Market Overview
Anxiety over Brexit and its impact on global growth is once more plaguing the mind-set of traders as a safe haven preference is playing out across asset classes. Sterling is getting hammered again as the pound falls to another new 31 year low against the US dollar in a fall below $1.3000, whilst the Japanese yen remains the go to currency of choice. Government bond yields continue to fall, whilst equities are falling back again after a significant recent rebound. Precious metals are another asset class that is performing well in these conditions, with gold and silver strongly higher once more. With the US 10 year Treasury yield back below 1.400% pressure is growing on Wall Street once more with the S&P 500 closing 0.6% lower and the fear flowing into the Asian session with the Nikkei down 1.9% (certainly now helped by the strength of the yen). The European markets are also under pressure in early moves.
In forex moves we see very similar set up to what there was yesterday morning, with sterling over 100 pips lower against the dollar, the yen being the outperforming major currency and everything else struggling against the US dollar. Gold is around $13 higher (c. 1%) whilst silver (ie gold on steroids at the moment) is around 2.5% higher. Oil came under significant selling pressure yesterday amid the concerns over global growth, but is around flat currently.
Traders will be interested in Mario Draghi who is due to comment at a conference at 0900BST, looking for any further comments on Brexit. The US ISM Non-manufacturing is at 1500BST and there is an expectation for a slight pick-up from the 52.9 last month back to 53.3. The FOMC meeting minutes are tonight at 1900BST and markets will again be looking for comments on the impact of Brexit on monetary policy.
Chart of the Day – AUD/USD
After five days of gains was brought to a halt yesterday in the wake of the renewed dollar strength (and after the RBA meeting), is there potential for renewed downside in the Aussie now? The Aussie gained around 230 pips over the five day move, but a sharp downside move yesterday could be set to shift control. The daily momentum indicators have threatened to turn more corrective again with the RSI failing under 60 and the Stochastics showing the most cause for concern as they have crossed lower again from a neutral position. A break down below Monday’s low at $0.7438 means a higher reaction low on a near term basis has been broken and is another sign of the changing outlook. If the bears do begin to get up a head of steam then the old pivot band at $0.7385 that is initially supportive will be tested, however there would be the prospect of a full retracement back to the key support around $0.7300. The hourly chart shows a far more corrective outlook has taken over and this could now begin to show rallies being seen as a chance to sell. There is a near term pivot band around $0.7500 which is now a basis of resistance and could begin to increase the overhead pressure. Key resistance is now at $0.7545.
A bearish engulfing candle has changed the near term outlook and now the bears looks to be in control again. I have been talking for several days that I thought the drift higher was rather tepid and did not have the strength of momentum to suggest any real confidence and now the selling pressure seems to be mounting again. With the Brexit day intraday rebound high at $1.1188 remaining an overhead barrier the price has sold off to leave key resistance at $1.1183. A close back below $1.1100 last night is putting pressure back on the bottom of the long term pivot band at $1.1050 again, whilst the momentum indicators have started to deteriorate again with the Stochastics crossing lower again and the RSI falling back. The hourly chart shows that initial support at $1.1022 has held and continues to protect $1.0969 and the Brexit day spike low at $1.0909. Rallies remain a chance to sell with $1.1070/80 initial resistance.
Sterling is again under huge pressure. Yesterday’s renewed sell-off closed below the previous low at $1.3118 and has continued below $1.3000 today into fresh 31 year lows. There is almost no technical precedent to help support cable now and this could turn once more into freefall. The momentum indicators are bearish but also show downside potential, with the RSI at 26 having previously been as low as 15 in January. The really scary prospect is that the recent consolidation could turn out to be some sort of a bear flag or “halfway house”. The high to low sell-off was originally 1900 pips in two days. Measured from the rebound high at $1.3533 this could mean $1.1600/$1.1700 may be a target area. Suffice it to say that any intraday technical rally should be seen as a chance to sell. There is a minor band of near term resistance now between $1.3000/$1.3060. The more optimistic of traders might point to a bull hammer on the hourly candles early this morning but I cannot take this as a signal without further confirmation up against such intense selling pressure.
The yen has once more taken over again as the safe haven currency of choice and this is a significant concern for general market outlook. The Selling pressure on dollar/yen has resumed and supports are breaking as the candles turn bearish once more. The momentum is also turning increasingly bearish with the Stochastics crossing lower, a bear kiss on the MACD lines and the RSI back to 30 (a level which is not necessarily oversold as the RSI has often been in the mid-20s and previously hit 20 in the January sell-off). The hourly chart shows the 101.37 support has been breached and this now re-opens the 100 psychological level and the spike low at 99.08. Rallies are a chance to sell, with the old support at 101.37 becoming resistance and further near term resistance at 101.75/90 before the more important range 102.15/102.40.
Gold
Gold had been toying with a near term correction yesterday, however the renewed safe haven flows in the market have re-engaged the bulls once more. A rebound into the close saw the price back up to test the $1358 resistance, which has resulted in a early breakout again today. Gold is on the way towards a test of the March 2014 high at $1391.80 which is a major high. With the bulls re-energised the momentum is positive with the move, as the MACD lines rise strongly, the Stochastics pull higher and the RSI moves into the low 70s. The RSI at these levels on a breakout is a sign of strength and the move in February hit 86 on the RSI so there is precedent for strong trending moves. On a near term basis the hourly chart shows there is a band of support now between $1338/$1358 but this looks to be a rally to back for now. The old breakout leel at $1306 remains key.
WTI Oil
The outlook has shifted once more as another about turn has seen the oil price break below the near term pivot band support around $48.00. This now opens the price for a move back towards the key lows of the recent trading range above $45.83. The outlook is being driven by general market sentiment now and this is generating volatility in the range but without any real overall direction. The daily momentum indicators continue to fluctuate higher and lower, with little direction to be garnered during times like these as the outlook appears to shift from day to day with little real trend formation. With the downside break yesterday the pivot around $48.00 now becomes a basis of resistance near term. The hourly chart shows a near term reaction low at $46.85 which was broken yesterday and puts pressure now on $45.83 which is key medium term support now.
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