Market Overview
Can the uptick on the oil price turn around sentiment in a sustainable way to give the bulls something to hang on to? The intraday rebound on oil turned what looked to be another negative session on Wall Street into a positive one. A near 2% rally on WTI has just begun to consolidate overnight, but the equity markets are reacting. This recovery came amid further dollar weakness against the euro and yen especially. The rebound on oil also came as Treasury yields pulled strongly higher as well. This sets the European session up nicely for a rebound at the open, however the big question now is whether the move can be sustained? The oil price is the main driver now, but increasingly the market will be looking towards the Fed meeting.
In forex markets, the overnight moves show the euro putting pressure back on $1.1050 again and the yen also stronger, whilst the commodity currencies are also reacting positively to the recent rebound in resources prices. Gold is very slightly higher whilst oil is slightly lower.
Traders have a distraction from the Fed today with inflation data for the UK and US. The UK release at 0930GMT is expected to show a just back into positive territory on CPI for the year on year data to +0.1% (from -0.1%), whilst the US data is expected to improve to +0.4% (from +0.2%). There is also the German ZEW Economic Sentiment today which is expected to recover to 15.0 from 10.4 last month.
Chart of the Day – USD/CHF
The SNB help off from further easing recently and the Swissy has remained firm. Now after a few days of consolidation the chart of Dollar/Swiss is putting growing pressure on the support at 0.9800. This is a key band of old resistance that has latterly been supportive. This support was creaking as the dollar dropped to a 6 week low during yesterday’s session and despite a rebound into the close, the dollar seemed unable to maintain its impetus. The momentum indicators still retains a corrective bias despite the consolidation of the past few days. This is all coming ahead of the FOMC decision tomorrow evening. But with this in mind I am interested in the support of a 4 month uptrend which comes in around 0.9740, whilst the RSI is also back to a level where the bulls have tended to return again. So perhaps the downside is becoming rather limited around here and with a clutch of support close by the buyers may be waiting again. The resistance at 0.9870 of yesterday’s high is notable as this is yesterday’s high and a daily high has not been breached for the past 8 days.
EUR/USD
There is a bullish bias to the technicals with the weakness of the US dollar continuing. The euro has been gaining in four of the past five sessions and is up again in the early Asian session today. The barrier at $1.1050 was tested again yesterday and again rebuffed the bulls. However, although only a mildly positive daily candle formed after a late slide, the bulls are setting up for another test again today and with the positive configuration on the momentum indicators the pressure is mounting. I have been saying that I felt the 50 pip band of resistance that is the medium to long term pivot range of the middle of the year, would hold up any advance in front of the Fed, but the bulls are giving it a go. The intraday hourly chart shows again a mildly positive chart with support based around $1.0925/$1.0950 and a stream of higher lows. Any positions taken should be minded of the Fed meeting announcement tomorrow.
GBP/USD
Sterling underperformed the wider market of a weaker dollar yesterday after dovish comments from BoE member Shafik, who said that she would not be voting for a rate hike on the MPC until she saw sustained wage growth. This has dragged the price once more away from the resistance of the four month downtrend. This means that unless there is a sharp rally again today, Cable is likely to be moving into the Fed meeting still in this medium term downtrend and a technical configuration that would suggest selling into strength. The intraday hourly chart is also showing a loss of impetus in the rally, with the hourly RSI and MACD lines especially showing negative divergence with the price move to $1.5238 on Friday. The near term momentum is subsequently becoming more neutrally configured (it is not overly surprising if this is the case in front of such a major economic announcement). If the rebound in the Asian session loses its momentum again and a breach of yesterday’s low at $1.5105 is seen, this would open $1.5050 initially with the key near term reaction low at $1.4955.
USD/JPY
The safe haven demand for the yen remains a drag for the dollar. This is putting pressure on supports as the unwinding of the October/November rally continues. The Fibonacci retracements of the 118.04/123.67 rally will be seen as a consolidation and intraday target levels. The pair is currently trading around the 50% Fib level at 120.86 but with corrective momentum continuing, a move back towards the 61.8% Fib level at 120.19 is still likely. The near to medium term bears are certainly in control. Although yesterday’s candle showed very mild gains, the bulls were unable to sustain any traction and the dollar is coming under renewed pressure again early on today. The intraday hourly chart shows a downtrend channel in place over the past week and it would appear that near term rallies continue to be seen as a chance to sell. Resistance comes in at 121.35, with a retest of yesterday’s low at 120.32 expected.
Gold
Gold still seems to be stuck between a rock and a hard place (no pun intended…). The investor demand for safe havens has been unable to spark gold into life, as even a mild bout of dollar strength pulled the price strongly lower yesterday. The impetus in the post ECB rally has been lost as momentum indicators have turned lower, with especially the falling Stochastics the near term concern. Gold closed at a 6 day low yesterday, losing $11 on the day and is putting pressure on supports. The next level to be tested should be $1062, but the hourly chart shows that the reaction low at $1057.75 is all that protects a retest of the low at $1045.85. Although the hourly momentum is not overly bearish there is still a sense of selling into strength.
WTI Oil
A sign of a potential recovery was seen for the first time in four sessions yesterday, however with the overhead supply still considerable, the intraday rebound still has a lot to do to convince traders who are still in the mind-set of selling into any intraday gains. For now I would still be viewing these intraday rebounds a chance to sell, however today’s trading could be important. Is this latest move simply unwinding oversold momentum and helping to renew downside potential? I think that yesterday’s high at $36.70 now has an important role as resistance. If the bulls can break and hold above this high again today then the mind-set could change. There is a downtrend that has been in place since 4th December which has now been broken whilst the hourly RSI has also unwound above the mid-50s where the rallies have so often been failing. I certainly see this as a warning and with the downside to this trade a fairly crowded trade, if there is a rally that comes through it is likely to be quite sharp, so being vigilant with stops on short positions is wise. The hourly chart shows near term resistance begins around $36.65 and a move above this could quickly open key near term resistance now at $39.00.
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