Yen outperforming again as other forex majors continue to consolidate

Market Overview

Forex markets have been trading with a real lack of conviction in the last week or so. So it is a touch disappointing that the traction that the dollar bulls found during yesterday’s session seems to be ebbing away again this morning. Swings in sentiment surrounding trade tariffs and protectionism have certainly not helped, whilst a mixed set of data from the US has also failed to ignite interest. However, there is one forex major that is finding traction again, the Japanese yen is once more the major outperformer. After a brief interlude earlier in the week, the yen bulls seem to be back on track once more. However with Treasury yields stabilising and gold under pressure, it is difficult to attribute this entirely to safe haven positioning. Equity markets are still hamstrung by the moves that are coming out of the White House, the latest concerns overnight that Trump is now replacing his national security advisor H.R. McMaster. Equities are a higher risk asset class and tend to react strongly to shifts in market sentiment. Whilst fears continue over the implications of the moves that Trump is making, equities will struggle to form any meaningful recovery. Add in the fact that next week’s crucial FOMC meeting is looming now, and we could be set for further indecision in the markets.

Wall Street closed mixed early gains were sold into. The Dow was slightly higher, but the S&P 500 was down -0.1% at 2747, whilst Asian markets were broadly weaker with the Nikkei -0.6%. In the European session, markets are also looking mixed in early moves. In forex the outperformance of the yen seems to have been re-asserted, whilst the dollar is giving up some of its gains from yesterday against the euro and sterling. In commodities, the slight unwinding of yesterday’s dollar strength is helping gold to find a touch of support, up around $2, whilst the oil price is consolidating.

Traders will be keeping an eye on the final Eurozone CPI reading at 1000GMT for any revisions, although none are expected from the headline of +1.2% and core of +1.0% in the flash reading. US data begins with the US Building Permits at 1230GMT which is expected to slip slightly to +1.33m (from 1.38m) whilst Housing Starts are expected to drop to 1.30m (from 1.33m). The February US Industrial Production is at 1315GMT and is expected to grow by +0.3% for the month (after falling surprisingly by -0.1% in January). Capacity Utilization is expected to continue to improve back to 77.7% (up from 77.5% the previous month). The prelim reading of the University of Michigan Sentiment is at 1400GMT and is expected to slip back slightly to 99.3 (from the extremely strong 99.9 last month) whilst the JOLTS jobs opening are also at 1400GMT and are expected to increase to 5.89m (from 5.81m).

 

Chart of the Day – USD/TRY 

The Emerging Markets currencies have been negatively impact by the increased potential of a protectionist US due to trade tariffs and the Turkish Lira has broken a key level. The Turkish Lira has weakened significantly in the past week against the US dollar, with USD/TRY breaking decisively higher above the January high at 3.8480. This completed a base breakout which implies a move towards 3.9600 in the coming weeks. This would also suggest a retest of the key November high at 3.9815 could now be seen. This is accompanied by a decisive strengthening of momentum indicators with the RSI into the 60s with conviction and a three and a half month high. The market has posted a higher daily low in each of the past seven sessions, whilst Wednesday’s session had an initial pullback which found support around the breakout around 3.85 before pushing back higher again as corrections remain a chance to buy. Having also broken higher above 3.90 yesterday, the resistance is being cleared for a push towards the November highs. Should there be a corrective slip in the market there is now a basis of support 3.8290/3.8480.

 

EUR/USD

It was interesting to see the euro weakening and the dollar gaining strength which has broken a small uptrend that the pair had been building in recent weeks. The market has been trading within ever tighter converging trend lines in recent weeks and this strong bear candle could begin to give the pair a little direction, at least in the near term. However there needs to be another solid negative candle today in order for that to be seen, alongside a break of the support at $1.2270. This would be a key near term move, but as yet it looks as though the market is again trading without conviction as the early move is one of retracement. There is little real reaction to yesterday’s candle on the momentum indicators which remain staunchly neutrally configured. The hourly chart shows momentum picking up again as a ranging configuration continues, leaving support at $1.2295 initially. As the market rallies again, resistance sits at a near term pivot of $1.2345 before $1.2385 and then $1.2412. It would seem that we continue to wait for direction.

