Traders go defensive amid Yellen reaction and political developments

This article was last updated on April 16, 2022

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US Stock markets continue to retreat from las‎t week’s all-time highs with traders taking profits as the euphoria fades. US indices are down 0.2% while the FTSE and Dax are down 0.4%.

Part of this decline may be due to enthusiasm over President Trump’s economic programs fading. Markets are still waiting for details on tax and spending priorities which could take a while to fully crystallize and some traders may be starting to move on. Also, the weekend accusations by President Trump on Twitter against his predecessor over wiretapping , ongoing questions about the new Administration’s relationship with Russia and reports a new border control order could be coming this week remind traders that there a number of other areas that could take the President’s attention away from the economy.

In currency action, there have been some defensive flows. JPY is top dog today catching up to the rally gold staged Friday afternoon. The US Dollar is outperforming the other majors today coming out of Fed Chair Yellen’s speech Friday afternoon. She came as close as a Fed member can get to signalling a rate hike indicating that at this month’s meeting progress on inflation and employment will be reviewed with an adjustment in rates possible. Today is the last day for Fed speakers before the pre-meeting blackout kicks in. Because of this, Wednesday’s ADP and Friday’s nonfarm payrolls could attract particular attention.

It’s otherwise a lighter week for economic news, but we could see more political developments.. China’s government announced over the weekend that it is targeting 6.5% GDP growth this year, maybe a bit more. In Europe, the focus remains on very close election races in the Netherlands, France and Germany with the Netherlands voting next week and a possible change to the candidate lineup in France. Developments related to Brexit could keep the pound active through the week.

Chart Signals: Overbought indices start to crumble

Indices in the US and Europe are increasingly looking like their recent advance has run its course and corrections may be starting. As they fall away from last week’s highs, negative divergences suggest upward momentum has peaked while weakening overbought RSI readings suggest significant corrections could be starting.

North American and European Indices

US 30 is back under 21,000 and with the RSI overbought and rolling over, it looks like upward momentum in the index has peaked and a correction possible. Recently dropping from near 20.975 toward 210,955 next potential support appears near 20,830 a previous breakout point.

US SPX 500 is falling away from 2,400 trading near 2,375 with next potential support near 2,368 then 2,350 and 2,315. RSI overbought and starting to retreat indicates upward momentum has peaked and a downswing starting. 

US NDAQ 100 is starting to fall back dropping under 5,365 as it falls away from 5,400 with next potential support near 5,300. RSI dropping back under 70 signals upward momentum fading and a correction starting.

UK 100 is still falling back in a normal trading correction after running into resistance near 7,400. Recently trading in the 7,345 to 7,355 area, next potential pullback support appears closer to 7,300. A negative RSI divergence indicates upward momentum weakening.

Germany 30 has dropped back under 12,000 which may become resistance as it continues to fall back from a recent high near 12,090. Lower highs and a negative divergence in the RSI indicate upward momentum slowing. Next potential support near 11,850.

Commodities

Gold is consolidating Friday’s big bounce up off $1,220 support trading back above $1,230 a Fibonacci level near $1,234. RSI holding 50 confirms underlying uptrend intact through the recent correction. Next potential resistance near $1,242. 

Crude Oil WTI is hanging around $53.00 with support rising toward $52.70. It continues to consolidate while forming a bullish ascending triangle above $52.00 and below $54.75.

FX

US Dollar Index continues to send mixed signals. An attempt to break out over 101.70 last week failed in a bearish Evening Star pattern but it continues to hold above 101.00 and 50 on the RSI to keep its underlying uptrend intact. Next resistance in the 102.00 to 102.25 area with next support near 100.70.

USDJPY appears to have completed an upswing and has started to roll over within a broad 111.50 to 115.50 sideways range. A recent rally topped out near 114.80 and the pair has dropped back under 114.05 on its way toward 113.65 with next support possible near 113.00 then 112.00.

EURUSD is sending mixed signals trading near $1.0600. The pair has bounced up off $1.0500 with support rising toward $1.0585 but it still faced resistance near $1.0640. Meanwhile, the RSI broke out of a downtrend but is struggling to get back above 50.

EURGBP has encountered resistance near 0.8660 a Fibonacci level and slipped back toward 0.8630. Rising RSI indicates, however, that upward momentum continues to increase. Next potential resistance near 0.8760 with next support at the 50-day average near 0.8560. 

GBPUSD is starting to stabilize having round support at a higher low near $1.2210 and climbing back up into the $1.2250 to $1.2280 area. Next potential resistance possible near $1.2360 a recent breakdown point.

USDCAD is still struggling with resistance near $1.3400 moving into a $1.3380 to $1.3430 range to consolidate recent gains and work off an overbought RSI. Next correction support possible near $1.3325.

CADUSD found some support near $0.7440 with more possible near $0.7410 a Fibonacci level. The pair has rebounded toward $0.7465 but it really needs to retake $0.7500 to signal an upturn and call off its recent breakdown.