The latest FOMC minutes have given the bulls something to be happy about, as the FED once again looked to keep the pace of rate hikes in the near future. There were some key takeaways from the meeting and the most pressing was that FED officials expect inflation to rise to 2% in the medium term as the Tax bill has a impact on the US economy. Expectations were also strong that pressure on the labour market as unemployment further drops would also help boost inflation expectations, and that potentially forecasting of inflation may also have been low historically. So with the FED looking forward in 2018 and Trumps man Powell about to come to the table we could potentially see some strong bullish moves from the FED with a strong US economy in front of them.
For the USD bulls it was positive across the board with large rises against all the major pairs, but mainly the European ones. For me one of the more interesting ones continues to be the USDCAD which lifted slightly, but is still lacking the momentum required to break out of the current bearish trend it finds itself in. So far traders will be watching to see if there is a bounce at support at 1.2427 to see if the bulls can come back into the market, otherwise they could be waiting until 1.2108 to see any sign of a solid bounce. If we see a push back higher 1.2628 and 1.2759 are likely to be the first key levels of resistance. However, the 200 day moving average is creeping down and likely to also act as dynamic resistance in the current market climate.
For me the main thing that keeps on going in the bullish American climate is the equity markets at present, and look no further than the S&P 500. It's getting hard to believe that there is an end, but at some point the bears will look to swipe. For now though, the Trump effect and the recent Tax reform coupled with a FED with positive forecasts is driving American companies higher than ever before and in the process lifting the S&P 500 higher than ever before. Most weeks we are seeing a new record high at present, but that being said uncertainty could be the instability that shakes the bulls off the top for a bit.
On the charts, and as previously stated, the focus would ideally be on psychological levels - as the market continues to rise it will look for these points. I would anticipate that markets will continue to look for key levels at 2725 and 2750 if the bulls look to push higher. Any swings lower are likely to get held up at 2700 as it acts as support in the current market. However, a push through would be treated with concern as generally speaking the 2600 and 2500 level were previously very good at holding back the bears.
A critical week for the US Dollar after a fragile start
After having the worst annual performance since 2003, the dollar continued to struggle in the first trading week of 2018. The dollar index fell to a three-and-a-half-month low to trade below 92, leaving many traders wondering whether this year will be another devastating one for the greenback. When looking at the Commitment of Traders (COT) report, speculators are not showing interest in buying the U.S. dollar yet, and the latest bunch of data did nothing to support the dollar.
Friday's jobs report did not motivate the dollar bulls to return, with non-farm payrolls rising 148,000 in December versus expectations of 190,000. Although I think the numbers weren’t bad and the labor market remains healthy with unemployment at 4.1%, wages are not yet showing signs of accelerating, and this remains the key missing ingredient of the U.S. economy’s recovery.
The latest minutes of the Fed’s meeting also showed that policymakers aren’t sure whether inflation will return to the central bank’s target which is why markets believe that only two rate hikes will occur in 2018, as opposed to the three in the Fed’s dot plot. This week many Fed speakers are due to speak including the two dissenters against a rate hike in December, Neel Kaskhari and Charles Evans. Whether they have changed their mind, or still believe rates shouldn’t be hiked, remains to be seen but we’ll also tune into other Fed speakers for fresh insights.
If the Fed speakers don’t deliver news, tier one economic releases may provide the needed clues. Consumer prices and retail sales are both due for release on Friday. Given that energy prices spiked in December consumer prices are expected to increase 0.2%. However, I think traders will be more interested in the core CPI figure, which strips out volatile items like food and energy. Any upside surprise in the inflation numbers will likely bring back the dollar bulls.
Given that the major U.S. economic releases are four days away, many traders will focus on whether any technical breakouts will occur. EURUSD failed to break above 1.2092 (2017 high) last week, but a successful breakout will likely lead to further buying of the single currency towards 1.22. Similarly, Sterling is only 100 pips short of 1.3656 (2017 High). So traders should keep a close eye on these levels.
FXTM Forex Market Update | 09/01/2018 New Video from #FXTM#MarketUpdate with Research Analyst ForexTime, Lukman Otunuga
Global equity bulls were in the vicinity during Tuesday’s trading session as world stocks remained at elevated levels. In the currency arena, the Dollar appreciated amid optimism over higher US interest rates. With the economic calendar relatively light today, price action may dictate where currency and commodities trade.
- The #EURUSD is pressured below 1.20 on the daily charts
- #GBPUSD bears are eying 1.3520
- #Gold remains bullish above $1300
The Australian dollar has been doing okay against the USD in recent times on the back of the commodity boom that has been promising. However, there have been some minor hiccups so far with iron ore prices dropping 4.4% overnight on the Asian exchanges. This in theory could present some minor problems for the Australian dollar as exporting of minerals and metals plays a significant impact on the economy. What is most interesting though is the relation to the NZD, with the AUDNZD being a key focus for traders at present. The NZ economy continues to remain robust and it's commodity based exports have seen some value in recent times with the global dairy auctions as of late. Add in the fact that the recent services PMI was also positive and you have a strong combination for the NZ economy and of course the NZD. The Reserve Bank of New Zealand is also undergoing some reforms but so far these have not frightened of the market.
