Oil and Bonds the main talking point as stocks continue higher

Market Analysis /
10 Jan 2018

Stocks continue higher as Wall Street saw yet more record closes with the S&P500 now posting its best start to a year since 1987. Oil prices were again a driver as WTI posted gains through the $63 level as it looks to hunt down what is becoming a psychological target at $70 per barrel. It seems that first thing this morning stocks in Europe are taking a breather from the relentless upside however with markets looking a little weaker, and US index futures currently pointing to a weaker open later this afternoon.

 With stocks continuing higher, bond markets continue to struggle, with yields hitting some of the highest levels in a decade. Inflation is a big issue for many investors moving into 2018, especially after the Fed had dismissed the sluggish rate in its last couple of policy setting meetings. So with the US CPI reading due on Friday afternoon, it is a case of bond markets waiting for the release. Yields in the 3YR and 10YR have both jumped, with the later now at 2.55%, giving investors cause to keep one eye on highs from 2017 at 2.626%. Expectations on Friday are for inflation to remain sluggish at 2.1% YoY and 0.1% MoM.

 If the bond markets are waiting for Friday’s CPI readings, the FX and stock markets are willing to look towards data before that, and with UK data due this morning, it will be Sterling that is the focus first thing. Industrial and manufacturing production, as well as trade balance readings, are expected to show a slight slowdown. Industrial production is expected to fall from last month’s figure at 3.6% to 1.8% while manufacturing could drop from 3.9% to 2.8%.

Technical Levels

 Downward momentum looks like it’s taking over for EURUSD at the moment after falling away from the highs at the start of the week, but shorter term is showing upside towards resistance at 1.1960, and it does seem like we could range between that level at the 1.1900 on the downside, with 1.1915 the shorter term low level. If you take that low as your downside level, for now, the fib from there to the previous highs at 1.2088 gives the 1.1960 level as the 23.6% fib on the hourly time frame. Below these lows, it’s the trendline on the daily chart that becomes the more important downside target.

 Recent moves in USDJPY have seen a break of the longer term range as well as a break of the 100 DMA after falling away from the upside trendline at around the 113.00 level. The average will have to be under close scrutiny today, however, as previous breaks have been swiftly corrected back higher. The move lower could well bring the 111.00 level and possibly at 110 handle as key low level remains down at 110.80’s

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