Cautious moves on forex ahead of another crucial week [Video]

Market Overview

There has been a rather muted start to what could be another crucial trading week. In the coming days top officials from the US and China will meet in Washington to negotiate a potential trade deal. However, the tier one data out of the US is joining the deterioration across other major economies is shaping sentiment once more. It also shows the importance of securing a deal is growing, to prevent sustained economic deterioration in the US. A global economic slowdown is accelerating and the trade dispute between the world’s two largest economies is a major factor. Prospects of an agreement between the US and China are still not great, even as President Trump has tried to talk them up in recent days. Friday’s mixed jobs report for the US may have not reflected the manufacturing sector slowdown leaking across the broader economy as had been feared (after the ISM data). However, traders will know that unless there is a deal between the US and China, it will only be a matter of time before it does. So traders are circumspect this morning.  Add in another whistleblower to come forward in the President Trump impeachment story and there is further risk aversion for traders to factor in. This is helping the performance of safer haven assets, with the yen and gold supported today. On the Brexit front, there are dwindling prospects for a rehashed deal meaning there is renewed negative pressure creeping in for sterling again this morning.

On Wall Street there was a considerable rebound into the close, with the S&P 500 +1.4% at 2952. However, US futures have slipped back early today, currently around -0.4% lower, which has weighed on Asian markets with the Nikkei -0.2%. In Europe there is a mixed start to trading, with FTSE futures a tick lower, and DAX futures +0.2%. In forex, there is little direction on USD, whilst GBP is marginally weaker and AUD also lower. In commodities, the risk aversion is lending a degree of support to gold today although little real direction, whilst oil is also around the flat line.

There are no major events on the economic calendar today.

Chart of the Day – NZD/USD

With three successive positive sessions, the Kiwi is threatening a recovery. The technical indicators would certainly support one too. There is a bullish divergence with a failure swing on RSI, along with a buy signal on Stochastics and even positive traction on MACD lines. This comes as the market is pushing to test the first importance resistance in the rebound at $0.6350. A small base pattern would complete above $0.6350 to imply c. 100 pips of further recovery. Interestingly that would bring NZD/USD exactly back to the key September high at $0.6450. Watch for the RSI moving above 50 which would be a ten week high and would suggest a change in outlook where at least on a near term basis, weakness is a chance to buy. This is reflected on the hourly chart which shows a growing run of higher lows leaving support in the band $0.6270/$0.6300. Under $0.6250 would abort the recovery prospects.

WTI Oil

The momentum of the sell-off has dissipated as the run of losses has been curbed. A long lower shadowed doji reflects uncertainty in the decline, whilst the sharp three week downtrend is now being retested. Interestingly this comes as the market is testing the resistance of the old low at $52.85. It seems that this is a near term crossroads for WTI. A tick higher on Stochastics is not yet confirmed as a buy signal, but momentum looks to be tempering. It is interesting to see this slowing sell-off coming as the key floor at $50.50 has again held firm (last week’s low at $51.00). We need to see if this is the beginnings of a recovery again which has repeatedly come throughout 2019 in this area.  A close back above $54.00 would confirm.

Dow Jones Industrial Average

Near term volatility shows little sign of abating on the Dow as a second strong positive candlestick on Friday has helped to unwind previous losses. Effectively, in closing the downside gap at 26,562 the bulls are moving to negate the negative implications of last week’s loss of 26,705 support. With momentum indicators swinging higher (Stochastics especially) there is a moving towards near term positivity again. A close back above 26,705 in today’s session would be a further step in the resurgence of the bulls. However, there is another gap that has been left open at 26,205 which theoretically needs to be filled.

Other assets insights

EURUSD Analysis: read now
GBPUSD  Analysis:  read now
USDJPY  Analysis:  read now
GOLD Analysis: read now