Market Overview
The decline in the price of oil is really weighing on market sentiment now with equity markets and commodity currencies feeling the pinch. With WTI falling below the $37.75 floor it reached in June, the commodity has hit a 6 year low and little would suggest that it will be stopping any time soon. The strength of the US Dollar is certainly not helping matters with the market now positioning for a rate hike by the Federal Reserve in next week’s meeting, however in early moves today the dollar is giving back some of its recent gains.
Wall Street closed lower on the back of weakness across the energy plays with the S&P 500 down 0.7%. The move has also hit Asian markets which were also weaker on the back of the China trade data. The data was mixed with exports worse than expected (at -6.8% versus 5.1% exp) but imports were better than expected (at -8.7% versus -12.6% exp). The aggregate data still does not make pleasant reading though as China continues to slow down amidst its economic realignment. The Nikkei 225 was lower by 1.0% coming on the back of an upward revision to GDP data which shows that the country avoided recession although this reduces the chances of an extension to quantitative easting (thus strengthening the yen which is also a drag on the Nikkei). European markets are trading around the flatline in early moves.
In forex trading, the US dollar is weaker against the euro and yen, although the Aussie dollar is a key underperformer today as weakness across commodity markets is hitting. Gold is also trading slightly higher amidst the dollar weakness, whilst the important oil price is trading higher but the bears are still in control.
Traders will be looking out for UK Industrial Production numbers at 0930GMT which are expected to improve slightly to +1.2% (1.1% last), whilst the US JOLTS job openings is at 1500GMT (5.5m exp versus 5.53m last month).
Chart of the Day – AUD/USD
The bulls were able to ward off the selling pressure last week leaving a low at $0.7180 but there is another test underway. The well-formed 4 week uptrend channel is again under threat today as the US dollar bulls and pressure on commodity prices has dragged the Aussie lower. I see the 50 level on the RSI as a key indicator as it acts almost as a barometer for the bulls. The concern is that the other momentum indicators are rolling over too, with the Stochastics now especially looking susceptible to a corrective configuration if the weakness continues. The intraday hourly chart shows a move corrective outlook with the failure of the near term support at $0.7280 yesterday which now becomes a near term basis of resistance. The bears will now be eying the medium term pivot level around $0.7200 with the support at last week’s key reaction low at $0.7170 also important as a breach would once more confirm the US dollar bulls being in control to initially open $0.7070. This is once more becoming a key moment for the medium term outlook of the Aussie.
EUR/USD
I spoke yesterday about the importance of the key pivot level at $1.0810. If you are going to go by the letter of the law then this support was breached yesterday (low at $1.0795), but I do not see that the intraday hourly chart showed any confirmation of a breach and the euro bulls gradually returned to support in the latter stages of the day. This means that the battle for control continues however the hourly chart continues to show a sequence of lower highs as the unwinding of the ECB driven euro exuberance has continued. I expect that the $1.0810 pivot will play a significant role during the coming days. The initial resistance comes in around $1.0885 which is now protecting $1.0950 and the key post-ECB spike high at $1.0980. With the hourly momentum indicators having become neutral as the overbought momentum has unwound this is now one to await the next move. If the resistance at $1.0885 remains intact today then the bear pressure will begin to grow.
GBP/USD
A second consecutive solidly negative candle is gradually eroding the sharp rebound of last week and the bears are looking to regain the control once more. The momentum indicators certainly still have a configuration that suggests that the rallies remain opportunities to sell, with the RSI again rolling over around 50 (yet another lower high), the MACD lines still falling and the Stochastics also turning lower again around 50. The hourly chart shows the slide over the past 3 days leaving a lower high at $1.5115 below the resistance around $1.5150. I now expect the chart to come back for a test of $1.5000 which is not only psychological but also a historic level of support too. The mini intraday rallies still look to be a chance to sell.
USD/JPY
The range between 122.20/123.67 remains intact and despite the rebound over the past couple of sessions (which yesterday took the dollar to within 20 pips of the resistance), once more the move looks to be pausing. The overnight yen strength has just pared the gains for now, but for now this simply looks to be a delay to the upside test. The momentum indicators remain bullishly configured with the Stochastics pushing higher now and both RSI and MACD indicators also showing positive momentum. Looking at the intraday hourly chart, the pivot level around 122.70 could come into play now but I would see a correction as a chance to buy within the range. Sometimes it is possible to trade the range but in this instance, with the strength of the indicators I would avoid selling, instead using the corrections as a chance to buy as I continue to expect an upside break above 123.67.
Gold
The fact that there has been such a significant retracement of Friday’s move (closing yesterday around $19 off Friday’s high) tells me that the move was a near term short squeeze and this should be seen as a chance to sell once more. The near term outlook may show volatility as the market settles once more but I expect to see the $1098 key resistance on the daily chart remaining intact and that the bears will gradually regain control. The intraday hourly chart shows an overnight bounce off $1067.25 but the old pivot level at $1080 is now resistance again. I expect the weakness to resume with a move back below $1067.25 and a likely test of $1057.75 intraday low.
WTI Oil
Despite the bearish fundamental outcome from the OPEC meeting on Friday, the technicals were already guiding the price of WTI lower and after a sharp bearish candle yesterday the key August low at $37.75 has been breached. The trouble for the bulls is that the momentum indicators are bearish however still have further downside potential, which clearly does not bode well. A breach of $37.75 has now taken the oil price to its lowest level since February 2009 when it made three key lows between $32.40/$33.55. These lows have now come squarely into view. The intraday hourly chart is just as bearish as the daily chart, however there is an argument to allow the oversold RSI a chance to unwind from stretched position. There is minor resistance in the band $39.20/$40.00 which would acts as overhead supply for a selling opportunity, however this resistance is already a long way off after yesterday’s weakness.
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