So for the AUDNZD it's a case of the bigger neighbour struggling against the smaller one on the currency chart. So far we've got a strong trend line pushing the bears down the chart and stopping and bullish activity taking hold, add into the mix a very strong support level and it's likely we will see some volatility look to break out of the flag pattern here. Resistance can be found at 1.0933 and 1.0982 on the charts, but I would be mainly focused on the trend line which will likely stop any bulls becoming too aggressive. Support levels are looking interesting, with 1.0855 the level to beat for the market as this is a strong level, anything through this could touch on 1.0809. Going below any of these levels could be a hard mask for the market though at present as the AUD is a bigger economy, so it could dig itself out of a hole compared to its neighbour. It's also worth remembering that the AUDNZD is at a low when you look over a very long time frame.
Once again it's been another great day for US equity markets as they climbed the charts hitting record highs again. So far the S&P 500 is not looking like it will stop and the NASDAQ continues also to be a great runner as well. For the bulls it seems that the Trump effect is shining on further more in these markets.
Looking at the S&P 500 and it has climbed up to resistance at 2850 before taking a breath. Expect markets to look to tackle the level again tomorrow if there are no curve balls. Any extension above 2850 is likely to find some further resistance at 2875. Markets will also be looking at possible support levels as well, and they can be found at 2825 and 2809 in the current market climate.
The USD took another beating today which saw nearly all major pairs and commodities climb sharply as a result. This is not surprising given the recent data which saw US existing home sales m/m fall to 5.57M (5.7M exp) from the previous high of 5.78M, showing that there may be some slowdown in the housing market. US PMI for services was also lagging expectations coming in at 53.3, still showing expansion but at the same time not coming in where analysts had expected. There could be some good news on the horizon though with Trump expected to talk up his infrastructure plan at the state of the union and lay the foundation for further spending in order to bolster the economy. However, there is a danger that it could cause it to overheat as he looks to be bold and put his front foot forward. The real story though is that right now the USD continues to come under fire, and for the market this is causing large volatility.
One of the big movers today for me was gold which sky rocketed up the charts and pushed past the previous 2017 high. It's always ominous when gold starts becoming more and more bullish but at present this is being caused by the weaker USD and resistance at 1349 was absolutely crushed today as gold whooshed past. The next levels of resistance can be found at 1366 and 1375, with 1375 likely to be a key target level for traders. Anything above this would suddenly get the market a little worried I feel, as gold is always the hedge for recessions and inflation. Support levels in the event the bears catch can be found are at 1349 and 1336, with further potential to dip lower to 1314 if the bears do manage to take hold. All in all though, if the USD weakness continues gold could be swinging higher in no time through no fault of its own.
The New Zealand dollar has got a large shock today on the back of a weaker than expected inflation report. NZ CPI figures for Q4 came in sharply down at 0.1%, expectations were for 0.4%. Pushing the Yearly figure to 1.6%, a large shock for the previously booming economy. This will certainly put pressure on the Reserve Bank of New Zealand to pause when it comes to thinking about pushing rates higher in the economy - despite the high level of employed and wage growth at present.
The NZDUSD on the charts quickly pushed back from resistance at 0.7431 as the news filtered through for the CPI figures. Support levels can be found at 0.7324 and 0.7255 at present, with the market also likely to treat the 20 day moving average as support as well. If the USD does gain momentum then we could see some very serious bearish pressure, at the same time if it does remain weak then potentially the NZD could stay elevated despite the recent economic news, so the market focus will be on USD data after this with a bearish bias.
It's been a mixed day for the USD, but it has seen some respite from the relentless selling as of late. With Trump in Davos it has meant more positive than controversial from him, as he puts the gloss on with world leaders. However, economic data continued to be mixed and not necessarily positive, as US new home sales m/m dropped to 625K (675K exp) , this is a -9.3% drop on the previous month. So not positive at all. The big ray of light though, was that the US job market continues to thrive and tick over, with US jobless claims coming in at 233k (235K exp), showing that the labour market is still the major story when it comes to positivity. The consumer market though will be a key focus for the incoming chair Powell as any movements here are likely to have big impacts, but also could point to future inflation rates and the chance to lift rates higher, as 2018 is set to be the year of hikes I feel for the FED.
For me the USDCAD is still in the focus when it comes to bearish movements at present, the reason being that oil prices have risen higher and the USD continues to fall. All the while the Canadian economy is not doing so bad either on the back of stronger commodity prices. As a result the bears have been chipping away forcing it lower, and support at 1.2256 is likely to be in the cross hairs for traders drifting lower, followed by 1.2108. If the bulls do come back into the market then resistance levels at 1.2423 and 1.2585 are likely to come under some pressure. However, the recent market conditions have not warranted any serious bullish pullbacks as of late.
