Market Overview
Markets look to be consolidating today with caution as European politics takes centre stage, with Brexit and Catalonia again on the agenda. How the region pushes ahead with the stalling Brexit negotiations will certainly be towards the top of the agenda at the EU Summit in Brussels which begins today. British Prime Minister Theresa May has suggested that EU citizens will be allowed to stay in the UK after Brexit seems to be an attempt to get things moving. However, the two sides still seem to be way apart when it comes to the divorce bill and this is a crucial sticking point. The UK appears set to offer €20bn whilst the EU would be looking for closer to €60bn. Ultimately, money talks in this world and until the divorce bill is finally agreed the two side are likely to struggle for common ground.
Sterling remains a key play on Brexit related developments, so is likely to see increased volatility as the communication from the summit progresses.
Catalonia is also a factor for the euro, with another deadline for the region to officially declare independence coming today. Spanish Prime Minister Rajoy has suggested that he will invoke Article 155 of the Spanish Constitution (which would seize back powers from Catalonia) if the region confirms “independence”.
China Q3 GDP came bang in line with estimates at 6.8% (+6.8% exp, +6.9% in Q2), whilst China’s Industrial Production also beat at +6.6% (+6.2% exp, +6.0% last month), whilst China Retail Sales were also mildly better than expected at +10.3% (+10.2% exp, +10.1% last month).
Wall Street surged higher yesterday on the strength of earnings from IBM (NYSE:IBM) which lifted the Dow to close above 23,000 for the first time, whilst the S&P 500 was a little less enthused at just +0.1% for the day at 2561. Asian markets were mixed in the wake of the Chinese economic data with the Nikkei +0.4%. European markets are cautiously positive in early moves.
In forex there is little real direction as the dollar begins to consolidate after a minor correction against the euro and sterling yesterday. However, with Treasury yields picking up again, the move against the dollar is unlikely to last for too long. Australian unemployment showed a slight improvement to 6.1% (from 6.2% last month and is helping to support the Aussie. The big mover though is the Kiwi which has fallen more than a percent after the Labour Party announced it would be able to form a ruling coalition government.
In commodities, gold is again lower, with oil again consolidating.
Traders will be looking out for the third of three key announcements of tier one UK economic data today with the key UK Retail Sales at 09:30 BST. With around 80% of the UK economy service sector bases, retail sales are a key barometer and are expected to slip slightly to +2.4% on an ex fuel Year on Year basis.
US data is more second tier today with weekly jobless claims at 13:30 BST (240,000 exp down from 243,000 last week) and the Philly Fed Business Index at 13:30 BST (+22.0 exp, down from +23.8 last week).
Chart of the Day – EUR/NZD
The breakout on the pair to new multi-year highs could not be sustained last week and the euro subsequently corrected sharply. Trading breakouts can be a difficult game, as the 400 pip unwind will show, however the corrective move has unwound back to the support of the four month uptrend and looks to be where the buyers are happy to resume control once more. A strong bull candle yesterday has bolstered the support to leave a key low at 1.6360. This comes with the RSI having unwound to turn up around 50 and the Stochastics also looking to bottom around 40. However it has been this morning where the bulls have really taken off again to push back above the August/September resistance 1.6635/1.6685. A confirmed breakout above the 1.6760 high opens 1.6930 again and intraday corrections will be seen as a chance to buy. The move is shown decisively on the hourly chart where the hourly momentum indicators have been positively diverging for a couple of days now. There is support between 1.6460/1.6520 on the hourly chart, whilst the band between 1.6685/1.6760 will be watched on the daily chart now. Any unwinding move on the stretched hourly RSI towards 50/60 is a chance to buy.
The euro bulls came back in to support the market yesterday with a move that has posed a few questions over the corrective outlook on EUR/USD. A positive candle added around 20 pips for the session and has once more brought the market back to the pivot at $1.1820. it certainly increasingly seems that this is a price that the market is being drawn to over a near term basis. The rebound has also left support initially at $1.1730 which now helps to protect the key medium term support at $1.1660. The outlook of the momentum indicators would still suggest that rallies will be seen as a chance to sell though, with the RSI struggling to move above 50, the MACD lines plateauing under neutral and the Stochastics also rolling over. The hourly chart shows the momentum indicators beginning to roll over. The resistance at $1.1880 needs to be breached to turn the near term outlook more positive and prevent an outlook of selling into strength.
With the market closing higher yesterday there has been a slight improvement in the outlook over the past 24 hours. Posting a positive candle followed by gains today has halted the slide in the price that had been developing earlier in the week, leaving support around $1.3140. However this remains a somewhat uncertain market to buy into. There are conflicting signals both positive and negative on a medium term basis that lend to an outlook that is difficult to trade with any degree of certainty. The resistance is between $1.3250/$1.3340 and the longer this remains in play the harder the bulls will find it. The hourly chart shows how yesterday’s bounce has deferred the corrective pressure. Near term resistance is at $1.3225 with negative momentum indicators now having unwound. This is becoming a market in need of a catalyst.
The dollar has rebounded strongly and the corrective outlook that had been developing has been completely turned on its head. A strong bull candle will give the bulls a lot of confidence to test the 113.43 key near term resistance. The momentum indicators reflect the upswing of momentum with the Stochastics having crossed higher and RSI rising above 60. The hourly chart shows a strong move clear of 112.60/112.80 resistance, along with the strength of the near term momentum means that the early October high at 113.43 should now be tested. The moves yesterday also show that having left 112.80 behind, it is also a basis of support initially now. Above 113.43 re-opens the key July high at 114.50, with intraday corrections now a chance to buy with the old 112.20 now a basis of support.
Gold remains under pressure as a third consecutive bear candle was complete yesterday. The continuation of this corrective move suggests that the lows from earlier in October could come under increasing pressure now. This is backed by deteriorating momentum indicators, with the MACD lines especially the concern on the brink of a cross back lower again. The RSI is dropping back towards 40 and Stochastics are also in decline again. The hourly chart shows negative near term momentum, with rallies increasingly being sold into at lower levels. Initially the $1294 resistance was formed yesterday but this was then added to at $1283.50. The failure of the $1279 pivot support has re-opened $1270 but also $1260 is realistically on the cards now.
The larger than expected drawdown in EIA crude oil inventories is supportive for WTI which continues to trend higher over the past two weeks. Breaking clear of the support band $51.20/$51.40 leaves the market eyeing the six month high of $52.85 and intraday corrections will continue to be seen as a chance to buy. Momentum indicators are tracking higher now with positive configuration with the RSI pushing on 60, the MACD lines looking to move higher and the Stochastics rising positively. There is a slight caveat in that the past two sessions have formed very small bodies for the daily candles, a signal that the market is a little uncertain, however trading above $51.20/$51.40 support maintains a positive outlook near term. Even through the trading action of the past three days has come within a consolidating market, the bulls will still be looking to use the uptrend around $51.50 for support.
A huge bullish breakout has come as the Dow is accelerating higher on the strength of earnings season. The prospect of resistance forming around 23,000 has quickly been dispelled by the move that has taken the RSI into the mid-80s now. There is a big gap has been left at 23,002 and this remains unfilled but for now the bulls are not even thinking about a retracement. The hourly chart shows that any unwinding move towards 50/60 is a chance to buy now as the market pushes even higher in to new high ground.
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