 

GBP/USD

It had looked earlier in the week that the market was beginning to find a little upside traction. The move above $1.3930 seemed to be a positive near term move that would give the bulls a shove in the right direction. However once more the psychological pivot resistance around $1.4000 is proving too much as the market has shied away. The bulls have had a look at the resistance in each of the past three completed sessions but not fancied it, forming a mildly negative candle yesterday. Momentum indicators look to have the potential to turn positive but as yet remain stuck in neutral configuration as the market continues to drift. Again today there is little direction to speak of. This is all reflected on the hourly chart too. Initial support is around $1.3910/20 which is maintaining a run of higher lows, however the failure to break above $1.4000 remains a concern for the longevity of any move higher. Further resistance is at $1.4070.

 

USD/JPY

It seems to be a bit of a choppy move, but the yen seems to be once more on a strengthening path again. A path of lower highs in the past few sessions whilst testing lower reflects this. Yesterday’s candlestick was a long lower shadowed doji , which suggests the Dollar/Yen bear testing lower but unable to break free. The fact that the market is again lower today suggests that downside pressure is building. Momentum indicators are also now turning lower again with the RSI tracking below 40 and the Stochastics also crossing lower. This points towards intraday rallies being sold into and a breach of yesterday’s low at 105.75 which would re-open the key March low at 105.23. The hourly chart shows that the near term importance of the 106.35 pivot has increased further as another rebound has failed around it. Hourly momentum indicators are now negatively configured to confirm the position of selling into strength.

 

Gold

A solid negative candle on gold has broken the shackles, or has it. A run of higher lows, small bodied candlesticks with long lower shadows has ended with a close lower of $9. This has broken a mini uptrend formation and is now putting pressure back on the ten week range low at $1302.60 and the long term pivot at $1300. However, overnight, the market has not run with the move and there is a degree of uncertainty early today. The chart is littered with failed moves and a lack of decisiveness. A failure to add to this downside shift would again play into this. The initial support at $1313 also remains intact currently. The move has though added resistance at $1330 below the $1341 March high, whilst daily momentum indicators are threatening to tick lower. The hourly chart shows momentum indicators have also swung back higher overnight. A failure for the bulls to reclaim $1320 would be a concern though and there is a mild negative bias with the outlook now. It just depends whether the market can begin to trade with conviction. This appears unlikely so far.

 

WTI Oil

A positive session means the bulls have rallied to hold on to the key support around $60.00 which is a key near term floor. However the run of lower highs continues to be a drag on the price as rallies continue to be sold at lower levels. It would need a concerted effort for a decisive break above the reaction high at $62.35 which would also mean an upside break of the five week downtrend. In truth though there is very little direction on WTI oil until either a decisive (closing) break below $60 or above the early March high at $63.28. There is a run of ranging momentum indicators suggesting using the near term extremes (30/70 on hourly RSI) can provide opportunity on a near term basis, but decisive direction is lacking.

 

Dow Jones Industrial Average

The bulls returned to maintain the support of what is a five week uptrend and arrest a concerning decline that had formed over the previous three sessions. This plays into the whole outlook of uncertainty which is reflected in the momentum indicators that lack a decisive configuration, whilst the fact that the bulls could not sustain the upside move in yesterday’s session is also a concern. Furthermore, recent market moves seem to be finding turning points at the Fibonacci retracements. The support is bolstered now around the 38.2% Fib level at 24,604, whilst resistance is strong around the 61.8% Fib at 25,372. With the failure at 25,053 which is another lower daily high, there are question marks over whether the bulls can maintain a pick up from 24,668 now. The hourly chart suggests a near term corner has been turned with the improvement in momentum, however the Dow is still trading without any real conviction. A move above 25,150 opens a test of the March rebound high at 25,450.