Meanwhile it could be more trouble in the United Kingdom, as news has come out that there might be further political revolting in Theresa Mays Tory party. This is not likely to topple the prime minister, but it does show the growing discontent within the party relating to current Brexit negotiations. The flow on effect for the pound of such events has been negative, with it taking some heat today and losing ground against the USD. It's likely that tomorrow will bring further news, but if none then the market is likely to focus on US GDP figures when it comes to moving the GBPUSD.
The GBPUSD though is currently caught on support at 1.4117 with the market looking to find some breathing space before continuing. I would expect the bulls to either take another big run, or the bears to take a firm hold and drive it back down from the recent volatility. Resistance can be found at 1.4240 and this will be the key level at present. Support levels can be found at 1.3996 and 1.3856 is the GBPUSD continues to find itself under bearish pressure.
New Video from FXTM Market Update with Research Analyst ForexTime, Lukman Otunuga
Global stocks were under pressure on Tuesday as investors remained cautious ahead of the Federal Reserve meeting. The Dollar struggled to hold ground against a basket of major currencies while Sterling was bruised by Brexit jitters. In the commodity arena, Gold benefitted from a vulnerable Dollar. The main event risk today will be BoE Mark Carney’s testimony and CB Consumer confidence for the United States.
- The #EURUSD remains bullish on the daily charts - #GBPUSD is currently towards 1.4175 - #Gold bulls are eying $1360
The market is currently taking a breather after the US data today as it's almost time for non-farm payroll. Markets previously have been surprised by the recent swings in the labour market, especially with wage growth not matching the pace, but analysts and economists are now expecting wage growth to pick up, and this in turn could lead to a more aggressive hawkish Fed if that is the case. The Fed has always commented on the lack of wage growth being a key factor in holding it back, but if we were to see that growth then certainly there would be a case for further future hikes at a more aggressive pace. Analysts are expecting 180k, the reality could be much lower, but whatever the case there will be some large swings.
The USDCAD has been a key one for me to watch as of late with all the USD weakness we've seen. Commodities have risen in value as a result, and none more so than oil which has lifted on the back of it. At the same time the NAFTA treaty negotiations are looking positive thus far, and the Canadian economy is positive all round about expectations for further growth. The Bank of Canada has been a little bit more neutral, but that's more to take pause and look at its southern neighbour the US more than anything else.
So far the USDCAD has slipped lower to support at 1.2256 and is looking to extend even lower to 1.2108. While a bit of a slow mover it has been trending fairly reasonably so markets have taken notice and played on that accordingly. If the USD did see some strength from the bulls then resistance at 1.2423 and 1.2585 would be key targets for the market to move to. I still believe that if there were any bulls in this market that the 200 day moving average would be the real test, as the market has been quick to bounce of it and give up and bullish sentiment in the previous months.
The S&P 500 has shown another day of losses on the charts which is quite rare, so much so that people have taken a fair degree of notice. In part this has been driven by the rise in treasury yields which is starting to look like it could compete in the future with the current rates of return from equity markets. Expectations still continue to mount that the market may be slightly overbought and this may be a correction.
For me the S&P 500 is a great technical mover and this can be seen from the levels it plays off. One of the most important things though at present is the 20 day moving average which has been a sign of bullish action lately. Support can be found at 2825, 2806 and 2775, but I would mainly focus on the moving average. Resistance can be found at 2850 and 2875 in the current market climate.
Markets have been hot and cold today as equities saw some intense volatility. For most, it was the beginning of the end at the start of the week, but the close of Tuesdays bell in the US has been so far fairly bullish. Many in the market had been expecting further falls, but so far most investors have been quick to push back on the basis that macroeconomic indicators are still strong, and there is no deterioration compared to 2008 which saw heavy falls as a result. I'm inclined to agree at this statement given the history of the markets and of course that for most economies they're looking to lift rates and cut back QE. There has been of course some minor wobbles with the US economy and Europe in the past, but so far it's full steam ahead and yields are looking good.
The S&P 500 had a crazy day today and it would not have been for the faint hearted as the market looked to dive deeper, pushing all the way down to the 200 day moving average before starting to make a solid recovery. The 100 day moving average was ignored on the way up, but that's not surprising given the aggressive nature of these moves, but nonetheless technical's did come into play with the market hitting resistance at 2698 to pause and breath. The next level up for the bulls if they get to continue will be at 2743. Support levels if the market were to turn can be found at 2628 and 2564, but the major one will be the 200 day moving average which has so far managed to beat back the bears on such an aggressive day of volatility. I would be surprised to not see the same sort of aggressive volatility tomorrow as markets prepare for another big day again.
