Market Overview
The ECB has provided risk another boost as it extended its asset purchase programme by at least another nine months. This was broadly expected by the market, but the key to the reaction was that the ECB “stands ready to increase the APP in terms of size and/or duration”. The market took this as in effect a continuation of an open-ended commitment where the ECB stands ready to extend QE further if required. The move boosted demand for Bunds, pulling the 10 year Bund yield 5 basis points lower on the day and coming as Treasury yields continued to push higher this dragged the euro below the key lows of August to reach a multi-week low. The knock-on positive sentiment from the dovish perception of the ECB decision to taper was for the US dollar to strengthen further.
The US Dollar Index has broken out to a new 14 week high and completed a technical base pattern above 94.15 which has medium to longer term implications too. The first reading of US Q3 growth will take the attention today and clearly a surprise could impact the dollar, but the ECB move has removed another hurdle for the dollar bulls.
Wall Street jumped yesterday on the back of general positive sentiment for equities and also strong earnings, with the S&P 500 +0.1% at 2560, whilst Asian markets reacted to the dovish ECB with the Nikkei +1.2%. European markets are maintaining yesterday’s positive momentum in early moves.
In forex, the dollar remains a key outperformer, with the euro again weaker. Japanese inflation was released overnight with Japan CPI slightly missing expectations with +0.7% (+0.8% core YoY exp). The yen has slipped as a result. The New Zealand dollar is also flirting with 2017 lows today.
In commodities the stronger dollar is means that gold remains under pressure once more, whilst oil is holding on the yesterday’s gains after the Saudi crown prince alluded to an extension of the OPEC production cuts.
The big focus for today will be on the Advance reading of US Q3 GDP. Expectation is for the first look at growth in the third quarter to come in at +2.6% annualised which is slightly below the final reading of +3.0% that was seen in Q2.
The final reading of Michigan Sentiment is expected to show a slight downward revision to 100.9 (from the prelim reading of 101.1 earlier in the month). This would confirm a significant pick up in sentiment from last month’s 95.1.
Chart of the Day – NZD/USD
With the Kiwi dollar coming under significant strain in the wake of the Labour Party taking the reins of government, the chart of NZD/USD has sunk alarmingly. Now the market is testing a massive long term support level at $0.6815. This was the May 2017 low and marks a support that dates back to June 2016. Momentum is hugely negative at the moment and the prospects of this support holding look bleak. The concern is that although the RSI is well below 30, this is certainly a bear trending situation which means there is little reason to catch a falling knife. The MACD lines are accelerating lower and the Stochastics are also turning lower again. Since December 2016 there have been several times where the market has bottomed between $0.6815/$0.6860, however another sharp bear candle yesterday reflects the complete control that the sellers have now. The key level has been tested almost to the pip this morning already and despite an initial bounce, expect further pressure. Intraday rallies remain a chance to sell with the hourly chart showing resistance $0.6860/$0.6910 and the hourly RSI failing consistently in the 50/60 area. A closing breach of $0.6815 would open the next key low from May 2016 at $0.6675, but also have huge long term bearish implications for the chart.
With a dovish taper on asset purchases from the ECB the euro has come under selling pressure to now complete the big head and shoulders top pattern on a close below the key August support of $1.1660. If the market makes a second close below the neckline support with another bear candle and a move under minor support at $1.1610 then this would seemingly confirm the break and open the downside targets. There is a near term target of around 210 lower (implying $1.1450) from the recent four week consolidation range and this is a decent initial level to target. The momentum indicators are negatively configured with the Stochastics and MACD lines pulling lower and RSI below 40. The neckline is a basis of resistance today at $1.1660 for an unwinding pullback but another lower high on the hourly chart between $1.1660/$1.1730 would be a chance to sell too.
The choppy near term nature of Cable has once more played a factor as the market has entirely unwound Wednesday’s strong bull candle in the past session and a bit. Although the downtrend has been breached the bulls are certainly not in control here and the almost instant unwind of the rally just shows the number of false starts and false breaks you get with trading Cable now. The market is fast turning into a range play now between $1.3025/$1.3335 and the momentum indicators levelling off on the daily chart reflect this. The slip back has now left resistance at $1.3280 and put pressure back on the $1.3085 low from last week. The hourly chart reflects this ranging choppy market now with the momentum indicators beginning to turn back higher as the market has begun to consolidate overnight. A breach of $1.3085 would be a higher low broken and really would then pressure the range lows. Play the range for now but there is a mild negative bias to be aware of. Initial minor resistance at $1.3155 to $1.3180.
The near term uptrend over the past couple of weeks continues to develop and underpin the move higher. The configuration of yesterday’s candle depicts very well the current outlook. Buying into weakness with old resistance being new support. The old band of highs around early October at 113.25/113.45 have now become supportive for corrections throughout this week and with a push higher today the pressure is mounting on the resistance of the July high of 114.50. I mentioned this week that the market was paying regard once more to the key Fib levels, with the 23.6% Fib of 100.07/118.65 coming in at 114.27 and this is once more being tested today. A closing breach above this Fib level would be the first since March and suggest a breakout above the July intraday high of 114.50. This would then open 115.60 but also e a key bullish development. Momentum indicators are positively configured with MACD and Stochastics rising, whilst the RSI is into the high 60s. The hourly chart is also well set up for the upside test, with intraday weakness being bought into. Support is growth at yesterday’s low at 113.35.
The pressure continues to drag gold lower as another strong negative candle yesterday has pulled the market to a new three week low and once more opens $1260 support. The feature of this two week trend lower has been the number of times that a positive candle has been followed by a counter-balancing negative candle. Once more yesterday after an initial pull higher the market has formed a bearish engulfing outside day. This re-enforces the negative near term momentum for a test of $1260. There is still a sense that the key test is still ahead though, with the uptrend rising today at $1250 and another low at $1251, levels that will define whether this becomes a bigger more medium term bear move. For now though, selling into strength remains the strategy, with resistance growing overhead with every lower high. An initial band of resistance is at $1282/$1284 with $1290 further bolstering overhead supply.
WTI Oil
With WTI rallying into the close yesterday the market continues to edge higher to test the $52.85 key September high. Whilst the reaction low at $51.55 remains intact the bulls will remain in control. The market is running up within a burgeoning three week uptrend channel now, the support of which comes in today around $51.60 to add weight to the price support of this week’s low at $51.55. Corrections subsequently remain a chance to buy and today’s early drop back towards the minor breakout support at $52.35 could be an opportunity to buy for further upside on the resistance at $52.85 and then $53.75. There would be a deterioration in the outlook below the support at $50.70.
With global equities performing well on the ECB decision and positive corporate earnings, Wall Street also took part in the bull run back higher again. This means that the Dow has pushed aside the prospect of a small top formation as it has posted another positive session that re-opens the prospect of a test of the all-time high of 23,485 again. However, that is not to say that the warning signs of a correction should be dismissed. Yesterday’s candle closed well back from the day high and drifted lower into the close. Furthermore, the RSI has signs of negatively diverging, whilst the Stochastics also recently crossed lower (without confirming a sell signal). The hourly chart also continues to show negative divergences across all three momentum indicators. This hints at a slowing impetus in the bull control and something that should be watched. Support at 23,251 is increasingly important now.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.