Market Overview. Markets are increasingly cautious ahead of what could be a crucial meeting to discuss the possibility of an oil production freeze in Doha on Sunday. The meeting that contains OPEC and Non-OPEC (most importantly Russia) members has been anticipated for a while and traders have had plenty of time to position themselves ahead of it. However that makes the likelihood of a rather cautious session today and the outcome of the meeting could have significant implications for risk appetite and sentiment across asset classes. Wall Street closed almost dead flat on the day with the S&P 500 up less than half a point, whilst Asian markets have also been cautious overnight. There has though been a clutch of Chinese economic data which has so far done little to drive sentiment. The GDP for Q1 came in as expected at +6.7%, whilst the sector data was a little stronger, with Industrial Production at +6.8% (+5.9% exp) and Retail Sales +10.5% (+10.4% exp). This data should give a bullish bias to risk today however the uncertainty of the Doha meeting seems to be just holding traders back a touch.
In the forex markets there is a mixed picture, with a marginal dollar strength against euro, sterling and the yen, whilst the commodity currencies are reacting more to the China data. The Aussie is higher, whilst the Kiwi and Canadian Loonie are both also outperforming. The gold price has just started to pare some of yesterday’s losses, with the oil price continuing to consolidate as it has done for the past couple of days.
Traders will be looking mostly towards the US now for any catalysts within today’s session, with a mix of industrial data (tends to be dollar negative) and consumer data (which tends to be more supportive). The New York Fed (Empire State) Manufacturing is at 1330BST and is expected to remain back above the zero line with 2.2 forecast. The Industrial Production data is at 1415BST and is expected to show -0.1% for the month, whilst Capacity Utilization is expected to remain flat at 75.4. The preliminary Michigan Sentiment is at 1500BST and is expected to improve slightly to 92.0 (from the upwardly revised 91.0 last month).
Chart of the Day – EUR/JPY
The outlook for Euro/Yen remains under pressure but the pair is once more at a crossroads. The long term outlook has been bearish ever since topping out in December 2014, with consistent downside and negative momentum meaning that rallies have continued to be seen as a chance to sell. The latest rally failed at 128.20 a couple of weeks ago and the sellers have been putting pressure on ever since. However, in the past week there has been a band of support that has been holding between the early March lows at 122.05/123.00. Despite the bearish configuration on momentum indicators this band of support has formed a consolidation. The daily candlesticks have been rather indecisive during this consolidation with yesterday’s candle being the third time in five sessions that the open has been within two ticks of the close (effectively three doji candles). The intraday chart shows that this consolidation has used a basis of support between 122.55/123.00 whilst hourly momentum indicators have now turned into a far more neutrally configured set up, as if waiting for the next catalyst. The trend is your friend and throughout the bear phase over the past 10 months the sequence of lower lows has dragged the price lower. I favour a downside break, with the near term resistance band 124.00/124.20 key.