Across the Atlantic in European markets the FTSE has been hammered in the previous week, but finally clawed back some major gains in line with the rest of the globe in the evening. For a while it looked like a bullish trend line may come into play, but the Monday sell-off put that out of the question and the bears took full control. The recovery today, however, was very strong and saw the market climb back up to support at 7278 as traders looked to breath - much like the S&P 500. I would be surprised to see further gains here for the FTSE as UK equities have not been as impressive on the back of Brexit. So we could see resistance levels really push back bulls in the market. On the other hand sharp drops to 7205 and 7100 are not off the cards if the bears can really get there claws back into the equity markets at present.
All in all, at present the global equity markets present a unique opportunity, but a lot of risk when it comes to the amount of volatility. Movements like these are rare and powerful, but for traders they can come with heart palpitations.
Global shares extend recovery; dollar remains weak
Asian equity markets continued to build on last week’s gains, after U.S. stocks capped their best week since 2013. Investor sentiment has gradually improved after fears of rising inflation sent most global indices into correction territory. The Cboe’s Volatility Index (VIX) ended Friday’s session below 20, suggesting that indictments from Special Counsel Robert Mueller against 13 Russian nationals for alleged interference in the 2016 elections did little to impact investor decisions. With the U.S. markets closed on Monday for President’s Day and the Greater China region remaining offline for the Lunar New Year, expect trading volumes to be below average.
The U.S. Dollar’s weakness remained a bit of a mystery for many currency traders, as it is supposed to follow differential in yields. The gap between U.S. and German 10-year yields widened to 217 basis points, and had gained 28% since mid-July 2017. Similarly, U.S. – Japan 10-year yields widened 285 basis points, the highest increase since 2007. Still, the Dollar declined against the Euro, Japanese Yen and all other major currencies.
One explanation for why the correlation between the Dollar and yield differentials has broken recently, is that financial market participants are forward-looking. Investors believe that rising inflation in the U.S. will spread to other economies, leading to tighter monetary policies elsewhere. When major central banks such as the European Central Bank, Bank of England and Bank of Japan begin normalizing policies, rate differentials will narrow at a fast pace, given that they are starting from a very low base.
Yields in the U.S. are not just rising because of higher inflation expectations, but also due to rising twin deficits – the fiscal and current account. This should make U.S. debt less attractive, and gold will likely become the primary beneficiary as it continues to benefit from inflationary pressures and budget deficit worries.
However, this view may change if the Fed decides to take a more aggressive approach in fighting inflation. Wednesday’s FOMC minutes will likely reveal fresh hawkish insights, but for the dollar to make a U-turn, it requires the Fed to tighten policy faster than previously estimated. Any indication of four rate hikes instead of three in 2018 will do the trick, but this is unlikely to appear in Wednesday’s minutes, and investors will probably need to wait until the March meeting.
Sterling initially entered the trading week on a solid footing following hawkish comments from Bank of England (BOE) deputy governor sir Dave Ramsden.
In a Sunday time’s article over the weekend Ramsden said “Relative to where I was, I see the case for rates rising somewhat sooner rather than somewhat later”. The firmly hawkish comments swiftly reinforced market expectations of an interest rate hike in May. With the Pound sensitive to monetary policy speculation, the prospects of higher UK interest rates in 2018 simply injected bulls with a renewed sense of confidence to attack on Monday morning. Interestingly, the British Pound eventually found itself under fresh selling pressure in the afternoon as bears re-entered the scene.
From a technical standpoint, the GBPUSD punched above the 1.4050 level during early trading on Monday. A touch of Dollar weakness fueled the upside with prices eventually peaking around 1.4069 before sinking back below 1.4000 as of writing. Daily bulls need to maintain control above the 1.4000 level for the GBPUSD to challenge 1.4100 and 1.4230, respectively. A failure for prices to keep above 1.4000 could result in a decline back towards 1.3900 and 1.3850.
EURUSD blocked by 1.2350 resistance level
Euro bulls have been halted on repeated occasions by the stubborn gatekeeper known as 1.2350.
Although the EURUSD remains fundamentally bullish, the currency pair is at risk of sinking lower if bulls fail to conquer and break above the 1.2350 level. Taking a look at the technical picture, there have been consistently higher highs and higher lows while the MACD trades to the upside. With the daily candlesticks trading comfortably above the 50 Simple Moving Average, a breakout seems imminent. If bulls are able to break above 1.2350, then the next key levels of interest will be at 1.2400, 1.2430 and 1.2520, respectively. Alternatively, sustained weakness below 1.2350 could encourage a decline back towards 1.2260 and 1.2200.
Commodity spotlight – Gold
Gold struggled to maintain gains during Monday’s trading session thanks to a stabilizing Dollar.
