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Markets looking more cautious as dollar consolidates

Hantec Markets

Market Overview

An air of caution is beginning to come over markets as the huge run higher on the dollar consolidates with it beginning to run out of steam. For the past couple of days now the excessive moves higher on Treasury yields have begun to settle down and although the dollar briefly pushed above the key resistance of 100.5 on the Trade Weighted Dollar Index yesterday (to reach its highest level since 2003) there is a feeling that some of the steam is beginning to go out of the dollar bull run. Whether this turns out to be the beginning of a near term corrective move, or just a pause for breath remains to be seen but there are a few signs of exhaustion on technical charts such as the Dollar/Yen and Euro/Dollar, whilst gold has been consolidating for the past few days. Equity markets are also showing signs of caution again.
The raft of Fed speakers continue to add to the intriguing outlook as everyone tries to come to terms with a Trump presidency. They have been reasonably hawkish on balance, although the Fed’s Patrick Harker believes it is too early to assess the impact, Loretta Mester would consider the impact of extreme volatility which could sway her. There are more FOMC members serving up their views today. The most important will be Janet Yellen who testifies before the Joint Economic Committee, however there is also Bill Dudley and Lael Brainard too. Brainard could be the interesting one as she has been on the very dovish end of the scale and a shift would be a significant change of stance.
Wall Street closed marginally lower last night with the S&P 500 -0.2% at 2177, whilst Asian markets have also been cautious, (Nikkei closed almost dead flat). European indices are looking mixed around the open today with little real direction. This mixed outlook is reflected in forex markets with the euro and sterling mildly higher. The Aussie is also a mild underperformer following the release of Australian unemployment this morning which had a couple of very marginal disappointments (on total employment and participation rate mainly). Gold and silver are mixed, whilst the oil price is slightly lower.
Traders will be looking out for UK Retail Sales at 0930GMT which are expected to show an improvement to +5.4% for the ex-fuel YoY (up from +4.0% last month). Final Eurozone inflation is at 1000GMT which is expected to possibly be revised higher to +0.5% (from +0.4%) on the headline YoY, although the core is expected to stay at +0.8%. US CPI inflation is the key in the afternoon and it will be interesting to see if there is an uptick to +1.6% for the headline YoY (from +1.5) and the core data to remain at +2.2%. Building permits are also at 1330GMT (1.20m expected) and Housing Starts (1.16m expected) and weekly jobless claims are expected to stay around recent levels at 254,000. The Philly Fed business index at 1330GMT is expected to dip slightly to 8.0 (from 9.7).

Chart of the Day – USD/CHF

I am becoming somewhat more wary of chasing the dollar higher, but one market that is not stopping at the moment is Dollar/Swiss. There has been a key resistance of a 0.9950 in the past 9 months which has been a range high, however this resistance has been decisively broken by this move. The past couple of days we have also seen a confirmation of the move with two closes above the level of parity which has also been an barrier to gains previously. The move is a huge long term breakout on Dollar/Swiss and completes what is now a long term base pattern that implies around 475 pips of upside towards 1.0425. The bull run posted a very neutral (almost doji candle) yesterday and this could be the initial sign of slowing in front of the next resistance at 1.0094 which was the March high and a level that protects the January 2016 high at 1.0257. Momentum indicators are strong for medium to longer term gains and even if there is an initial corrective move it would likely be bought into. There is now an excellent band of support 0.9950/1.0000 to be seen as a “buy-zone” for a pullback in the coming days. The hourly chart shows that the bull run has been using the rising 55 hour moving average as a basis of support at 1.0005 today, whilst near term momentum remains bullishly configured. A move below Tuesday’s low at 0.9923 would turn the near term outlook more corrective.

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Source: https://www.hantecfx.com/markets-looking-more-cautious-as-dollar-consolidates
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