The US Government shutdown has just added an extra layer to what has already become a significantly risk averse period for markets. After the Fed’s supposed Goldilocks meeting last week but which ended up pleasing no one, the fact that President Trump is willing to shutdown the US Government over Christmas for the sake of funding his “wall” is incredible brinkmanship.
Market reaction remains duly negative and volatility is spiking higher, with the VIX closing over 30 on Friday which is a 10 month high. Safe haven assets have certainly been in favour, with the yen and gold performing well, whilst equities have been battered.
Trading over the Christmas period is thin, can be quiet but also unpredictable. For this morning, the dollar is slipping back and although US futures are higher today, perhaps allowing a degree of respite for risk, the European markets are barely registering this and there is a shortened session for them to react. If there is going to be a Santa Claus rally it is going to be a token one.
Wall Street had its worst week since 2008 and the S&P 500 closed another 2% lower on Friday at 2417. Futures are around +0.6% higher initially today, with Asian markets mixed (Nikkei -1.1% and he Shanghai Composite +0.4%). European futures are under pressure with FTSE futures -0.6% and the DAX futures -0.8%.
In forex, there is a renewed dollar negative bias today with Sterling performing well whilst the Aussie and Kiwi, which have suffered significantly in the reduced risk environment, allowing a technical rally.
In commodities, there is continued recovery on gold and silver whilst oil has formed a degree of consolidation.
It is Christmas Eve and there are no key economic releases on the calendar. Some European countries such as Germany are also on public holiday today.
Chart of the Day –AUD/USD
The Aussie comes into the Christmas trading period on the edge of a key breakdown. Risk appetite has plummeted in recent sessions and the Aussie is under pressure. Falling back over the past few weeks, supports of previous breakouts have failed. The old pivot breakout at 0.7165 broke last week and now the critical support of the October low at $0.7018is being tested. This does come with momentum indicators extremely negative now with the MACD and Stochastics decisively bearish and RSI in the low 30s. A bounce this morning is holding the support and initially from $0.7030. However the hourly chart shows this is simply unwinding to renew downside potential again. Unless the recovery can push decisively through $0.7085 initial resistance this will be another chance to sell. The resistance of the old breakdown at $0.7165 is now key for any recovery to be sustainable. Below $0.7018 opens levels not seen since February 2016 with $0.6825 the next key support.
It had looked that the euro was positioning for a decisive upside break. However, Friday’s strong bear candle has seriously questioned how committed the bulls are to a breakout. How the bulls deal with the disappointment of a move back below $1.1400 could now be key. This was previously the key closing barrier for several weeks and if this again builds as resistance, the ranging conditions will remain. Momentum improvements have been hauled back and into the Christmas trading period, this is likely to keep the shackles on the recovery. There is initial support at $1.1350 from Friday’s low and trading back below here would open the key support band $1.1265/$1.1300.
The consolidation of the past week has now broken the six week downtrend and there is a mildest hint of recovery in the air for Cable. Nothing in confirmation yet, but the momentum indicators are drifting positively, with a MACD cross and Stochastics rising towards 50. The next step the bulls need to make is a push through resistance. The initial level is $1.2705 resistance from last week, whilst the falling 21 day moving average at $1.2685 today is a basis of resistance. A closing breakout at $1.2705 would open $1.2800/$1.2850. Support is building at $1.2600 which is a potential higher low above $1.2525 and $1.2475. The likely continued consolidation through Christmas is likely to breach a building nine day uptrend.
The breakdown below 111.35 was a key medium term move for the pair and changes to a far more corrective outlook. Friday’s negative candle in effect confirms the deterioration with the market again at a three month low. This is all confirmed with a RSI and MACD breakdown and suggests that rallies are a chance to sell. There is a sell zone 111.35/112.20 on a near to medium term basis nowwhich along with negatively configured momentum suggests that rallies are now a chance to sell. The next support comes in at 110.35 with 109.75 being the next key support open.
Gold
The decisive bull candle on Thursday shifted the outlook towards bullish again. The positive configuration within the one month uptrend channel along with the four month bull channel comes with the latest breakout to new multi-month highs above $1250. Corrections remain a chance to buy, with the latest reaction low at $1241 leaving a near term “buy zone” $1241/$1250. The test of $1266 is likely to continue which is the July resistance with the top of the channel at $1270. A closing breakout above $1266 opens $1281/$1300. Momentum indicators remain positively configured, but there is a caveat with an interesting development in the Stochastics which is threatening to roll over and just needs to be watched.
WTI Oil
The oil price has just settled down after another volatile week last week, however this is still likely to be just a Christmas calm. The negative outlook remains in place as support around another old low at $45.60 continues to be tested. The way is open to a test of c. $44.50 from the implied target of the previous breakdown, with the next key support at $42.05. Momentum is still negatively configured with MACD and Stochastics lines both tracking lower and suggests that rallies remain a chance to sell. Resistance is initially at $48.00 under the overhead supply beginning at $49.40.
Another significantly bearish session as Wall Street has again fallen to levels not seen since October 2017. After precipitous falls in the past week, momentum is suitably hugely bearish with RSI below 25, whilst MACD and Stochastics accelerate ever lower. Futures are pointing to a rebound (of sorts) today, but it will need a fundamental driven rally (ending the government shutdown perhaps). This is because there is such bearishness with this sell off now and little real support until 22,180/22,220. There is huge overhead supply now at 23,345 with the hourly chart showing initial resistance at 22,645.
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