Market Overview
After another brief period of respite, it seems as though the dollar bulls are beginning to flex their muscles once more and the next upside break is being eyed. Treasury yields are beginning to pull higher again and the trade weighted dollar index is also marking gains.
This comes after the Bank of Japan did nothing on their monetary policy, opting to stand pat on their -0.1% negative deposit rate, the yield curve targeting of the 10-year JGB yield around zero and the 80 trillion yen of stimulus. However, with the yen having weakened sharply in recent weeks, the BoJ has slightly upgraded its economic assessment. The market has subsequently started to run for a weaker yen once more and this could be a feature of today’s trading.
Equity markets are a little more cautious after several weeks of gains, with Wall Street only mildly higher (S&P 500 +0.2% at 2263), whilst the Nikkei is higher again (Nikkei +0.5%).
European markets are marginally lower in early moves. Gold and silver are being dragged lower again by the renewed dollar strength. Oil is beginning to look far more cautious.
There are no major announcements due on the economic calendar today.
Chart of the Day – Silver
The bears remain in control and rallies remain a chance to sell. The big bear candle from Thursday’s session which broke the price below the key support at $16.14 is a big impact on the chart.
Momentum indicators are negatively configured and with further downside potential on the RSI and Stochastics whilst the MACD lines have just crossed negatively again. The pressure on the support at $15.77 which was the key June low continues.
Friday’s mildly positive candle has done little to improve the outlook, whilst yesterday’s decline just adds to the pressure. The hourly chart shows that the old support band $16.14/$16.25 is a band of resistance now and rallies that are helping to unwind momentum are a chance to sell. Expect further pressure to test Thursday’s low at $15.82 and the key June low at $15.77, with a breakdown opening $14.75. I am a seller into strength.
The euro remains under pressure and any rallies are simply being seen as a chance to sell. The limp rebound on Friday struggled higher early yesterday only for the move to be sold into and the bears closed the session with a bearish outside day and the outlook has shifted negative once more. The daily momentum indicators are all bearishly configured with further downside potential with the RSI in the low 30s (it got down to 22 in mid-November), whilst the MAD lines are falling too. The old supports are an area of overhead supply of sellers and between $1.0456/$1.0540 there is a significant sell zone now. The hourly chart shows the momentum indicators unwinding back to sell levels are being pounced upon. Yesterday’s high at $1.0480 adds to the resistance and a retest of $1.0365 is underway. I ontinue to see parity as the next big target.
Despite the support around $1.2330 so far remaining intact there is a bearish bias within the medium term range. The broken uptrend has not been reclaimed whilst yesterday’s bear candle has unwound Friday’s gains to put the pressure back on the supports. The momentum indicators are mixed with the RSI still above 40 and the MACD lines above neutral but the Stochastics are more negatively configured. The early negative candle today suggests that $1.2330 could come under further pressure today, with a move below $1.2300 confirming that a test of the key range lows around $1.2080 would be the result. The hourly chart shows a far more corrective configuration on momentum now with the RSI failing around 60 and moving negative. The longer the resistance band $1.2515/$1.2550 remains firmly intact, the more negative the outlook will form. Yesterday’s low at $1.2355 is initially supportive but the pressure on $1.2330 is mounting as rallies are increasingly being sold into.
The bulls appear to be moving back into a position of control once more after the corrective move. I said previously that corrections tend to be around 200 pips before the buyers return, and if 116.52 is the bottom of the corrective phase then the move was around 215 pips and so confirming fairly well. The support has also been just above the old breakout level at 116.12. The daily chart shows two corrective bear candles before today’s early gains. This move is maintaining the positive configuration on the daily momentum and there is still no reason not to continue to back this rally and use corrections as a chance to sell. This might change if the RSI moved decisively below 70 and the Stochastics crossed lower below 80. However for now, the trend is still your friend. Initial resistance is 118.40 and then the recent high at 118.63. There is minor support at 116.95 protecting 116.52.
Gold
Is the rally already running out of steam? After two days of mild gains, the rally on gold is stalling. However I continue to see rebounds as a chance to sell, and the five week downtrend today comes in at $1150 so any rebound is likely to be pounced upon. The momentum indicators remain very negatively configured and there is little sign of a sustainable recovery. The market may begin to consolidate in the run up to Christmas but I remain a seller into the strength for a retest of $1124.50 and potential for further downside. The main resistance band is $1144/$1151 near term.
WTI Oil
The bulls have been struggling to hang on to the break back above $51.93 and the slightly negative candle from yesterday questions the control the bulls have. Despite the slight close back above $51.93 the almost doji-like candle suggests an uncertainty. However the momentum indicators remain in positive configuration and the higher lows are still being posted above the moving averages. There is a degree of caution in the market. This is reflected in the oscillation in the hourly RSI which is starting to become more ranging. It is also interesting that the pivot around $52.40 was capping the recovery yesterday. This is a level that needs to be broken to open the $53.40/$54.50 highs. $51.50 is initially supportive, and protects the higher low at $50.50.
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