Market Overview
Those in the market anticipating a “hawkish hold” from the Fed would have been left a bit disappointed and the dollar is still struggling to sustainably recover lost ground in the wake of the FOMC announcement. The committee is pointing towards a potential December hike, but the sizeable reduction in the prospective speed of tightening has left the dollar bulls with some consternation. However the Fed has left enough on the table for no-one to be fully in control. This means that there is not likely to be a big trending move against the dollar and the choppy phase of trading looks set to continue. This is where we find ourselves today, with the dollar retracing some of its losses of the past couple of days. The move is unlikely to last as there is a mild dollar negative bias to come out of the FOMC amid the disappointment that the Fed has once more shied away from acting with conviction. Equity markets are mixed, despite gains on Wall Street overnight (S&P 500 up +0.6%). After a holiday on Thursday the Japanese Nikkei was off -0.3% playing catch up on the stronger yen. European markets are mixed around the open today.
In forex markets the US dollar is trading positively across the forex majors, whilst the underperformance of sterling has returned. The mild pick up on the dollar has also impacted across commodities overnight with gold and silver marginally weaker and oil off by 1%.
Traders will be looking at the flash PMIs to give an idea of forward looking prospects with the data with the flash Eurozone Manufacturing PMI at 0900BST expected to drop slightly to 51.5 (from 51.7) whilst flash Eurozone services are expected to sit at 52.8. The US flash Manufacturing PMI is at 1445BST and expected to tick slightly higher to 52.1 (from 52.0). The Canadian CPI inflation numbers are at 1330BST with the headline expected to improve slightly to +1.4% YoY (from +1.3%) but core CPI is expected to fall back slightly to +2.0% (+2.1%).
Chart of the Day – USD/CAD
Just as the oil price has picked up again (surprise EIA inventory drawdown and a weaker dollar post FOMC), the Canadian loonie has started to strengthen against the US dollar once more. This means USD/CAD is falling again. The chart shows that the key resistance at 1.3250 (which was tested for about a week before pulling back) has remained intact and the bears are back in control near term once more as the medium term range continues. This means a corrective move is now developing. The momentum indicators continue to show the market remains rangebound and should be traded as such. The Stochastics have now confirmed a near term sell signal, the RSI has pulled back from around 60 , currently around 50 and is on its way back towards the area where the bear legs tend to peter out between 35/40. The daily chart shows that 1.3000 has often been seen as a pivot within the range and is initially supportive as the market has just pulled higher again overnight. The hourly chart shows a top pattern actually completed below 1.3125 which suggests pressure will continue to be on 1.3000 whilst 1.3125 will be resistance for rallies. The hourly RSI shows unwinding moves into 50/60 area is around where the selling opportunity could be seen. A move below 1.3000 would open the support of the September low at 1.2820, whilst 1.2760 is another historic level that has often been supportive over the past 6 months.
It would appear that far from finding direction following on from the two big central bank meetings of the week, EUR/USD remains without any real direction. The weakness of the dollar since the Fed has resulted in two positive candles but lacking any real conviction yesterday suggests the bulls are still holding back. The momentum indicators for the daily chart show the RSI and MACD lines neutrally configured despite the mild pick up in the sensitive Stochastics. Today’s early price action has been somewhat muted and pulling back from $1.1257 means there is the threat of another lower high below $1.1285 and $1.1325. The hourly chart shows the old near term pivot around $1.1200 could be used as a gauge today and if the market fails under there again then the market could begin to drift back lower again. This one is in the balance and the bulls who have tried to control the market in the wake of the Fed are battling to hold on once more. It would appear that the catalyst is still yet to be seen.
The daily chart shows the medium term range between $1.2800/$1.3535 remains intact but the trend lower of the past few weeks shows little sign of improvement. There is little reason to believe that this range will not continue however rallies are still being sold into on a near tm medium term basis as the market retains a negative near term configuration. The reaction since the FOMC decision has been slightly dollar negative but there has been very little conviction buying for the bulls. The rebound has left near term support at $1.2945 but the two bulls candles need to have been far stronger to believe that this is not just another rally to be sold. The RSI remains below 50, whilst the pick up in the Stochastics has been minimal. I have been saying for several days that there is a selling zone between $1.3060/$1.3160 and the hourly chart shows this continues to be the case with the reaction high at $1.3120 coming below the three week downtrend which currently comes in at $1.3150. I expect the lack of conviction in the sterling bulls to be a drag on the pair and expect pressure back towards the lows again around $1.2945.
The daily chart shows the legacy of the very strong bearish candle posted on Wednesday continues to dominate. The mild reaction higher seen yesterday has continued today, but there will need to be a significant more done to convince that this could be anything more than another rally to be sold into. The support around 101.20 for the past two weeks was broken with the big bear candle, but this is now a basis of resistance and that has been the case overnight with the market just pulling back from the overhead supply. The momentum indicators are more negatively configured now with the MACD lines falling back below neutral and the Stochastics in bearish near term territory. The hourly chart shows a sell zone is now between 101.20/101.50 and the with the hourly indicators unwinding to renew downside potential, another bout of weakness is to be expected. The significant volatility of Wednesday means that there is plenty of overhead supply towards 102.00 but there wold not be a sustainable improvement until a move above 102.80. A retest and further pressure on the support around 100 looks likely in due course.
Gold
Can the bulls now build on the bullish candle from Wednesday to finally break through the medium term range resistance? The lack of conviction in yesterday’s candle suggests there are still some questions left unanswered. However the bullish long term indicators all remain intact and there is once more a positive outlook within the range. The market has moved above the resistance band $1325/$1330 which has often been pivotal near term and this subsequently now becomes supportive today. The near term technical indicators are looking more positive with the RSI above 50 and the Stochastics having turned higher. The hourly chart also reflects this and whilst $1325/$1330 remains supportive the prospect of further upside pressure remains. Yesterday’s high at $1343.60 is the initial target whilst a test of $1352.60 cannot be ruled out.
WTI Oil
With the surprise EIA inventory drawdown and as the US dollar has come under corrective pressure in the wake of the FOMC decision, the oil price has managed to gain some upside momentum again. It would appear that the bulls are now back in the near term ascendency again as the medium term fluctuations have once more swung back positive once more. With the Stochastics rising again, and the RSI rising back above 50 there is an upside bias now and unwinding corrections seen as a chance to buy. The hourly chart confirms the improved outlook and the price is now finding support around the previous resistance levels. The intraday chart shows $45.50 is initially supportive but the old neckline support has once more become supportive again at $44.75. The resistance around $46.50 needs to be decisively overcome to re-open the key reaction high at $47.75 again (which is also the September high). Certainly for now, the corrections are being bought into with the daily chart shows that these trending moves tend to last between one and two weeks at a time. The longer term chart shows converging trendlines, with the upper trendline today coming in at $47.30.
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