The Easter public holidays can often lead to a distorting influence on markets and it will be difficult to ascertain how much importance can be ascribed to the signals until today’s session really gets into the swing. Positioning will be important this week as the Non-farm Payrolls data looms large on Friday. The recent dollar strength of the past week on the back of a flood of hawkish FOMC member views, is also being called into question after a disappointing reading on US inflation as the Personal Consumption Expenditure dropped back to +1.0% (although the core data remained flat at +1.7%). So the dollar bulls are having to defend once more. However nearer term, traders will be looking towards a speech by FOMC chair Janet Yellen today (at 1620GMT) for clues on monetary policy. I would expect her to be very neutral and play it straight as she knows the implications of the alternative.
With reduced volumes, Wall Street was rather quiet in yesterday’s session (S&P 500 +0.1%) and although Asian markets were broadly slightly weaker (Nikkei -0.2%) there are gains early on for the European markets. In forex trading, the US dollar is slightly stronger with marginal gains against sterling and the Japanese yen, whilst the Kiwi is the best performing of the major currencies today. Gold is mixed to slightly weaker whilst with the oil price trading just over 0.5% lower, it will be interesting to see what happens to the positive correlation with equity markets.
The announcements are rather limited for the European countries today, so attention will turn to the US, with the Case-Shiller House Price Index which is expected to pick up slightly to +5.8% at 1400GMT. Then there is the US Conference Board’s Consumer Confidence at 1500GMT which is expected to improve from 92.2 to 94.0.
Chart of the Day – NZD/USD
After six consecutive days of correction the Kiwi finally seems to be getting a foothold once more. This comes as a bullish key one day reversal (or bullish engulfing candlestick) has formed. This is a powerful one day pattern that really changes the sentiment. It also comes as the positively configures momentum indicators have turned up again after a near term corrective phase (RSI turning up from high 40s again, MACD still above neutral and Stochastics Crossing higher again). The support around $0.6670 is now increasingly important as this level has been used as the floor for the past three sessions. The strong reaction today also is helping to allay fears over the lack of credibility due to the reversal being seen over a public holiday for Easter. The intraday hourly chart shows the bulls have built support over the past few days and pushing above near term resistance at $0.6710/$0.6720 shows confidence is developing once more. The daily chart shows the resistance at $06750 which was the old February highs is already being tested as the Europeans take over, whilst the hourly chart shows $0.6775 needs to be overcome and if this can be achieved then the way is open back towards $0.6875. A closing breakout would add to the conviction today.
