Market Overview
It is likely that trade tariffs are going to be a dominant theme for the coming days. With US/China talks set to resume this week, the two countries are also expected to formalise a further $16bn of tariffs on each other. The question is whether the (admittedly low level) talks can foster some sort of move towards a decisive agreement. This is likely to mean that the markets will be cautious in the coming days. Initially there is a sense that there is a mood for mild optimism, which has resulted in a degree of slippage on the dollar from its position of strength in the past couple of days. This comes as the Chinese yuan (a good gauge to watch latterly) has strengthened slightly and pulled the greenback lower.
If the dollar slip continues, it will allow gold to rebound, and the improved sentiment will be a driver of equities higher. However, this morning, there are signs that this could be stalling already, so are these moves going to simply be the opportunity needed to get back on the dollar bull run at a better level? As continues to be the case, it is likely to all depend on how the trade dispute pans out.
Wall Street closed higher on Friday, with the S&P 500 +0.3% at 2850, but futures are a touch cautious early today (around the flat line). Asian markets have subsequently been mixed overnight, with the Nikkei -0.3%, whilst European markets are a mixed of Eurozone ticking higher and FTSE more cautious.
In forex, there is a mild tick higher on the dollar once more, showing across the majors, with the Kiwi being the main underperformer and the yen holding up relatively well.
Gold has ticked higher again this morning after Friday’s rebound, but there is a large amount of overhead supply still. Oil is mildly weaker today.
There are no major economic releases due today.
Chart of the Day – French CAC
European equities remain under pressure and the aggressive downtrend on the CAC formed over the past couple of weeks shows little sign of reversing. Wednesday’s huge bear candle decisively breached the support at 5340 which has re-opened the key June low at 5243 once more. The “Marabuzo line” (mid-point) of Wednesday’s candle is a basis of resistance around 5360 and it is interesting to see the CAC falling over around here to leave resistance at 5366 on Friday. The momentum behind the corrective move shows a bearish bias with rallies seen as a chance to sell now. This comes with the MACD lines now accelerating lower into negative territory and the RSI below 40 (but with further downside potential). There is now a near term sell-zone 5340/5366 with the confluence of the 50% Fib level at 5348 which is now a basis of resistance. Expect a retest of the 5287 initial support and then 5243.
The euro has picked up again in the last two sessions, with a couple of positive candlesticks which have left a near term low at $1.1297. However this move looks to be a move to simply unwind stretched momentum and likely just help to renew downside potential. Already this morning the market is beginning to tick back lower again. The overhead supply is considerable around $1.1500 and whilst the momentum indicators are ticking higher, there is limited conviction in the rebound. A similar move earlier in August saw the RSI failing around 45, Stochastics quickly rolling over again and MACD lines barely registering a rally. This is a similar picture again and the bears will be eyeing another opportunity. There is initial support around $1.1400 and then $1.1340 to be tested.
The bulls have managed to somehow huddle together in the storm to form a couple of positive sessions, but this really looks to be papering over the cracks of what continues to be a decisive bear market on Cable. The market has unwound slightly but the underside of the old downtrend channel provided the basis of resistance early last week and again comes in at $1.2800 today. The main line of overhead supply starts to come in around $1.2955 and above $1.3000 again, so there is still room for a near term technical rally, but the bulls are so tentative that this could be quickly snuffed out. Support has been left at $1.2660 but there is a lack of conviction behind the move and with momentum just drifting higher, it looks like the sellers will be ready to pounce once more. The hurly chart shows momentum is now unwound and there is resistance at $1.2825, meaning any sell signal under there could just open the flood gates once more.
Even though the three week downtrend has been broken, there is still a marginal net bearish bias to the market as it drifts back. Having previously taken the late July support at 110.60 as a gauge, this is now consistently being tested, whilst the market closed Friday’s session at the lowest since early July. The momentum indicators are edging ever lower, with the RSI consistently below 50 and the MACD lines drifting below neutral now. Pressure is mounting on a test of 110.10 (August low) but realistically the 110.00 round number is a near to medium term support to watch. The resistance is building at 111.40/50.
Gold
The market has bounced from a low of $1160 as a near term technical rally has set in. However this looks to be primed for another selling opportunity within the downtrend channel of the past two months. Momentum indicators are unwinding to levels where the sellers have previously resumed control and there is overhead supply coming in between $1194/$1204. Friday’s solid bull candle reflects a decent tick higher, a move that has been sustained this morning. However, with the overhead supply, it is difficult to see this move as continuing for too long. The channel resistance trendline falls at $1204 today.
WTI Oil
The bulls have managed to scrape together a couple of consecutive positive sessions, but this move still has the air of a rally that will be sold into. The pivot at $67 is a prime basis of resistance but any sell signal between $65.70/$67.00 will be an opportunity now. It was interesting to therefore see the market rolling over at $66.40 on Friday, under all the moving averages, trendlines and old supports. So this is an important session today. A failure candlestick would be a signal renewed selling pressure. The momentum indicators continue to slide lower (on MACD) and post lower highs/lower lows (on RSI). Whilst the resistance at $68.35 remains intact the bears will still control this market. The support at $64.45 is likely to be retested as a result and the hourly chart shows the move to unwind the immediate oversold momentum has now played out.
Wall Street seems to be a different animal to the rest of the major bourses. Another positive session for the Dow on Friday has pulled the market through initial resistance at 25,693 to another intraday high dating back to February. Although the market slipped back a touch into the close, this shows the intent behind the buying pressure. Can the bulls sustain the momentum in the rebound? With momentum indicators positioning for renewed upside potential. The 61.8% Fib level will play as a near term gauge, at 25,367, but near term corrections look to be a chance to buy now for a push towards the 25,800 February high and the 76.4% Fibonacci retracement at 25,845.
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