It is becoming clear that market expectations of higher US interest rates have exposed the yellow metal to downside risks. It must be kept in mind that Gold is zero-yielding, and is likely to remain pressured in a high interest rate environment. Technical traders will continue to observe how the yellow metal behaves around the $1340 region. Sustained weakness below $1340 could encourage a decline back towards the $1324.15 level. Alternatively a decisive breakout and daily close above $1340 may open a path higher towards $1360.
Currency spotlight – GBPJPY
The notoriously volatile GBPJPY ventured towards the 150.00 level during early trading on Monday.
Price action suggests that the currency pair is under pressure on the daily charts with 150.50 acting as the first level of interest. If prices are unable to break above the 150.50 level, then bears could be inspired to drag the GBPJPY lower towards the 148.50 support regions. A breakout above 150.50 simply invalidates the current downtrend and suggests that prices could test 151.60.
The steep losses in U.S. technology stocks were carried into Asian markets today with all major indices tracking Wall Street declines. Facebook made the headlines on Monday as reports over the weekend claimed that data from 50 million users was accessed without their permission. The stock fell 6.8% and wiped out almost $37 billion from its market cap. The news will undoubtedly scare advertisers, especially if it leads to regulators changing Facebook’s business model in a way which it may impact the company’s revenues.
Investors should not only be worried about the drop in Facebook equities but also FAANG stocks which have been leading the bull market for many years. Alphabet dropped 3% yesterday, while Apple, Netflix, and Amazon declined 1.53%, 1.56%, and 1.7% respectively. While the fall in Facebook might have impacted the sector negatively, it does not explain the full picture. Concerns that the European Commission will impose new taxes on Tech firms in retaliation for U.S. steel and aluminum tariffs, is an early indication that the trade war should be taken more seriously. If markets decided to turn on FAANG stocks, we would likely see a similar reaction to last February’s correction.
Jay Powell Fed & the dots
The newly appointed Fed Chair, Jay Powell will hold his first press conference tomorrow when the U.S. central bank is expected to raise interest rates for the first time in 2018. Markets have fully priced in a 25-basis point rate increase, so do not expect this to have any influence on the dollar’s direction.
The key to dollar traders is how Fed officials, led by the new Chair, will act on recent economic data and whether the fiscal stimulus will eventually lead to tighter monetary policy in 2018. Market participants are split on whether the Fed will project four rate hikes in 2018 compared to three in the last meeting. An upward shift in the dot plot should support the dollar, although it is likely to lead to further flattening in the U.S. yield curve.
Brexit transition deal sends Sterling higher
The pound was the best performing currency on Monday rising 0.6% against the USD to trade back above 1.40. A Brexit deal was thought to be more positive for Sterling, but given that no agreement was reached on the Irish border, gains were capped. I believe that Sterling may still have further room to appreciate against its peers especially if Consumer prices today and wage data tomorrow provide new signs of inflationary pressure before Bank of England meet on Thursday.
Markets were looking a little unsettled today after yesterdays bullish rise in equity markets. Many had expected that potentially today would see equity bulls look to retake further ground after the recent loses but they were hampered by economic data, as US consumer confidence missed expectations coming in at 127.7 (131 exp). Many had expected a slight rise, as the US economy has been booming and unemployment continues be at record levels, but perhaps the recent political turmoil's are weighing down on the American people. For the most part traders will be eagerly watching tomorrows US GDP results and of course US home sales, to try and gauge the strength of the economy over the last quarter, and for home sales to see if they're improving in line with analysts expectations. Any strong bearish signals could send the equity markets into a bit of a spin, but it's definitely worth watching as right now volatility is very high.
For me the S&P 500 continues to be the one to watch, right now the technical's are very strong and the market is not keen to just lurch forward like previously in some sort of bullish trance. The traders have woken up and are very keen to make the most of it! So far resistance at 2664 is holding back further movements higher after today's disappointing result. In the event of the bears looking to take hold we could see a push down to 2628, but weak economic news could see the all important 200 day moving average retested. In the event we see a push upwards I would be watching the 2693 resistance level and the 100 day moving average, as it sets up a strong technical challenge for the bulls in the present climate. All in all US equities and the S&P 500 continue to be for me the one to watch, especially when playing the technical's as of late.
Spare a thought for the Australian dollar, as lately it has lost the spring in its step. It continues to struggle against the USD as of late, even when it's weaker. So far things are not looking up either economically, and with no economic news this week things could be a little tough as technical traders and USD bulls take hold of things.
On the chart it's clear to see that we're sitting in a bearish wedge, further down the line we could see a potential breakout to the upside. However, for the time being the feeling is quite bearish and resistance today at 0.7760 continues to look quite intimidating for any bulls in the market. When you throw in a 100 day moving average which has been quite tough then things seem almost insurmountable for any bulls in the market. If the bears do get their way then a fall to 0.7546 looks on the cards, but I would also watch the walls of the wedge for dynamic support of course. Any breakthrough and close through the wedge wall should be treated as a very bearish signal.
