Market Overview
The market view looks to be that with the FBI deciding not to prosecute Hillary Clinton over the use of a private email server, this now clears the way for her way to victory into the White House. Market sentiment has improved but there is still an air of caution as the US goes to the polls. However, a sharp unwinding of some of the moves over the previous week has come with the dollar strengthening and risk appetite improving again leading to a corrective move on safe haven plays.
With equities bouncing sharply, the market’s apparent “fear” gauge, the VIX Index of volatility was sharply down to 18.7 from Friday’s close at 22.5. Treasury yields, gold and the Japanese yen are all lower. The moves this morning are fairly indecisive so far but if Clinton is confirmed as the victor tomorrow morning then the moves seen over the past 24 hours can be expected to continue for the near term at least. The main move would be on the dollar which would strengthen as markets would then see the likelihood of a December rate hike as next on the agenda.
Wall Street snapped a sequence of nine consecutive negative closes to end the day sharply higher with the S&P 500 +2.2% at 2131, whilst Asian markets have been more cautious this morning and are mixed to only slightly higher (Nikkei -0.1%). European markets are trading slightly higher in early moves. In forex markets there are some mixed moves for the dollar with the euro, sterling and yen mildly stronger, whilst the Aussie and kiwi are weaker.
The slightly disappointing China trade data, where imports (-1.4%) and exports (-7.3%) both missed expectations has not helped the commodity currencies. Gold has stabilised a touch overnight with silver also solid. Oil has stuttered a bit this morning after yesterday’s strong rebound.
The election jitters will dominate traders today but there is still UK Industrial Production for September at 0930GMT (+0.8% YoY exp) and the US JOLTS jobs openings at 1500GMT which are expected to improve slightly to +5.51m jobs.
Chart of the Day – GBP/JPY
Sterling/yen is at a very interesting crossroads. As sterling has found some support in the past few weeks and started to recover, the market has now reached the old key support band 128.80/130.00 that provided the lows during July, August and September. This is an area of significant overhead supply of old buyers who would have been negatively impacted by the October breakdown. The recovery now gives these old buyers a decision to make. Yesterday’s candle was positive but an intraday move above 130.00 failed with a close at 129.50.
Throughout the consistent bearish pressure in the pair this year, rallies have consistently been sold into. The RSI has often run out of steam around the 50/55 area and once more this is where the RSI has recovered to. However, interestingly the price is just breaking higher with the Bollinger Bands having tightened significantly and this looks to be a near term bullish breakout.
The bulls will be looking to further the recovery. A close above 130.00 would certainly be a sign of continued improvement, which would open the next band of resistance to overcome at 132.00/132.50 but also a four month downtrend in at 132.00 above which would open more considerable recovery towards the September highs. The hourly chart shows an improvement in momentum and a band of support 128.00/129.00 which would be a buy zone near term. Key support is now at 126.45.
It is entirely clear what the market thinks of a likely Clinton victory in the presidential election, as the improvement in Hillary’s prospects following the FBI clearing her of wrongdoings over her emails has stabilised her chances of winning and EUR/USD has dropped sharply by 90 pips. The strong bear candle has changed the outlook once again. Having posted a series of positive candles yesterday’s close was below all of the three previous sessions and more importantly, back below $1.1050 which is the longer term pivot.
The move has resulted in the stochastics crossing lower, the RSI dropping from 60 to below 50 and the MACD lines beginning to slow around neutral. Today’s candle is a little more cautious with a settling of the market. The likelihood remains that a Clinton victory will be sealed and the dollar strength will resume. Downside moves would test $1.0950 and the key support again at $1.0850. Key resistance is now in place at $1.1143.
GBP/USD
The breakout above $1.2330 came within around 20 pips of the recovery target of 250 pips to $1.2580 before yesterday’s corrective move dragged the market lower. It is clear that a Clinton victory would be dollar positive and the near term outlook has been switched due to her improved chances of winning. The momentum indicators are losing their upside impetus with the stochastics crossing over and the RSI dropping back below 50. However it would be interesting to see the reaction on Cable to the $1.2330 old breakout resistance which should be supportive on a retracement.
The hourly chart shows that the corrective move has started to stabilise overnight. If the support can be maintained above $1.2330 then the recovery outlook will remain on course. A move back below $1.2280 which was another minor breakout within the range would suggest that the sellers are back in control once more. The bulls will be eying a move back above $1.2445 resistance which if decisive would re-open the high again at $1.2557. This could turn into an uncertain and choppy phase for Cable as there are a number of conflicting signals.
USD/JPY
The strength of the turnaround candle posted yesterday suggests a drastic improvement in risk appetite. The 140 pips gained on the day with a strong bull candle now means that the bulls are re-exerting control. The early caution with today’s move suggests that the market is unsure whether to continue pushing ahead and there could be an uncertain medium term outlook that develops.
The support is in place now at 102.54 with resistance at 105.53 however technically there are some mixed signals on momentum and the hourly chart indicators are also rolling over. Until we move clear of this election and markets can move ahead with more clarity it will be difficult to ascertain the outlook. I refer longs with a Clinton victory with resistance at 104.63 initially today. The is an initial band of support 103.50/104.00.
Gold
Closing $22 lower on the day was a significant shift in the outlook and could again change the outlook. Momentum indicators are turning weaker again as the Stochastics cross lower and interestingly the MACD lines are plateauing at neutral. There is now an uncertain outlook near term as today’s minor rebound goes against the prospects of a Clinton victory which would be a drag on gold. Until the final result of the election is known it will be difficult to take a view on gold, and the degree to the retracement on a Clinton victory.
The prospect of unwinding back to $1265 would be high as this was the level at which gold was trading just prior to the FBI investigation resumed a just under two weeks ago. All the while the medium term resistance grows in the band $1300/$1310, with last week’s high at $1307.80. There is an uptrend that today comes in at $1272 and a breach would re-open the support band $1260/$1265. The hourly chart shows a double top being completed below $1285 which becomes a neckline and implies a $22 retreat.
WTI Oil
Having closed lower in nine out of the past ten sessions the oil price has been under considerable strain. However, can a single candle change the direction of the momentum? Yesterday’s bull candle showed a significant improvement with a positive daily close and a bullish candle on the day too. There was a move to a higher high on the day, which has also not been seen since the big correction began from $51.93. The daily momentum indicators have been retreating during the corrective phase but the RSI has turned up from 31 (the big sell-off in July bottomed at 29) and the stochastics have also plateaued.
The hourly chart holds more clues to a potential recovery, with the resistance at $45.00 which has been a pivot in the past week and a break to the upside would complete a small base pattern and imply a recovery to $46.40 which is also close to the key near term resistance at $46.45. Hourly momentum has also been improving and the bulls will be looking to hold on to the higher low at $44.11 to protect the low at $43.57. Today’s early support shows the market maintaining the rebound from yesterday as the prospects of a recovery increase.
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