Market Overview
Finally after weeks of dull sideways trending markets, finally there have been some decisive moves that traders can begin to back. The big driver has been the dollar strength of the past week that has been gathering pace to generate a series of key breaks on markets yesterday. The big headline grabber has been the 31 year low on Cable (though a combination of sterling weakness and dollar strength), but also the strong dollar has broken a primary downtrend against the yen, whilst also pulling big corrective moves on gold and silver. Helped by an improvement in US economic data, further hawkish comments from FOMC members Jeffrey Lacker (expected from a hawk) but also Charles Evans who is far more of the dovish persuasion. This is helping to add weight behind a December rate hike by the Fed, which is becoming ever more likely. The other big angle for the markets is the sterling weakness that has helped to drive FTSE 100 to agonisingly within 3 ticks of its all-time high at 7122. Now that sterling has broken decisively to new lows, the market will be looking at FTSE 100 increasingly as a negative correlation play. The day following a big move can often be key to see the market’s outlook, so that means today’s moves will be intriguing.
Wall Street closed lower by -0.5% and Asian markets have been mixed to slightly positive (Nikkei +0.5%) still without any Chinese markets as they remain on holiday. European markets are looking to give back some of yesterday’s gains in the early moves. The forex markets show mixed moves across the majors but there is a hint that the dollar may be set to unwind some of yesterday’s gains. Gold and silver have bounced slightly after yesterday’s pummelling, but as yet the rebound is fairly minimal. Oil is another 1%higher in early moves.
Today we get an idea of how the dominant services sectors are performing around the world, starting with the Eurozone Services PMI at 0900BST which is expected to be 52.1 with the Eurozone composite PMI at 52.6. The UK Services PMI is at 0930BST which is expected to drop back to 52.1 (from 52.9). ISM Non-Manufacturing is at 1500BST and is expected to improve to 53.0 (from 51.4). In other data, the ADP employment change is at 1315BST and is expected to show 166,000 (down from 177,000) with US International Trade at 1330BST (-$39.5bn exp) and Factory Orders at 1500BST (-0.1% MoM exp).
Lucky 8 – FX Trader of the Year 2016 competition update
I am continuing to look at the markets covered in Week 1 of our competition that we are running throughout October. I will be giving daily updates on how the Lucky 8 instruments of the week are performing.
- USD/JPY – The dollar bull run continues and a breach of 102.80 opens resistance at 103.35 but also means 104.30 (September high) is a possibility. Corrections continue to be bought into, with support now 101.85/102.00. (see below for more detail).
- AUD/USD – The Aussie has dropped back below the $0.7640/50 near term support which has now turned resistance for a rebound today. The daiy chart shows an attraction towards a pivot at $0.7580 within what has become a near term range phase.
- AUD/NZD – Despite the Aussie weakness in the wake of the RBA, the Kiwi was relatively hit much more yesterday and the market has pushed strongly higher to remove the prospect of a top pattern. The bulls are now in control and 1.0565/1.0585 is now supportive.
- GBP/JPY – Despite sterling’s weakness yesterday, the yen was equally as weak and the pair continues to trade sideways, therefore play this as a range near term using the oscillating RSI for classic signals. Initial support 130.00 with resistance 131.50.
- USD/SEK – The range pay continues with yesterday’s resistance at 8.6335, so continue to use classic overbought/oversold momentum signals on the hourly momentum indicators. There is a mild positive bias within the range now though.
- US30 (Dow Jones Industrial Average) – An extremely choppy range play continues and the support is holding between 18,000/18,100 as yesterday’s slide came back. For now play this as a range but be mindful of a breakdown of the support.
- Silver – Breaking the big range support band $18.35/$18.50 opened the next key levels $17.50/$17.80, a level which is now holding near term. The bears are though in control and rallies will be seen as a chance to sell now.
- Coffee (KCc1) – The downside pressure continues with the corrective daily indicators and rallies continue to be sold into. Yesterday’s high at 148.65 is resistance with 151.700 near term key. Pressure on the old breakout support at 146.25 continues with a breach opening 140.
Finally a bit of life in the pair as the dollar strength pulled EUR/USD lower for a test of the key near term support at $1.1120. However, just when it looks as though a bit of direction was being seen a sharp intraday rebound unwound the selling pressure to once more leave us with a small bodied candle, which arguably takes us back to square one. However there is a legacy of yesterday’s move with the Stochastics now having crossed lower and this looks to be the bears flexing their muscles, possibly ahead of downward pressure. That is now twice where the bears have looked to drive selling pressure only to be rebuffed. The euro though continues to trade within the two converging trend lines, today at $1.1100 and overhead at $1.1260 as the neutral outlook continues. Today’s rebound higher is once more pulling higher towards the resistance art $1.1250 where the sellers have been waiting recently.
An incredible drop to a new 31 year low was completed yesterday on a close below $1.2796. After trading in a range between $1.2796 and $1.3480 for the past three months, the bears have finally breached the floor and this has completed a broad range breakdown. The implied target for the break is around 650 pips of downside now in the coming months. Momentum indicators are certainly now deteriorating once more and the RSI has further downside potential, whilst the Stochastics are in significant decline. The concern that any sterling bulls will have is that there is now no serious support to speak of. Certainly traders will be viewing any technical rally (be it intraday or otherwise) as a chance to sell. The old floor around $1.2800 will now be viewed as a resistance, whilst the trend lower of the past few weeks comes in today at $1.2940. The main caveat is that it all means that a sharp retracement rally could also be seen at some stage. I still think there is some downside in this current leg lower though.
USD/JPY
The market broke above the long term downtrend yesterday in a move that finally looks to be stamping a bit of dollar bull authority on a recovery. The sharp bull candle closed above the resistance at 102.80 which was the high of the day of the BoJ and FOMC meetings which I also see as a symbolic move. This has now opened the next resistance at 103.35 however the major resistance of the September high comes in at 104.30. The Stochastics are in bullish rising configuration and suggest this is a rally to go with. The hourly chart shows a mild consolidation overnight as the overstretched near term indicators unwind slightly. The main band of support is now 101.85/102.00 but the bulls will be looking to build a new higher low before then, with 102.60 having been a basis of support in the past 18 hours. I expect an unwinding correction to be bought into.
Gold
An incredible bearish candle has completely smashed the long term bulls out of the way and has changed the complexion of the chart. Once the $1300 support was broken yesterday the market quickly fell away and the outlook is now bearish. Completing a top pattern below $1302 now implies downside of between $50 to $75, meaning possibly as far as $1227 as a downside target. The market now seems set for a test of the support band $1250/$1260. The configuration of the momentum confirms the shift in outlook with the RSI the most bearish since December and before the rally began. Rallies will now be seen as a chance to sell, and today’s early rebound could be just that opportunity. Classically you would be looking at a pullback to the neckline (at $1302) as the selling opportunity but the bears may not wait that long. The hourly chart is unwinding from deeply oversold and perhaps an opportunity will arise as the indicators unwind back towards 40/50 on hourly RSI. Initial support is yesterday’s low at $1266.
WTI Oil
Once more the initial early weakness in oil was bought into as yesterday’s session wore on and the market is moving out to further confirmation of a move above the August high at $48.75. The momentum indicators are still positive and the RSI is pushing above 60. The bulls have now posted five consecutive bull candles in the reaction to the OPEC oil production cut. The way is also open for further gains towards the late June resistance $50.00/$50.55. The hourly chart shows how the previous resistance around $48.30 provided support for yesterday’s low whilst the more significant support comes in between $46.50/$47.50 that would be seen as a buy zone for any near term correction. The bulls are showing good signs of continuing this move.
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