Easter Monday is normally characterised by light trading, but today was anything but out the ordinary, as the US equity markets swung lower sharply on the back of the announcements of tariffs from China on the US. This is quite serious as the 200 day moving average has been broken, and this held back bearish movements previously. With the last line of defence now gone, it could be a case of the bears looking to push their control. This in theory has not been helped by President Trumps attacks on Amazon which have sent tech stocks down as he looks for a target. If the market sentiment is anything to go by then I would be deeply concerned for the bulls, as many have long thought of the share market being overbought, and this could be the start of some serious bearish pressure.
With the 200 day moving average being broken I would expect to see some bullish pressure to see what the market is made of. In this instance I believe any push-back up higher would likely treat the 200 day moving average as dynamic resistance in this instance. The target now for any bears looking for lower lows will be of course the 2532 resistance level, closely followed up by the 2508 level. This area will be the key to see if the S&P 500 has the legs to go even lower, and the bulls and bears will battle it out around here. In the event the bulls cane reassert control, then as mentioned before the 200 day moving average will be a hard task to beat with such a huge extension lower. All in all market sentiment is bearish now, and it will be hard to beat. But it's also worth noting that this is no 2008 scenario, the American economy is still doing strong and it's mainly politics which is driving the lower lows. In reality we could just end up with the market correction we've anticipated for some time.
Crude oil has been one of the big movers today as well, but this should come as no surprise after the recent economic woes on equity markets have spooked bulls, and as the USD lifted strongly against most of the major pairs. Many market commentators have been quick to point that over $70.00 a barrel seems unlikely as demand stays static and they expect a range of 50-70 dollars in the short to medium term. Then again time and time again we've seen commentators be wrong and oil can swing quite wildly.
On the charts the fall lower has so far been stopped by the 20 day moving average. This shows reluctance from the bears to test the technical's, so this looks more like a test the waters sort of move today. However, the ceiling at 66.05 has held for some time and is not looking like it may face much pressure. As a result this could just be trending sideways for the short term and levels will be key for traders looking to take profits. In particular support levels at 62.64, 61.00 and 58.88. With the long term daily bullish trend line to also take into consideration.
Large swings in the equity markets have been the recipe of the day recently, as they swung lower on the back of political tensions in the US markets. However, the market saw some positive light as ADP payroll lifted to 241K (210K exp), which was well above what was expected by the market. As a result equity markets have been slightly more upbeat as of late, however the bearish trend has still looked to be the dominate player in the market at present. One other thing that that has been dragging on additionally has been the NAFTA agreement which many had hoped to finish this week, but now looks like it may drag on a little longer, but has provided a positive momentum as of late.
As a result of the equity markets have so far pulled back above the 200 day moving average on the back of this bullish movement. However, I am overly cautious in this sort of market as resistance looks to be tight at 2664 as of late, and has the potential to fall lower to if the technical's come into play. Any break out above this is likely to also meet stiff resistance at the 100 day moving average above this level which is acting as dynamic resistance at present. Any bearish movements lower will hit 2628 and 2579 as support levels, with the 200 day moving average still the major player in this scenario between the bulls and the bears.
As mentioned yesterday the USDCAD continues to be a major player in the current market climate, as it looks to drift lower on the back of USD weakness, and Canadian economic data which so far has been robust and honest. Previous movements in favour of the CAD have been helped by strengthening oil markets, but that is less so the case in recent times as oil markets have been relatively bullish compared to the CAD. Which begs the question, how powerful is the correlation these days between the two pairs. Well for now it seems further mute, but it warrants further investigation based of the wildish movements we have seen in the USD.
All in all the USDCAD has been a technical powerhouse, and there is further movement to go to reach some sort of consensus at this stage. So far the USDCAD head and shoulders pattern looks to be in full swing and is drifting lower at a steady pace. The market is likely to continue this pattern in the short term until the USD can take full control and the potential target of 1.2681 as support looks like a key target for traders.
Will the earnings season steal the spotlight from trade?
Friday’s steep declines in Wall Street driven by weak employment report and a war of words between U.S. & China seem to have been shrugged off in Asia trade. President Trump’s tweets are becoming a little confusing to investors. After threatening to impose tariffs on additional $100 billion of Chinese exports, Trump tweeted that he will always be friends with President Xi and China will take down its barriers because it is the right thing to do. The trade drama will continue to create noise in the coming weeks, but it will be interesting to hear from the Chinese President at the Boao Forum on Tuesday, where he will likely show his country’s readiness to retaliate, while indicating a willingness to negotiate.
Oil traders will continue eyeing situation in Syria, after the Pentagon denied conducting air strikes on an airport in Homs. The missile strikes came a couple of hours after Trump warned of "a big price to pay", in response to the attack on rebel-held Douma.
While trade tensions and geopolitical risks are likely to keep appetite for risk in check, investors will have new information to digest this week, particularly earnings from big banks and U.S. inflation data.
