Market Overview
As Treasury yields begin to drift lower, it has seemed as though the dollar bulls had lost control, with the prospects of a corrective move growing. However, maybe there is still some life left in the dollar bull run, as the nascent corrective move is being held up today. The trade weighted dollar index may have retreated from its recent peak of 102.05, but there is support at 100.65 that is still holding. Today’s moves show support again and there is little real significance yet to the dollar correction, which may still yet prove to be short lived.
Several key markets priced against the dollar have got significant overhead supply that could prevent a significant corrective move for the dollar. Watch for confirmed moves above $1.0710 on EUR/USD, above $1200 on gold and below 111.35 on USD/JPY as trigger signals for a continued correction. The oil price is though far more concerned with developments at the meetings involving OPEC members in Vienna. Whilst Iraq appearing to be cooperative is helpful, the Russians have yet to declare anything their position yet and this is a concern. Volatility is likely to be high in the coming days and headlines will drive trading.
Wall Street fell yesterday by -0.5% to 2201 and Asian markets have also been trading with a negative bias overnight (Nikkei -0.3%). European markets are also looking corrective again, and the level of 10,575 is worth watching on the DAX as this has been supportive for several weeks now and a closing breach would be bearish. In forex markets, the rebound on the dollar is being shown across all major markets except the kiwi, which is performing well. The yen is the biggest underperformer in the early moves. Gold and silver have also lost their way in a recovery today, whilst the oil price is also weaker by almost 1%.
The economic calendar is again very light for European announcements, with the German CPI at 1300GMT expected to stick at +0.8%. The second look at US growth with US Q3 GDP (prelim) at 1330GMT is expected to show a slight improvement to +3.0% (from +2.9% in the first reading). The S&P Case Shiller House Price Index is at 1400GMT which is expected to improve to +5.3% (from +5.1%). The Conference Board Consumer Confidence is at 1500GMT which is expected to improve to 101.32 from 98.6. There are also a couple of FOMC members due to speak with Bill Dudley at 1415GMT and Jerome Powell at 1740GMT.
Chart of the Day – Silver
Moves on silver are usually far more pronounced than that of gold, and so it seems to be the case again. With gold struggling to engage a recovery, silver is technically better positioned. Friday saw a bullish engulfing candle completed (bullish key one day reversal) leaving support at $16.14. This is a positive near term signal and with the confirmation positive candle yesterday the near term outlook is improving. This is reflected in the uptick on the RSI and there is a hint of positive moves on the Stochastics and MACD lines to come.
The bulls though shied away from a test of the initial resistance at $16.89 yesterday and that is the level that now needs to be breached for any realistic hope of a technical rally to form. Even then, there is overhead supply at the old key October low of $17.08, whilst the daily moving averages are now all falling in negative sequence and rallies are still likely to be seen as a medium term sell into strength. The hourly chart reflects the near term improvement and the support at $16.44 will be looked upon as a potential higher low.
EUR/USD
Can the euro engage a serious recovery? The last two completed sessions have been bull candles but yesterday’s move included a failed breakout above the $1.0663 resistance and the market seems to be in two minds now whether this is a move to be backed. The momentum indicators have though ticked higher with the RSI above 30 (arguable a buy signal in itself) and the Stochastics crossing higher. I think that there needs to be a close above $1.0663 though for the bulls to be confident as the hourly chart shows this would be a base pattern.
The hourly moving averages are basically flat now and the hourly momentum is neutrally configured. Support is at $1.0560 and needs to hold today otherwise a retreat back towards the $1.0515 key low will be seen. There is further resistance at $1.0685.
Almost every time in the past few weeks when sterling has looked like it was gaining traction again in one direction the market retraces the move and we are back once more to a neutral outlook. That seems to again have happened after a 60 pip down day has unwound the previous three days of gains. The old key neckline support around $1.2330 remains intact and there is a rather benign look to the momentum indicators, so there is a neutral outlook.
However, the hourly chart shows trading below the moving average and a mildly negative bias to hourly momentum. It will be interesting to see if the market continues to use the support and extend the trading range, which is generally between $1.2330/$1.2515.
USD/JPY
A second bearish candle in a row has put a far more corrective complexion to the chart. Losing over 100 pips on the day certainly suggests that the profit-taking has kicked in, trading around 180 pips below Friday’s peak at 113.90. We are still waiting for a confirmation of the corrective move, with the RSI still above 70, and the crossover sell signal on the Stochastics not yet confirmed.
The hourly chart is now more correctively configured than at any stage in the past few weeks with the RSI moving below 30 and failing under 60, in addition to the MACD lines now consistently below neutral. The confirmation would be a loss of the support at 111.35 which is the latest key breakout in the run higher. A breach would be a lower high and a lower low and constitute the formation of a new trend. It would open 110.25 and 109.75. A move above 112.75 would re-engage the bulls.
Gold
The dollar seems to be fighting back as the gold price has struggled to gain traction in this recovery so far. A bull candle was formed yesterday which has meant that the market has rallied $26 off Friday’s low of $1171.20. However the momentum indicators are slow to pick up and the RSI currently looks to merely be bumping along the bottom. The overhead supply begins at $1200 and this is the start of a huge resistance above which gold might struggle. I remain a seller into strength for a retest of the $1171.20 low, with $1211 and $1222 further resistance levels.
WTI Oil
The bulls bounced back yesterday and in the midst of expectation for the OPEC meeting it was an even driven rally. The Iraqi oil minister says he is optimistic of an agreement and that they will cooperate for a deal. Although this is positive and traders have reacted, Iran is still a potential fly in the ointment and there is no sign yet that Russia will partake in a production cut. A strong bull candle has left support at $45.14 and the rally back through not only $45.95 (the old near term neckline) but also through $46.50 (an old key pivot) has improved the outlook once more.
However, the outlook is again more mixed this morning. The resistance band at $47.17/$47.70 has held back the recovery and the market has drifted back to the neckline around $46.50. This is a barometer near term however the outlook remains very volatile and news driven and is likely to continue to be so the next few days.
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.