US Payrolls, Oil and UK Budget in focus

Market Insights

Stock markets are steady again this morning with traders looking for the next catalyst to make a move. Although stocks look tired and some profit-taking may be starting, so far declines have been offset by capital still coming in from the sidelines. Don’t forget that tax deadlines for retirement contributions is around now or has just passed in several countries and that money may be getting put to work chasing this rally.

‎Indices around the world remain mixed. The Nikkei fell 0.4% while the Hang Seng rose 0.4%. US index futures are down 0.2%, the FTSE is flat and the Dax is up 0.2%.

WTI crude oil is down 0.7% following a huge ‎11.2 mbbl increase in API inventories which indicates the big build isn’t over yet. CAD is trading lower in sympathy and this could also impact energy stocks. DOE reports are due mid-morning which could also have an impact on energy trading. China’s trade report was mixed with a surprise deficit driven by a big surge in imports. AUD and NZD have been impacted negatively by this news.

Sterling has been sliding ahead of today’s UK budget and reeling from yesterday’s passage in the House of Lords of a second amendment giving Parliament more say over a final Brexit deal by enabling lawmakers the ability to send the government back to negotiate further not just take it or leave it. Based on their reaction, traders seem to think that this could muddy the process or weaken the government’s hand in negotiations.

The UK budget speech is underway. Chancellor Hammond has been talking up the positive impact of Brexit on the UK so far, as the government raises its 2017 GDP growth forecast to 2.0% from 1.4%, above the OECD’s recent 1.7% forecast. Inflation is expected to run 2.4% this year.  The government has cut its borrowing projection for this year to £51B from £62B. The FTSE has been holding steady since the speech started, GBP has been climbing, indicating the street sees the speech so far as neutral to slightly positive. 

Wednesday also brings the first US payroll reports. Following comments from Fed Chair Yellen that the Fed plans to review employment and inflation trends in the US with the potential for a rate increase at next week’s meeting, this week’s ADP and nonfarm payroll reports for February in the US could attract a lot of attention.

Last month’s January reports revealed a surge in hiring to start the new year with ADP private sector payrolls increasing 246K and nonfarm payrolls increasing 227K way above street estimates of 168K and 180K respectively.

The street is currently expecting to see a retrenchment in hiring as shown by the consensus estimates for ADP payrolls of 189K and nonfarm payrolls of 190K. I think that the street is being overly pessimistic. US jobless claims have remained low, economic data has remained positive and the oil price has held above $50 helping one of the more depressed parts of the US economy to recover.

Based in this, I am thinking about 210K for both. I think that it would take a report below 150K for traders to rethink expectations for a US interest rate increase this month. Also note that average hourly earnings are expected to grow 2.8% over year up from 2.4% last month. Rising wage pressures may also increase pressure on the Fed to raise interest rates sooner rather than later.

Chart Signals: Pound rebound, RSIs under 70 suggest index corrections deepening

GBP pairs are starting to rebound on the budget speech, clawing back earlier losses. Cable may be forming a head and shoulders bottom. Meanwhile indices still look technically vulnerable with RSI indicators for US indicators crossing back under the 70 line from overbought, a bearish momentum signal.

North American and European Indices

US 30 continues to roll over with the RSI breaking under 70 signalling a correction getting underway. The index has dropped into the 20,890 to 20,920 area with next potential support near 20,830 a previous breakout point then 20,700.

US SPX 500 is increasingly coming under distribution with a trend of lower highs emerging plus RSI falling away from 70 toward 50 indicating momentum downshifting from upward to neutral for now. Resistance drops toward 2,370 with next support near 2,350 then 2,330.

US NDAQ 100 is sitting near the middle of a 2,300 to 2,400 trading channel but is showing signs of breaking down with the index breaking an uptrend support line near 2,352 and sliding toward 2,348 while RSI under 70 and falling indicates a correction deepening.

UK 100 is drifting back toward 7,300 as it falls away from 7,400 with resistance sliding toward 7,350. Next support possible at the 50-day average near 7,245.

Germany 30 is still struggling with 12,000 round number resistance sliding back toward 11,940 after a peek up toward 12,020 was rejected. A negative RSI divergence indicates upward momentum slowing. Next potential support kin a pullback possible near 11,905 then 11,700 and the 50-day average.

Commodities

Gold remain under pressure, falling to test its 50-day average near $1,212 with next potential support in the $1,200 to $1,205 area between a round number and Fibonacci level. Resistance drops toward $1,218 a Fibonacci and support/resistance level. Falling RSI indicates downward pressure increasing.

Crude Oil WTI has been knocked back from near $53.00 toward $52.40 but it remains in an uptrend above $52.00, still forming an ascending triangle below $54.00. RSI falling under 50 suggests a downturn in momentum with next support on a breakdown near $51.30 then $50.80.

FX

US Dollar Index is bumping up against 102.00 resistance where a breakout would complete an ascending triangle and signal the start of a new upswing with next potential resistance near 102.25 then 102.55. Rising RSI indicates upward momentum accelerating. Initial support rises toward 101.70.

USDJPY is still trading near 114.05 a Fibonacci level having bounced up from near 113.60. It continues to trend sideways between 112.00 and 115.00 with next support near 113.55 and next resistance near 114.55.

EURUSD is turning lower again with resistance falling toward $1.0585 a Fibonacci level, the pair trading near $1.0550 and a retest of $1.0500 resistance possible. RSI remains below 50 indicating its broader downtrend remains intact and may be accelerating again.

EURGBP has encountered resistance near 0.8700, dropping back toward 0.8670 with next potential pullback support near 0.8660 a Fibonacci level then the 50-day average near 0.8550. RSI suggests upward momentum may be levelling off.

GBPUSD has found some support near $1.2140, bouncing back toward $1.2170 but still well short of $1.2210 where it was trading overnight. It may be forming the right shoulder of a head and shoulders base but still has a lot of work to do.

USDCAD continues to climb with support rising toward $1.3400, the pair trading near $1.3435 and next resistance possible near $1.3455 then $1.3500. RSI overbought suggests potential for a pause but so far it continues to confirm the uptrend.

CADUSD remains under distribution, falling into the $0.7440 to $0.7460 area while falling RSI confirms downward momentum still increasing. Next potential support may appear at a Fibonacci cluster between $0.7380 and $0.7410.

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