Inflation data & FOMC Minutes
U.S. Consumer Price Index is expected to increase by 0.1% YoY, to 2.3%. Meanwhile, the core reading is anticipated to hit back the Fed’s target of 2%, after falling short for the past 11 months. The inflation reading along with the FOMC minutes release on Wednesday will probably lead to a repricing of interest rates expectations given any surprise. An upside surprise will likely push U.S. 10-year Treasury yields bonds towards 2.9%, having fallen 17 basis points from its February’s peak of 2.96%.
It’s the Earnings Season
As usual, the U.S. earnings season kicks off with big banks – JPMorgan, Citi Group, and Wells Fargo will report their Q1 results on Friday. According to Factset, the estimated earnings growth for the S&P 500 in Q1 is 17.1%, marking the highest earnings growth since Q1 2011. More interestingly, 26 companies in the Tech sector issued positive Earning Per Share guidance, well above the 5-year average of 11. With the S&P 500 down 2.6% for the year, I think there will be many buying opportunities, especially if trade tensions abate. The forward 12-month P/E ratio at 16.5 looks much more reasonable compared to a year ago.
The Australian dollar continues to struggle on the global stage as markets have punished it for a weaker than expected employment report. With only 4.9k jobs created in the previous month, compared to the forecasted 20k. This is a drop when you compare it to February which saw 17.5K jobs created and the economy was looking a little stronger. To throw things further into the mix the participation rate has dropped as well to 65.5% (65.7%), meaning less people are looking for work, or have given up completely when it comes to finding a job. All in all it's tough times for the Australian economy, and the Reserve Bank of Australia is certainly looking like it may struggle to talk up anything positive about the economy apart from the fact that commodity prices are lifting due to Russian sanctions. The biggest benefactor though of all this chaos has been the AUDUSD which continues to struggle to find any bullish momentum at present.
Looking at the chart it's clear that a bearish wedge was in action, but the market didn't break out as expected. Instead we've seen sideways movement and now a strong bearish movement, which may indicate a return to the bearish trend. The 100 day moving average continues to be a clear level of resistance which no candles were able to close past. Now with the bears in control and support at 0.7760 cracked it looks likely that it may extend all the way down to the 0.7680 area which is likely to be a strong band of support. Beyond this we could see a further push to 0.7546, but that's likely to take some time or worse economic data coming out of Australia.
Recent reports today triggered some interesting moves for Oil markets, as it was report that there was no overhang in oil inventories anymore. In short this means that there is no longer a case of oversupply, and many OPEC nations will be breathing a sigh of relief - even though shale producers are working harder than ever to pump more oil out the ground. What was interesting was that the push today failed just short of the 70 dollar mark, which lends credit to recent thinking that oil markets are likely to range between the 60 and 70 dollar mark. If that is the case then technical levels are likely to come back into play heavily. More than anything though the fall today could most likely be attributed to the strengthening in the USD and traders should be aware of that.
On the charts the oil pull back will get the bears excited and 69.49 is looking like it may be a strong resistance level yet. Bears will be targeting the next two key levels at 67.21 and 66.05 as they push down the charts. In the event that the bulls look to take charge on a Friday then, 69.49 is the likely level to beat, but it would take a large effort to bust through.
The USD has exploded back onto the scene today as USD bulls kicked well into gear and lifted the USD higher against all the major pairs and commodities. This was sparked by the recent jump in US yields which is nearly at the 3% mark for 10 year yields, and more importantly it was all backed up with positive economic data today to really push things along. US manufacturing PMI had a strong reading lifting to 56.5 (55.2 exp) showing that the US economy is continuing to expand. Existing home sales also lifted strongly to 5.6M (5.55M exp), showing that consumers are also positive about the state of the US economy - even with all the recent trade issues and recent political turmoil.
One of the key movers today was of course the USDJPY, which has absolutely exploded in the face of all the bullish movement. Clearly traders were keen to exist from the traditional safe haven and seek risk elsewhere. As such the USDJPY has been a keen target, especially with Abenomics still being a factor and the Japanese economy likely to stand still compared to the volatile nature of the US economy. For the most part the rises pushed through previous resistance at 107.718, and have lifted up in to the high 108 levels with a potential target of 109.347 for bullish traders. It's likely that any bearish movement would come up hard against support at 107.718 as this level has been strong in recent times.
One of the other key movers has of course been the AUDUSD, which has slipped down the charts. Comments just earlier before were that the Reserve Bank of Australia was looking to lift rates in the future. However, in the present climate, that seems like it may be some time off. With markets not even pricing in an increase in the next few months, based off the current economic data at home I would largely expect that a large increase in inflation would be the catalyst for the RBA to move rates, as right now unemployment is gradually drifting lower and it's only inflation which has been lagging in recent times. That being said with the recent currency moves we could in fact see inflation increase via the exchange rate mechanism.
