Market Overview
Risk appetite has taken a sharp move lower again as the positivity surrounding the OPEC deal has quickly been replaced by concerns over European banks again. Deutsche Bank (DE:DBKGn), which is in many ways Germany’s flagship bank, is coming under increasing pressure in the wake of being slapped with a $14bn fine from US regulators and news that hedge funds are selling out. Fears of contagion around European banks has pulled Wall Street lower (S&P 500 -0.9% into the close) and Asian markets also lower (Nikkei -1.5%). The fear over Deutsche Bank are hitting maket sentiment today and is also helping to support safe havens once again which had previously been coming under pressure after the OPEC deal. US Treasury yields are all lower, whilst the Japanese yen and gold are also performing better. Equities in Europe seem ready to close the third quarter of the year on a sour note, with strong early losses across bourses.
In forex there is a mixed outlook despite the move towards more safer haven assets. The yen is a mild outperformer but the Kiwi is also performing well after an improvement in New Zealand Business Confidence overnight. The confirmation of the Caixin Manufacturing PMI at 50.1 has also helped to settle a few nerves. Gold and silver a trading slightly higher with gold outperforming on a safer haven play. The oil price has dipped just over half a percent after strong gains in the past couple of days.
Traders will be looking out for the UK data this morning with growth and the current account deficit in focus. The final UK GDP reading for Q2 GDP which is expected to be confirmed at +0.6%, but the UK Current Account is also at 0930BST and is expected to have improved slightly to -£30.5bn (from -£32.6bn) After that there is inflation data on the agenda. Already out overnight, the Japanese CPI has been confirmed at -0.4%, and now we now look towards Eurozone flash CPI for September at 1000BST which is expected to show a pick up to +0.6% which looks achievable in the wake of the decent German inflation data yesterday. The US also has inflation data in the afternoon with the core Personal Consumption Expenditure at 1330BST which is expected to show a mild improvement to +1.7% with anything above that fuelling further expectation of a December rate hike. There is also the revised Michigan Sentiment at 1500BST which is expected to be improved to 90.1 (from the prelim at 89.8).
Chart of the Day – USD/CHF
Dollar/Swiss has been a range play for at least six months, with the market moving in around 500 pips of range between 0.9475/0.9950. However the outlook within that range is under pressure once more and a choppy near term outlook is increasingly deteriorating. The daily moving averages have recently all come together to turn lower in bearish sequence, whilst the momentum indicators are increasingly corrective at a five week low, with the Stochastics especially suggesting that rallies as a chance to sell. The market is subsequently dropping back to test the key September support at 0.9650, which momentum indicators suggest is likely to be broken. There was an intraday breach of the support yesterday and this is likely to continue today. Turning lower from 0.9735 (this week’s high) has added resistance to another lower high at 0.9820. The hourly chart shows how the outlook is increasingly negative with the hourly RSI failing consistently around 60 and the MACD lines turning back lower again, whilst there will be a near term “sell zone” now between 0.9690/0.9720 to look for the next sell signal on an intraday bounce today.
It is almost getting to the stage on EUR/USD where I could copy and paste in yesterday’s comment and it would still be valid. The market is going nowhere, fast. A second incredibly neutral candle in a row which have both had small bodies (i.e. very little price gain/loss at the close) and the momentum indicators are doing basically nothing. The RSI and MACD lines have flat-lined whilst the Stochastics are showing the smallest of ticks higher with the gains of the past could of days. Today’s early dip back lower but with little decisive direction reflects a market that is badly in need of a catalyst. The hourly chart also reflects this consolidation with the flat moving averages and hourly RSI between 40 and 60 indicative of this. I have spoken about $1.1200 being a pivot line and this continues. So trading above $1.1200 is marginally positive up towards $1.1280, but a breach of $1.1200 would re-open $1.1120.
I have been starting to wonder whether sterling was ready for another recovery with the moves we have seen across some of the forex crosses, however on Cable this is not quite yet the case. The downtrend continues to be a negative pull on the price and yesterday’s candle reflects this. A bearish day which lost almost 50 pips and saw Cable closing not far from the day low. The market is just holding up in the early moves today and now the support at $1.2912 is key. This is a support which has held throughout this week’s consolidation and will be seen as a potential higher low. So I have not yet lost the feeling that this could still be another basing process in the medium term range, and with the momentum indicators flattening (or at least not breaking lower), the possibility remains. The downtrend is today falling at $1.3015 so the longer the consolidation goes the less bearish this market will become. The hourly chart continues to show the market needs to breach the $1.3060 pivot to have any real prospect of a recovery and this level was again resistance yesterday. A breach of $1.2912 opens $1.2863 and the key range low at $1.2796. Key resistance to confirm a recovery in the range is $1.3120.
Another of my prospective recovery plays has also been diminished with the rebound on Dollar/Yen running out of steam yesterday. What looked to be a strong bullish recovery candle dipped into the close to only post minor gains yesterday and the bulls have been unable to gain traction again overnight. Despite a third consecutive day of gains, this leaves us with the prospect of another candle that could not break through the long term downtrend. The downtrend that links all the recent highs comes in at 101.90 today. However, not all may be lost, with the momentum indicators showing progress now. The RSI continues to rise, whilst the Stochastics are looking to confirm a near term buy signal. The hourly chart is also positively configured with an uptrend forming over the past few days, the hourly RSI holding above 40 and the MACD lines holding above neutral. The market will now need to hold on to the overnight low at 100.80 to sustain the potential for a recovery. A move above yesterday’s high at 101.85 would improve the outlook and open resistance at 102.80. It is important to remember that the market is still trending lower though and this improvement needs to continue today or risk running out of steam and being sold into once more. The key floor remains 100.00.
Gold
With the continuation of the medium term trend, the long term bullish trend indicators are creaking. The uptrend in place since December (comes in at $1323 today) and the 89 day moving average (today at $1319) which have been supportive over the months are now coming under severe strain from this sideways trending medium term market. The momentum indicators are very neutral and the bulls are struggling. The hourly chart shows that once more the $5 pivot between $1325/$1330 is the area to watch and is again coming in as an area of resistance having been broken a couple of days ago. A move back above $1330 would re-energise the bulls within the range but for now the ceiling is holding. The near term momentum indicators on the hourly chart have now unwound back to levels where a near term selling opportunity could be seen today. If the pivot band holds as resistance then the bears will be eying the range lows again, especially if a move below $1318 is seen. Support is at $1308 and $1306 around where I expect the buyers to start coming back in again.
WTI Oil
With a second consecutive days of gains, the market seemed to confirm the bull candle that was posted in the wake of the OPEC agreement on a production cut. The daily chart shows that the market has now broken the four month downtrend, and the move above $47.75 is a technical breakout as it is a move above a key lower high. Furthermore the momentum indicators have picked up and hint at a sustainable improvement with the Stochastics rising strongly once more, although this needs to be confirmed by a move above 60 on the RSI. The hourly chart shows how the previous resistance around $46.50 is now supportive and the near term importance of the support band $46.00/$46.50 is growing. Although today’s move has dropped back slightly, the bulls will clearly be eying resistance at $48.45 and then the key August high at $48.75. Looking to buy into weakness now.
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