Market Overview
With the dollar holding up, are markets starting to take a less fearful view of the geopolitical concerns about North Korea’s missile testing? Yet another ballistic missile was flown over Japan last night. The initial reaction was a move into safe haven assets, with gold, the yen and US Treasuries being bought. However, the move was brief before unwinding back again. It was interesting to see that Asian equities failed to react too negatively, with European markets only mildly lower in early moves today. The moves on the dollar today will be a key gauge, as the greenback has been hit on previous occasions. If the dollar can find support today, then the market will likely hold up in front of the FOMC meeting next week. With US CPI coming in higher than expected yesterday this helped Treasury yields and the dollar higher. Focus will also be on US Retail Sales today.
Wall Street closed in further all-time high territory last night with the Dow finally also taking part although the S&P 500 was slightly weaker at -0.1% at 2495. Asian markets were mixed in the wake of the latest North Korean missile launch, with the Nikkei +0.5%. European markets are a touch more cautious though today.
In forex, the dollar has already recouped losses and is trading higher against the yen, whilst it is interesting to see sterling continuing to outperform in the wake of the Bank of England.
Gold and silver are consolidating, whilst oil has drifted slightly lower following the dip into the close last night.
Although the European session may be relatively quiet for economic announcements, it is far more busy as the US comes on line. Starting off with the US Retail Sales at 13:30 BST which are expected to show ex-autos growth of +0.5% for the month after last month’s +0.5% gain. This would pull the year on year data back close towards the levels of earlier in the year close to 5%. The New York Fed Manufacturing index is also at 13:30 BST and although is expected to decline from last month’s strong 25.2, a forecast reading of +19.0 would still be a strong reading. The US Industrial Production is at 14:15 BST with an expectation of +0.1% for the month. This would continue a run of six consecutive months of monthly growth and the year on year data back up around 2% for more than two year highs. The Capacity Utilization is expected to improve further to 76.8% which would be the highest since early 2016.
Chart of the Day – FTSE 100
FTSE 100 underperformed badly yesterday as sterling shot higher in the wake of the Bank of England (the negative correlation trade was working very well again). However despite Wall Street breaking new all-time highs, the decline has dragged FTSE 100 back to a key level of support once more. Since the late June sell off, the support at 7300 has be repeatedly tested, only to hold up on each occasion. Aside from three intraday breaches of around 10 ticks in August, the support has held firm. Once more yesterday this support was tested but this time closed below 7300 for the lowest close since early May. The momentum indicators have ticked lower as the market has now closed lower for three consecutive sessions, and there is a negative bias. However there is little real sign that there is going to be a decisive breakdown, with previous tests of the support having seen the RSI bottom in the 35/40 region. The hourly chart shows a very consistent range trade over the past month. Support in the band 7289/7300 and resistance between 7440/7460 have been consistent. The hourly RSI reflects the range play with oscillating momentum. The early drop today will be interesting as another closing breach of 7300 would suggest the market is accepting the breakdown. This would then complete a range breakdown and imply 140 ticks of downside, with the next support at 7200. Initial resistance 7322/7336 today.
The euro saw a further intraday slide yesterday as the market retreated towards the key near term support at $1.1820. However it seems that the bulls were happy to support once more and the market rallied into the end of the session to close the day at the day high and over 80 pips from the low. The near term correction that has been seen in the past week has always looked to be a correction within the bull market of the past few months and the support of the uptrend which comes in today at $1.1790 has always been seen as a basis for the next leg higher. Could this now be the case that the bulls are ready to resume control? The RSI is hovering just above 50 and if the market can post another higher close today then the sentiment would have turned a corner. The hourly chart shows that there is still more work that needs to be done for the bulls as the hourly RSI is still struggling around 60 and the hourly MACD lines have just unwound to neutral. A decisive break of the $1.1925 near term resistance would be an improvement and the rally high at $1.1995 is key now. A close below $1.1820 would put the pressure on once more.
Volatility on an intraday basis has been ramping up in recent sessions as the daily candles have been getting bigger throughout this week. Yesterday’s response to a corrective candle on Wednesday was a huge bullish candle that added 185 pips on the day after the hawkish shift from the Bank of England. This took Cable storming to a new 12 month high and the bulls will now be eyeing the key resistance from Q3 2016 at $1.3445/$1.3480. Essentially though there is very little resistance between $1.3500 and $1.4000, so this is becoming a crucial move. It is interesting to see Cable up at the top of the 8 month uptrend channel now which could begin to limit the move. The momentum indicators are though very strong with the RSI settling above 70 and MACD lines expanding strongly. The hourly chat shows initial support at $1.3328 but the market seems ready to continue higher today. Quite how the bulls react to these key old resistance levels from 2016 will be the important factor of the coming days.
The resistance at 111.00 was key throughout August and again this capped the gains yesterday before the market fall away to form a bear candle that could be argued to be a shooting star. This is a corrective candle that initially today seemed to work strongly with the negative reaction to the latest North Korean missile. However there seems to be a move to desensitise to geopolitical tensions as the market has quickly unwound. How the Europeans and ultimately the US traders react could be key now. A close below the pivot at 109.80 would be technically negative. Momentum indicators are still in recovery mode to an extent but the RSI has lost steam in the rebound. The hourly chart shows that a lower high now below 111.00 could begin to put pressure on but there is clearly still regard given to 109.80 support. These levels are key today.
A strong recovery from $1315 has maintained the support of the ten week uptrend, whilst posting a bullish candle (that could be argued to be a bull hammer) at the bottom of a correction could help to shake the buyers out of their near term slumber. The confluence of support of the 21 day moving average (today at $1316) the uptrend (today at $1315) and the long term pivot band $1300/$1310 has helped to maintain the medium term bull market that sees corrections as a chance to buy. Ext job is for the bulls to post another positive candle today to confirm. This comes as the RSI is holding above 60 which is positive. The caveat remains the MACD lines which have crossed lower but if the Stochastics turn back higher again then the balance of the momentum will once more be positive. The hourly chart shows the importance of $1334.60 as near term resistance and a break above would be a small base pattern. Hourly momentum is neutrally configured now. There is a near term pivot forming around $1327 which is worth watching too, currently supportive.
WTI Oil
With another strong bull candle, oil has broken above key resistance. The six month downtrend has been breached, the early September resistance at $49.42 has been blown out of the water, whilst the market even managed to push through the key August high at $50.43 (albeit briefly). Although the market pulled back into the close, there is encouragement for the bulls that there is still plenty of upside potential despite the strong bull move of the past couple of sessions. The RSI is rising towards 60, whilst the MACD lines are finding upside traction as thy accelerate above neutral and the Stochastics are also strongly configured. The bulls will now look to use $49.42 as a basis of support for another higher low, whilst the old six month downtrend also now becomes a basis of support. A closing breach of $50.43 opens the May high at $52.00 again.
Even though the move has hardly inspired a wave of breakout buyers, the Dow crept to an all-time high yesterday above 22,200. It is slow and steady for the market now with another positive candle, whilst the momentum indicators are positively configured to suggest there will be a continuation of the move. The hourly chart shows strength in the near term momentum too, with the support of the 22,086 recent breakout providing a near term floor. Although the breakout is not decisive, it does show the bulls are in control and any weakness is likely to be bought into. The buyers will point to a closing breakout above 22,179 implying a 580 tick upside breakout target.
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