That being all said and done, the AUDUSD continues to be under the paw of the bears, and drifting lower and lower at this stage. Traders will likely have a long term target of 0.7546 for bearish movements lower. Any reversal of fortune is likely to come unstuck at 0.7658 which will be acting as key resistance in this market - that entire area being very hard for traders to crack unless the fundamentals are completely behind them. So for now the AUDUSD is under pressure and this looks set to continue with the downward movements we are seeing.
Global equity markets were under pressure on Wednesday as rising U.S Treasury bond yields and speculation of higher U.S interest rates dented appetite for stocks.
Most Asian shares fell during early trade following a heavy selloff on Wall Street overnight. The negative momentum from Asian markets and growing caution has already punished European stocks this morning. With investors likely to maintain some distance from equities as U.S bond yields climb, Wall Street could extend losses this afternoon.
Sterling depressed below 1.4000
Sterling struggled to push back above the 1.4000 pivotal level this morning as investors continued to question the likelihood of a BOE interest rate hike in May.
An aggressively appreciating Dollar has punished the GBPUSD further with prices trading around 1.3957 as of writing. Easing UK inflation and a cautious Mark Carney have forced investors to scale back expectations of a May rate hike. The Pound which is extremely sensitive to monetary policy speculation could depreciate further based on these factors.
Taking a look at the technical picture, the GBPUSD is bearish on the daily charts. The decisive break down below the pivotal 1.4000 support level could encourage a decline towards 1.3920 and 1.3800, respectively. For bulls to jump back into the game, prices need to secure a daily close back above 1.4000.
Currency spotlight – USDJPY
The Yen slipped to a fresh two month low at 109.25 during Wednesday’s trading session as higher U.S yields boosted the Dollar.
With the Dollar finding amble support from rising bond yields and expectations of higher U.S interest rates, the USDJPY has scope to venture higher. From a technical standpoint, the USDJPY is bullish on the daily timeframe as there have been consistently higher highs and higher lows. A daily close above 109.00 could encourage an incline higher towards 109.70. Alternatively, if bulls fail to maintain control above 109.00, the next levels of interest will be at 108.40 and 107.80, respectively.
Commodity spotlight – Gold
Gold has edged lower with prices sinking towards $1324 despite global equity markets suffering heavy losses.
An aggressively appreciating Dollar, expectations over higher U.S interest rates and easing geopolitical tensions are the most likely culprits for the yellow metal’s depreciation. With the Dollar expected to remain supported by rising bond yields and Fed hike speculation, zero-yielding Gold could feel the heat. If U.S GDP data dishes out an upside surprise on Friday, bears may be injected with enough inspiration to send prices towards $1300. All in all, it must be kept in mind that Gold still remains in a wide $60 range with support at $1300 and resistance at $1360. Prices are likely to remain confined within these regions until a fresh catalyst is brought into the picture.
It could be a case of the straw that breaks the camel's back with the upcoming non-farm payroll data due out tomorrow. So far there have been some very strong economic figures out from the US economy, but there are also worries that Trumps trade wars could push the US economy into a recession, a voice that has been echoed recently by a letter signed by 1000 economists warning him of such at thing. However, the market will be watching employment figures as usual and with a keen sense of interest to see if Trump has made a dent in them recently as we start to head into the summer period. So far the market is expecting 192K tomorrow, which is a lot more robust than the previous 103K reading we saw last month, and a drop in the unemployment rate to a record 4%, something that seems tantalising close for the US economy.
Today however we saw the market react sharply though to bad news as US durable goods (core) m/m missed expectations to come in at 0.1% (0.5% exp), and the worry is that with non-farm payroll we could see another sharp turn in the market again. Something that would play out across the US dollar and of course US equity markets.
The biggest impact today was on the S&P 500 which faltered sharply in today's trading before clawing back some ground as the bulls rushed back into the market. At present the US equity markets are very vulnerable to economic data and we've seen some big swings as of late. We've also seen the S&P 500 looking to sit between the 200 day moving average and the 100 and this looks like it may continue unless we saw a solid breakout of these levels. A very weak non-farm figure tomorrow could push the S&P 500 much lower as markets are quite jittery at present compared to a year ago. If we see a positive figure I would look to see a push back up to the 100 day moving average at present, as it looks to act as dynamic resistance in this market.
Across the Pacific and the bears took a break today from the AUDUSD as it was upbeat for a change. This was on the back of weaker US dollar, but also the fact that the AUDUSD encountered strong support at 0.7472 as it bottomed out. There is a chance we could see further bearish pressure tonight with the Monetary policy report, so traders will be looking for a retest here and potentially a move to lower support at 0.7371. In the event it's hawkish I would expect a breakout above 0.7546 and potentially move to the topside of 0.7638 as the bulls will be keen to have a crack at this one. All in all though, the Australian economy continues to struggle so it may be a hard ask for the Reserve Bank of Australia to be more optimistic at present - especially based of their recently neutral statements.
