Market Overview
In the wake of the first Presidential debate the dollar has become a touch more stable, with the improved risk appetite that would come with a Hilary Clinton presidency. That is not necessarily a bullish assessment of Clinton herself, rather that the market would not be getting the considerable uncertainty that would come with a Trump presidency. Markets are taking heart from Clinton’s performance better than expected US economic data yesterday with Consumer Confidence at 104.1 well ahead of the 99.0 expected, and the flash services PMI also beating forecasts with an improvement to 51.9 (51.1 exp). In light of the fact that the market is not expecting a rate hike until December, traders took this as a positive and helped to push equities higher along with the dollar. Safe have trades also look corrective still with the yen and gold weaker. Treasury yields showed the two year yield holding up well, but interestingly the 10 year yield dropped in the wake of comments from FOMC’s vice chairman Stanley Fischer who suggested that rates should not rise too far.
Wall Street showed solid gains (despite a sell-off in Europe) with the S&P 500 +0.6%, however Asian markets fell overnight with the Nikkei -1.3%. European markets are taking more from the Wall Street lead and are slightly higher in early moves. The forex markets show the dollar gaining ground against most of the forex majors, with little real standout underperformer as yet, although the Aussie is a slight outperformer. The stronger dollar is impacting on gold and silver again which are marginally lower. Traders will once more be looking to the International Energy Forum in Algeria for signs of any movement on a production freeze, but add in the EIA oil inventories today and it could be a volatile session. Oil is currently trading mildly higher on the day.
Traders will be looking out for the US Durable Goods Orders at 1330BST which are expected to drop by -0.4% for the month on an ex-transport basis having risen by +1.5% last month. Fed chair Janet Yellen testifies to the Committee on Financial Services today at 1500BST but is expected to focus more on regulation. The EIA crude oil inventories at 1530BST are expected to show a build of +3.0m barrels.
Chart of the Day – DAX Xetra
The DAX has come under significant selling pressure in the past few days with the market turning to leave resistance at 10,705 as it then embarked upon a sharp sell-off for the next few days. The outlook has become decidedly choppy in the past few weeks and key levels of support must now be watched. The bulls will be concerned by the Stochastics turning lower again, whilst the market has quickly sold through the old support band 10,370/10,475. However, the intraday rebound from the support of the September low at 10,262 bounced almost 100 ticks into the close and would have been heartening as it has strengthened the support at 10,262. The market is trading mildly higher in early moves today but the daily chart suggests there is much to be done to prevent another test of 10,262 (a breach would open the long term pivot band around 10,120). The hourly chart shows significant volatility in the past few days and amidst the uncertainty of recent market moves, the potential for a rebound today cannot be ruled out. This comes as the hourly Stochastics cross higher and the MACD lines also look positive for a rebound. The bulls will though have to fight hard as the hourly moving averages are now all falling in bearish sequence and suggests that rallies are likely to be sold into. The hourly chart also shows a band of resistance now around an old floor at 10,442 could be seen as a selling opportunity on a rally.
Once more the bulls have been unable to sustainably make an impact on the chart and profit takers have seemed happy with just a move towards the downtrend resistance. The market has turned lower around $1.1280 and pulled back once more. The momentum indicators remain very neutrally configured with the RSI back to 50, the MACD lines flat and the Stochastics losing impetus. Trading within the converging trendlines continues. Looking on the hourly chart, I have discussed the pivot around $1.1200 which has around 10/20 pips higher and lower where the price has frequently turned around in the past few weeks and again this seems to be an area of near term support. Watch for the minor support at $1.1180 breaking as a breach would then open the recent range lows around $1.1120. I remain very neutral on the euro and continue to expect the price to gravitate back towards $1.1200 whilst the market consolidation continues. Below $1.1120 or above $1.1325 would change the outlook.
Once more we see the market pulling back towards the resistance of the three week downtrend as the selling pressure alleviates for a near term consolidation. This has happened on several occasions throughout the downtrend and will tend to result in the next sell—off as the market pulls towards a test of the medium term range lows. At its peak yesterday with a second consecutive rebound candle, the market had bounced around 110 pips from the support at $1.2915, but there is little in the momentum indicators to suggest that this bounce will not just be sold into again. Perhaps the bulls will be holding on to the fact that the RSI is still above 40, but trading below the $1.3060 pivot gives the chart a negative slant. The hourly chart suggests that there is a degree of support near term but momentum still looks to be just unwinding the market for the next bout of selling. The downtrend is today around $1.3065, whilst it would need a decisive move above $1.3120 to change the near term outlook. I continue to see rallies as a selling opportunity with key support at $1.2863 and possibly $1.2796 to be tested.
The bear pressure may not be resulting in precipitous selling, however the market is still constantly eying a test of the key 100 yen support level. However the support remains intact, with yesterday’s low (once more at 100.07) holding the support. However the bulls lost momentum in the recovery candle to post a very weak bullish move. Today’s mild gains suggest the bulls do not want to give up the support but there is a struggle to make headway in a recovery. The overhead resistance is at 101.20 which was the old floor through the early September consolidation which is now an area of overhead supply. The momentum indicators remain bearishly configured and I continue to expect further pressure on 100 yen. A two day closing breach would suggest traction in a sell off, with the support at 99.53 and then the post-Brexit low at 99.08. The primary downtrend comes in at 101.85 today. The hourly chart shows a consolidation forming, but with the hourly MACD lines still negatively configured the outlook remains bearish.
Gold
After two consecutive doji candles suggested how uncertain the bulls were with the move higher, a corrective candle yesterday once more just adds to the continued sense of consolidation on gold. The bulls are unable to gain any sustainable traction and the medium term trading range is increasingly set. The momentum indicators are tightening in their neutrality, whilst the Bollinger Bands are between $1305/$1349 and pointing towards continued range trading. However, the consolidation could begin to impact on the longer term outlook with the primary uptrend now rising at $1320, and the 89 day moving average is at $1316. If this consolidation continues these longer term trend indicators could begin to break down. I have been discussing the near term pivot bands between $1325 and $1330 which have been supportive, but these are again under pressure and the bulls will note that a breach of $1325 has tended to result in a retreat towards the range lows with support at $1306 and $1302. The hourly RSI is also deteriorating in the outlook. Initial resistance is now $1338 under the $1343.60 high.
WTI Oil
The outlook has turned around once more and the oil price has fallen away again. The catalyst was a suggestion from the Iranian oil minister that a production freeze was not a viable option. A sharp sell-off of around 3% was the result and the technicals have deteriorated. The momentum indicators are very mixed, unable to form any clear signals with such a sequence of wild swings. It is interesting the that RSI, MACD line sand Stochastics are all around neutral now. The daily chart shows the support at $44.20 which held overnight now protects a move back to the uptrend since February which today sits at $43.60. This support around $44.20/$44.45 is a pivot and a breach would open the key low at $42.55. The main resistance remains around $46.50, with $46.15 a lower high. As has been the warning throughout the past few days, stay close to newsflow around the Algeria forum as the volatility is likely to continue.
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