Market Overview

As the dust begins to settle on what was another mixed US jobs report on Friday, there is an air of consolidation and possibly even recovery (on equities) across several markets on Monday morning. However, one area where the action is being seen is in sterling as traders set up for what could be a crucial week in the direction of Brexit. The emphasis is on the word “direction” too, rather than use of anything more definitive, as uncertainty remains heighten with less than three weeks until the US supposedly leaves the EU. Whilst sterling is selling down in front of what could be three crucial votes in Parliament, the likelihood is that the price and outlook for sterling will look drastically different by this time next week. The pathway seems increasingly moving towards a softer form of Brexit and that should mean sterling higher, but for now the uncertainty is hitting.

Market Overview

Wall Street closed well off its lows of the session on Friday to see the S&P 500 -0.2% at 2743 whilst US futures are ticking slightly higher by +0.1% today. Asian markets are showing decent recovery signs today with the Nikkei +0.5% and Shanghai Composite +2.0%. European markets are all showing mild recovery moves too, with FTSE futures and DAX futures a shade under half a percent higher. In forex, there is very little move on major pairs other than with sterling which is -0.2% lower, although there are hints of mild dollar correction again. In commodities, the rebound from gold on Friday is just bumping up against the $1300 resistance area again, with oil managing a decent start around half a percent higher.

It is a relatively quiet start to the week on the economic calendar, especially in the European morning, however the US Retail Sales at 1230GMT will be clearly of interest (keep in mind that the US made the Daylight Saving Time shift over the weekend). On a core basis Retail Sales ex-autos are expected to have improved by +0.3% on a month on month basis in January (compared to a -1.8% decline in December).

Chart of the Day – French CAC 40

Uptrend channels on the major European markets are under pressure now as the selling pressure has increased. For the French CAC, there is quite a narrow uptrend channel which comes in at 5208 today, whilst the rising 21 day moving average which has also flanked the recovery in recent months, and is a basis of support today at 5182. The concern is that this correction in the past couple of sessions has resulted in the momentum indicators posting a couple of sell signals, with the RSI back below 70 and a MACD sell signal. This suggests that support between 5168/5200 will comes under pressure as the first test. The first important support to watch is between 5050/5083. The hourly chart shows a corrective configuration with intraday rallies now seen as a chance to sell and initial resistance being a near term pivot around 5250/5260. Key resistance is at 5315.

French CAC 40

EUR/USD

After the big sell-off that broke the key floor at $1.1215, the euro has staged something of an unwind. The question is whether this move will be built upon or whether overhead supply limits the recovery. That suggests today’s reaction could be key. There is resistance of all those key lows over recent months between $1.1215/$1.1300 which is being tested now. Momentum indicators are medium term negatively configured now and suggest that rallies are a chance to sell. The hourly chart is back to an area where selling pressure has tended to take hold (hourly MACD around neutral, hourly RSI around 60). So this is a key crossroads now. A move back under $1.1215 today could be the catalyst for renewed selling. Initial resistance at $1.1245 whilst a close above $1.1300 would shift the outlook positive once more.

EURUSD

GBP/USD

As some crucial (and likely volatile) days approach for sterling (Brexit votes in Parliament) there is a consistent negative pressure on Cable. This move has dragged the price below several key pivot supports, with $1.3050 and the psychological $1.3000 area failing to hold up a move that has now unwound over 400 pips to today’s intraday low. Momentum is clearly against sterling for now and a close below $1.3000 is bearish. However, trading Cable in the coming days is going to be a choppy ride, and newsflow is undoubtedly going to be key. There is an old pivot at $1.2920 as support now which is the next support. Resistance is in the band $1.3050/$1.3100.

GBPUSD

USD/JPY

Dollar/Yen is looking corrective still within the medium term uptrend channel, but the corrective move has now come back towards the support of the rising 21 day moving average (around 111.00 today) which has previously been a basis of support during the channel. There was a rebound off the low at 110.75 on Friday which has been held early today and if the market continues to find support around this 111.00 old breakout, then this could easily develop into a basis for the next chance to go long again. Momentum indicators are corrective within their medium term positive configuration but also are set up to suggest weakness is still a chance to buy. There is resistance at 111.20/111.30 and a decisive close above here today would re-open recovery potential. Hourly RSI above 60 would be positive.

USDJPY

Gold

The support at $1280 firmed up on Friday as a rally and a strong bull candle formed on the flight into safety. It was interesting to see that the long term pivot at $1300 was hit and was seen as a barrier to halt the momentum of the rebound, with resistance in the $1298/$1302 now overhead supply. The resistance of the two and a half week corrective downtrend comes in around $1301 today and the question for the bulls today is whether this is a rally within a downtrend, or the beginning of the recovery again. The tick higher on momentum indicators will be a key gauge, with the RSI under 50 and if this is wound where it fails then the pressure on the correction will continue. Whilst the resistance at $1302 is intact this has to be treated as a near term range between $1276/$1302 because there is such key overhead supply that could prevent a recovery.

XAUUSD

WTI Oil

Losing the support at $55.00 on an intraday basis on Friday is a warning shot for the bulls. Whilst there was a rebound into the close to hold on to the consolidation, the bulls are not in charge of the range. A close below $55.55 would shift the outlook negative again. The market has decisively broken the recovery uptrend since the December low and momentum indicators are deteriorating. The downside pressure is increasing as the RSI drifts lower and Stochastics are on the slide. However, all is not negative, as the support of an old pivot around $54.30 held on Friday before the rebound. Also the small real bodies of the candlesticks in recent sessions reflects an uncertainty. Resistance at $57.00. The pivot band around $53.25 will be seen as key near term now.

WTI Oil

Dow Jones Industrial Average

The corrective momentum of the past couple of weeks has taken the Dow almost 1000 ticks back to Friday’s low, however, for the first time in that move lower, the bulls have seemed to resist. Although the market closed very slightly lower, Friday’s candlestick was fairly positive into the close and hints at a degree of fightback which could be developing now. The move under the 76.4% Fibonacci retracement at 25,715 still suggests 24,950 and the pivot around the psychological 25,000 area could be tested, but the bulls could be ready to react higher. The hourly chart shows initial resistance at 25,555 is a gauge to watch, as would the hourly RSI moving above 60. A break back under Friday’s low at 25,250 would re-open the 25,000 area again.

Dow Jones Industrial Average

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