Market Overview
It is interesting to see that as markets wait for some potentially key development in the US/China trade dispute resolution, there are a number of near to medium term crossroads reached on charts.
The US dollar performed very well in 2018 as the trade dispute between the world’s two economic superpowers deteriorated. So any suggestion that this damage can be repaired could be a source of dollar correction. This comes as EUR/USD has rallied towards resistance around $1.1500. Could positive trade talks drive the pair through the crossroads? This also comes with the impact on risk appetite.
The oil price has also rallied (sharply by around 15%) and up towards key resistance (around $50 on WTI and $57.50 on Brent Crude).
Furthermore, equity markets (FTSE 100, DAX, S&P 500 and Dow) have also rebounded to the resistance of overhead supply of the old 2018 lows. Although perhaps a touch premature, if the newsflow over the US/China talks were to be encouraging, then this would be risk positive, but also dollar corrective. These crossroads could be crossed and market sentiment would suddenly be looking far more healthy.
Wall Street closed higher last night with S&P 500 +0.7% at 2550 whilst futures are gaining further ground initially today around +0.3%. This has broadly helped Asian markets, with the Nikkei +0.8% although the Shanghai Composite is slipping a touch -0.2% lower. In Europe, markets are looking for mild gains early today, with FTSE Futures +0.2% and DAX futures +0.4%.
In forex, there is a mild unwinding of yesterday’s dollar weakness, as the US dollar has made gains across the major pairs, although the Canadian dollar is a mild outperformer.
In commodities, the dollar rebound is a drag back on gold which is -$6 (around -0.5%), whilst oil is consolidating for now.
After a fairly quiet European morning for traders looking at the economic calendar, attention will switch across the pond to the US Trade Balance for December at 13:30 GMT which is expected to improve marginally to -$54.0bn (from -$55.5bn in November). The US JOLTS jobs openings for November are also at 15:00 GMT and are expected to tick a shade back from around record levels to 7.06m (from 7.08m in October). Originally pencilled in for Monday, the US Factory Orders are now in for today at 15:00 GMT (according to Reuters) and are expected to grow by +0.2% in the month of November (from -2.1% in October).
Chart of the Day – Brent Crude
The big bear market in oil of Q4 2018 was a crucial factor in why equities came under so much pressure, but it is therefore interesting to see that the Brent Crude price is developing an encouraging rally. How long can the rally last for though? With five consecutive positive sessions and bullish candles, this is the first time this sort of run has been seen since August and comes with a string of encouraging signals on momentum indicators. The RSI rising towards 50 to a 12 week high as the Stochastics and MACD lines accelerate higher. Also trading above the falling 21 day moving average for the first time since October, along with a broken 12 week downtrend reflects the improving outlook. The Fibonacci retracements are worth watching as they frequently coincide with key levels of resistance. This means that the band between $57.50/$59.33 as a pivot level will be a key step for the bulls to overcome. The 23.6% Fib retracement of $86.73/$49.94 comes in around $58.60 and a decisive closing breakout opens 38.2% Fib at $64.25. For now corrections are a chance to buy, with initial breakout support $55.30/$56.55.
EUR/USD
With the renewed dollar weakness, the pair has rallied back into the area of resistance which several rallies have floundered in the last couple of months. Every time the market bounces into the area between $1.1475/$1.1500 the bulls come up short. The strong bull candle from yesterday gives hope, but already this morning the bulls are slipping back again. Momentum has a mild positive bias but as yet is not calling for an imminent upside break. The RSI remains stuck in its 40/60 range, whilst MACD lines are hovering more than anything. The hourly chart shows a pivot band $1.1420/$1.1430 is now supportive and helps to give the mild positive bias through the hourly momentum. A close above $1.1500 would be a bullish breakout, opening $1.1550 and then the key lower high at $1.1620.
With two days of dollar correction (certainly more than sterling rally) we see Cable having recovered to come within touching distance of the resistance at $1.2815 again. It is interesting to see that momentum is improving still but to the extent that it is no longer bearish. This is an improvement into neutral configuration and subsequently why the resistance at $1.2815, which has been in place since early December, is key. A closing break above $1.2815 opens a test of the pivot at $1.2920 but there is still much that would need to be seen for the bulls to be confident. This is still just an unwinding move within a bear trend. The RSI needs to move decisively above 60 and MACD lines accelerate sustainably above neutral for the outlook to be more positive. Holding a decisive break above $1.2815 would help the bulls though. For now this is part of a consolidation that is looking to build above $1.2600.
The recovery on Dollar/Yen continues, but there is still a sense that this remains a rally within a downtrend of the past three weeks. The trend comes in at 109.25 today. The bulls have a problem with the supply of stale bulls that come between 108.10/110.00 and this will act as resistance in the recovery. Momentum indicators have ticked higher, but are simply unwinding stretched oversold positions. The recovery is doing well on a near term basis, with the last two sessions closing around the day high to leave positive candles, however, any failing of the rally under or around 109.75/110.00 resistance would be another selling opportunity. The hourly chart reflects the near term positive bias, with support initially at 108.10 and then 107.40/107.10.
Gold
A positive session but essentially a day of consolidation yesterday on the technical for gold. An inside day session and small candlestick body reflects a near term stalling on gold. This stalling could turn into a near term corrective slip which is threatening early in today’s session. The strong medium term configuration on the technical are threatening to roll over on a near term basis as the Stochastics and RSI drop back. For now, the breakout support seems to be holding well, with the topside of the old four month uptrend channel still supportive around $1278 today and above the $1276 reaction low from Friday. If these levels were to break then a slip back towards $1266 would be likely. However, this would then likely be the source of the next opportunity to buy for continued pressure on $1300/$1310. The hourly chart is beginning to show more of a consolidation outlook forming as the bulls just lose some of their momentum of the rally. Corrections remain a chance to buy.
WTI Oil
The recovery on WTI continues to build as a fourth straight positive candle was formed yesterday. The move above near term resistance at $48.00 means that the market is now into the overhead supply of the old November/December lows at $49.40/$50.50. This is a key test for the potential of a recovery. Taking a closer look, yesterday’s candle was not as positive as it might have been, with the market backing away from the $49.40 resistance. Momentum indicators are though increasingly positive with this rally with the RSI swinging strongly towards 50, whilst MACD and Stochastics also accelerate decisively higher. Intraday corrections into the support initially around $48.00 are a chance to buy.
Dow Jones Industrial Average
After a run of several decisive candles, yesterday’s move was more of a pause for breath. However, the move was still higher and the market is testing the key band of medium to longer term resistance between 23,345/24,000. There is confirmation of the recovery on momentum indicators which suggests that the bulls are set up well. The close at a new two and a half week high leaves a higher low at 22,638, whilst the hourly chart shows the old key low at 23,345 is for now being seen as a basis for support in the building recovery. Initial resistance is yesterday’s high at 23,687, but a close above 24,000 would be a key bullish development now.
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