Market Overview
With the US Congress failing to agree on a funding extension, the US Government has had to shutdown non-essential services over the weekend. This standoff on Capitol Hill is now into a third day and although there is an expectation that it will not go on for too long (there is another vote expected today), the disagreement over immigration policy is threatening the drag.
Market reaction to the US Government shutdown has been muted for now, with slight losses for the dollar but still holding up relatively well. Wall Street seemed to be only giving the issue a cursory glance on Friday whilst Asian markets have been barely impacted today. The US dollar was initially hit as markets re-opened on Monday but has since clawed back much of the losses. There have been signs in recent sessions that the selling pressure on the dollar has abated in the near term.
One key factor in supporting the dollar has come with Treasury yields which continue to pull higher. The breakout on the 10 year yield above 2.64% to a new three and a half year high is a significant moment in the bond markets and opens 2.80% to 3.00%. However, interest rate differentials will become an increasingly important issue as the week moves on, with the Bank of Japan and ECB monetary policy decisions to come. For now though, if the politicians in Congress can bring a halt to the government shutdown then the potential for a near term rally on the dollar could improve further.
Wall Street closed higher on Friday with the S&P 500 +0.4% at 2810 whilst Asian markets were also broadly supported today (Nikkei +0.03%). However, the mixed moves on European markets continue, with DAX mildly higher, but FTSE 100 underperforming.
In forex, the dollar is trading weaker across the majors, whilst the fact that the yen is not outperforming would suggest that at this stage the market is looking past the lack of agreement in Congress.
In commodities, gold is ticking slightly lower, whilst oil is mildly higher as the US rig count dropped by 5 rigs on Friday according to Baker Hughes.
There are no major economic releases of any note today.
Chart of the Day – USD/CHF
Calls for dollar recoveries in recent weeks have been rather fruitless, but once more another signal has been thrown up by a major market that could hint at a near term change in sentiment. Friday’s candle ultimately turned into something more than a “bull hammer” candlestick as a move to leave support at 0.9535 subsequently rallied strongly into the close. The market may be trading marginally lower today but again the dollar bulls seem to be fighting back. Momentum indicators have been extended recently and it is interesting to note that every time the RSI bottoms at 30 in recent months, this coincides with a bottom in Dollar/Swiss. Last week’s low on the RSI was 29.7 before the bull hammer was posted. The Stochastics have been ticking higher in recent days although they need move to signal a near term turn around. The initial resistance comes in at 0.9665 and could hold the key to a recovery as it would then be a formation of a small base pattern on a breakout. The hourly chart shows a move above 60 o the hourly RSI and configuration that at least looks more balanced. This is though not enough for a recovery, which would need a closing break above 0.9665. There is a basis of support initially 0.9570/0.9600.
The bearish engulfing candle that marked the high of last week at $1.2322 continues to give a slightly negative bias to the recent consolidation. Even though the market has found support to rebound from $1.2165, the bulls have been unable to breach the resistance and subsequently there is an uncertainty to this phase of trading. Momentum indicators are tailing off but as yet there is little significant selling pressure and the market will be looking for a break of this mini-range to provide direction now. The hourly chart is equally rangebound now and lacking conviction. Above $1.2322 or below $1.2165 would imply around 160 pips in the direction of the break. Initial support at $1.2215, with today’s high at $1.2275 initial resistance.
After six days of sterling gains, Friday’s negative session and candle now begins to question for a potential correction. The market has opened a touch stronger this morning after the US Government shutdown over the weekend, but there is a lack of conviction in the buying pressure which has been a feature ever since the announcement of disappointing UK Retail Sales data on Friday morning. This comes with the RSI still over 70 on the daily chart which is strong configuration but beginning to look a little tired as the Stochastics begin to drift and the MACD lines roll over. The hourly chart shows the market developing into a consolidation and the technical indicators beginning to neutralise. The initial support is Friday’s low at $1.3835, but a break below $1.3800 would begin to see the market rolling into reverse again. For now this is a pause for breath with today’s high at $1.3900 protecting $1.3945 as the market shies away from $1.4000.
Having broken below 110.85 early last week the medium term outlook has taken a more negative bias. However the near term prospect of a recovery is still in the market, with the bullish engulfing candle of last Wednesday still intact. The support at 110.20 is holding firm and in a similar way to Cable, initial dollar weakness at the open (due to the US Government shutdown) has not followed through and the market is showing support coming back in. The daily chart continues to be negatively biased and there is an outlook of selling dollar rallies, but whilst the support at 110.20 holds firm there is potential for a near term recovery. The hourly chat shows that whilst previously during the sell-off of a couple of weeks ago the hourly indicators were negatively configured, the outlook is now more neutral and ranging. Losing initial support around 110.50 would be a disappointment for the bulls now, with initial resistance around 111.20 protecting the recent rebound high at 111.50.
Gold
The strong outlook for gold was broken last week by a bearish engulfing candlestick pattern that subsequently broke the five week uptrend on gold. However the selling pressure has failed to materialise thus far and the outlook is now increasingly missed near term. The underside of the old uptrend again played a role as resistance on Friday ad early gains today has been stunted. The configuration of the momentum indicators shows the impetus of the bull run has waned somewhat and at least the market is now into consolidation mode. The support of Thursday’s low around $1324 is increasingly important now as a breach whilst the $1344 resistance remains intact would mean a lower high and lower low. For now though the market awaits the next move as the hourly chart indicators become increasingly rangebound.
WTI Oil
The prospect of a correction continues to grow as another negative candle was posted on Friday. The break below $63.05 has not yet been confirmed on a closing breach but the momentum indicators are increasingly threatening a corrective move now. This comes with the RSI back below 70 and the Stochastics confirming a near term sell signal. The support of a five week uptrend held at $62.85 last week but the downside pressure on this trend is growing (today at $63.15). A closing breach of $63.05 completes a small top pattern that implies $1.70 of downside towards the $61.10/$62.20 initial support band. The hourly chart shows an increasingly corrective momentum configuration with lower highs now being left at $64.35 and then $63.75.
Consolidation was seen on Friday in light of the apparent uncertainty of the US Government shutdown. In the event of a shutdown, the bullish outlook for Wall Street may be a touch muted, but this is unlikely to hold the bulls back for long. Backing against the bull trend is a really tough gig as for well over a year now the chart continues to leave ever more sharper and sharper uptrends. Whilst this shows a market accelerating higher, standing in the way of such trends has been a very unprofitable game. The latest trend is a three week uptrend that comes in at 25,870 currently. Momentum indicators are staunchly positively configured and any corrections remain a chance to buy. This cannot last forever, but for now the wave keeps flooding higher. Hints of negative RSI and MACD divergences on the hourly chart are doing little to hold the buying pressure. Initial support at 25,947 with 25,703 key near term. Resistance at 26,153 is unlikely to last long.
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