Market Overview
Risk aversion continues as we approach the Christmas period, with the dollar still under pressure. The Fed passed up the opportunity to provide the rocket fuel for a Santa Claus rally on Wednesday as it disappointed a dovishly positioned market. There also seems to be little by way of Christmas cheer in Washington as the prospect of a US government shutdown also looms.
The reason? Donald Trump wants $500m of spending to “Build The Wall” (the fact that he promised that Mexico would pay for the wall is neither here nor there). The (currently) Republican-heavy House of Representatives have scrambled to agree, but passing it through the Senate will be much more tricky. Equities on Wall Street seem to have just thrown in the towel now as key support levels that had previously held throughout 2018 have now been breached, with markets in full on correction mode (although not yet bear markets).
The dollar is also in correction mode, as EUR/USD and USD/JPY both break through key near to medium term levels, whilst gold also continues to climb. Although the Christmas season is all but upon us now and we will be beset by thin markets (potentially highly volatile moves), it is difficult to see the set up for a dollar rally, unless it is an oversold technical driven move.
Wall Street closed decisively lower yet again, with the S&P 500 -1.5% at 2467, with futures showing no appetite for a rebound yet today either. This has again hit sentiment in Asia, with the Nikkei -1.1% and Shanghai Composite -1.1% too. In European markets there is a degree of further slippage on FTSE 100 futures and DAX futures both almost half a percent lower in early moves.
In forex, the selling pressure through the dollar continues across the majors, although there is a slight unwinding on the yen which had a huge bull move yesterday.
In commodities, gold and silver are consolidating, whilst oil has given a tentative rebound after the latest huge sell-off yesterday.
It is a day predominantly of growth data and inflation on the economic calendar today. First up with a clutch of UK data, with the final reading of Q3 UK GDP at 09:30 GMT which is expected to come in for a third time of asking at +0.6% (+0.6% in the second reading, +0.4% final Q2). UK Current Account for Q3 is also at 09:30 GMT and is expected to deteriorate further into deficit with -£21.2bn (from -£20.3bn in Q2).
The US data kicks off with final Q3 US GDP at 13:30 GMT which is expected to be confirmed at an annualised +3.5% (+3.5% Prelim Q3, +4.2% final Q2). US core Durable Goods Orders at 13:30 GMT are expected to show ex-transport numbers improved by +0.3% in November (+0.2% in October).
The US core Personal Consumption Expenditure is at 15:00 GMT and is expected to show a monthly growth of +0.2% in November whilst this would mean the year on year reading would be +1.9% (+1.8% in October).
Chart of the Day – GBP/AUD
A deterioration in the outlook for the Aussie has come as sterling has managed to stabilise in the past week, which has added up to a recovery on Sterling/Aussie. The recovery now means that GBP/AUD is at a key crossroads. Since July there has been a key pivot at 1.7815 which has since become the neckline for a prospective head and shoulders base pattern. There is a decisive improvement in momentum which continues which is seen through the MACD line accelerating higher, RSI rising above 50 and Stochastics rising into strong configuration. There is though an added barrier to gains where the 38.2% Fibonacci retracement of 1.8732/1.7204 at 1.7788 which could also mark a basis of consolidation that needs to be watched. Yesterday’s candle was a mild gain on the day but the rally faded at the resistance of the neckline. The 23.6% Fib level at 1.7565 is a basis of support now, with Thursday’s low at 1.7555 where the now rising 21 day moving average is also at. A close above 1.7815 completed a five week base and opens 1.7970 around the 50% Fib level.
EUR/USD
A decisive move higher and a near to medium term breakout on the euro. For weeks there has been a tight consolidation where EUR/USD had been failing to find traction above $1.1400, however this has changed with yesterday’s decisive bull move. The candlestick may not have been as decisive higher as it could have been (closing 40 pips off the day high) but still a close above $1.1400 is a sentiment changer and the intraday move above $1.1470 took the euro to a six week high. Momentum indicators confirm the move with the RSI well above 50 now to three month highs, whilst the Stochastics and MACD lines are also finding bull traction. There will now be a basis of support around $1.1400/$1.1430 for the bulls to look towards. A test of $1.1500 is key, with a closing breakout being the next key move for the bulls that would open $1.1620. Key support is now at $1.1265.
The bulls are threatening a move higher, but as yet cannot quite make the break as the confluence of overhead barriers to gains remains in place. The pivot at $1.2660, with the six week downtrend and falling 21 day moving average (currently at $1.2690) all come in around here. Near term resistance of this week’s high at $1.2705 also capped the upside yesterday. However there is an edging higher on the market which is testing this confluence. Also the momentum indicators are also beginning to look more positively configured. This could just be part of a consolidation giving the upcoming Christmas lull in trading, but equally the bulls will be encouraged. A decisive move above $1.2700 improves and would then open $1.2800/$1.2850 as the amount of overhead supply then becomes an issue for any sustainable recovery. Initial support is $1.2600 and $1.2525.
USD/JPY
The corrective momentum has accelerated this week and made a decisive negative impact on the medium term outlook. The market has not traded below the 144 day moving average since June, but this got smashed yesterday, whilst also following quickly behind a breach of the six month uptrend. The move has also broken the key October low at 111.35 as a reflection of the growing bear momentum on a medium term basis. A deterioration in the momentum indicators has now come with the MACD lines accelerating below neutral whilst the RSI has fallen below 40 and is at a level not seen since March. This all suggest selling into strength with the overhead supply now between 111.35/112.20. There is a degree of bounce today and unwinding of the near term stretched momentum, whilst trading outside the 2.0 SD Bollinger Bands increases the likelihood of a near term unwind, however rallies are now a chance to sell.
Gold
The bulls responded emphatically yesterday to the threat of what was a corrective bearish engulfing candle in the wake of the Fed. A strong bull candle aborted Wednesday’s bearish engulfing candlestick with a move above resistance at $1258 to hit the $1266 resistance of the July high once more. The move has left $1241 as another basis of support above the higher low at $1232. The momentum indicators retain a positive configuration and corrections remain a chance to buy. The top of the trend channel comes in around $1270 now. The next resistance above $1266 comes in between $1281/$1300. On an intraday basis the hourly chart shows support initially between $1241/$1250.
WTI Oil
The bearish outlook on oil remains in place and yesterday’s candlestick shows that rallies will continue to struggle. In fact, due to the contract roll over, the degree of the downside move yesterday is actually understated by the chart. The bear candle has seen the market drop back to test the tenuous support of $45.60 once more (from August 2017) however there is a likelihood of the price coming back to test the key 2017 low at $42.05. Momentum indicators are negatively configured once more, turning to cross lower on MACD lines, whilst the Stochastics and RSI are once more with a bearish outlook. Wednesday’s rally to $48.00 leaves a lower high which is now initial resistance under the previous low at $49.40.
If it was the Fed’s intention to pull the plug out of the bath on Wall Street, it seems to have worked. The huge move lower in the wake of the FOMC decision has seen two completed massive bear candles, decisively breaching a key floor that has supported the Down throughout this year between 23,345/24,000. This has opened the downside with very little real support until 22,400. There is a significantly bearish configuration on momentum with RSI and Stochastics very negative, whilst the MACD lines are accelerating lower. The one saving grace could be that the RSI is way below 30 and this has tended to be a rally area on the Dow in 2018. However, the concern is that this is growing into a bear market and sellers just may not care. The 23,345/24,000 old support now becomes an area of overhead supply. The hourly chart reflects a sense of rallies being sold into and initial resistance is 23,060.
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