Technically the momentum indicators are positively configured but have lost some verve. They are in need of a boost again. A move below 26,110 would suggest renewed slippage, possibly towards the 76.4% Fib level again (25,715). However, corrections are still seen as a chance to buy and a retest of 26,478 is preferred in due course.

Chart

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