Market Overview
The minutes from the latest FOMC meeting showed a split committee with regard to the prospect of further rate hikes in the coming months and this has weakened the dollar. Some suggested caution and the increasing focus on the international economy in backing away from immediate hikes, whilst some suggested that April was still on the table. This all means that the Fed is not ready to hike at the next meeting at the end of the month and also makes a June hike also less likely. This move has weakened the dollar (the trade weighted US dollar has now fallen to its lowest since October) and helped an improvement in risk sentiment (with the usual short-sightedness of bad news being good for equities). Wall Street closed around a percent higher on the S&P 500, retracing the previous losses. However, Asian markets were far more cautious and were only mixed in performance with the Nikkei up 0.2% (although clearly held back by the continuing strength of the yen). European markets are mildly higher in the early moves.
The forex markets show the dollar continues to be sold against all of the major currencies, although the yen is the best performer (something which should act as a warning and is reflective of a the concerns over a low growth environment. Gold is also back higher again as a roller coaster of a few days continues. Carrying on from yesterday’s sharp gains, the oil price is another 1% higher.
Traders have got a relatively quiet morning of economic data ahead, whilst the focus will switch to the ECB as the minutes from the latest meeting of the Governing Council are released at 1230BST. Attention will be given to the decision making process behind the massive easing program and hints for further measures in the months ahead. The US jobless claims are at 1330BST which are expected to improve slightly to 271,000 (from 276,000 last week). There is also a speech from Fed Chair Janet Yellen tonight at 1030BST, again with focus on potential hints on monetary policy.
Chart of the Day – AUD/USD
Is the Aussie beginning to show some corrective signals? The rally which hit the high at $0.7720 last week has coincided with a deterioration in the momentum indicators which suggests that there is now a series of bearish divergences on the RSI and Stochastics, whilst the MACD lines have also crossed lower. The support at $0.7475 has now become is now key for the outlook. Yesterday’s session looked to unwind some of the losses from Monday and Tuesday to leave support at $0.7510 but with the deterioration in momentum the rallies could now be seen as a chance to sell. That makes the reaction to this move today extremely interesting. In the past few weeks, the price has moved away from its uptrend that has been in place since the January low and there could be a building of a correction back towards the uptrend support in the near to medium term. The hourly chart shows an near term pivot band at $0.7640is the basis of resistance and the unwinding of the technical indicators from a bearish configuration could be another indicator of a sell into strength. Although this may be a touch early to talk about corrections (bearish divergences on momentum can often take a while to really take hold on the price), but ultimately I expect a retest of $0.7510 and subsequent pressure on $0.7475. There is further resistance at $0.7685.
The consolidation on the euro looks to be breaking higher again after yesterday’s intraday reaction following initial weakness has induced a push above the resistance at $1.1437. What had been building as a rolling correction has turned around once more. The daily momentum indicators are strong, but if this is going to continue to play out as a long term trading range (with the resistance around $1.1465 remaining intact), then the view will be that an RSI plateauing around 70 is a signal for limited upside potential and to start thinking about taking profits on long positions. The bulls are though hanging on and do not seem willing to give up their positions quite yet and after a solid Asian session the resistance at $1.1437 has been breached and this means the way is open for a pop at $1.1465. Hourly momentum suggests a relatively neutral configuration, but the move above $1.1437 would also be an upside breakout from a range with an implied target of $1.1540. But can the bulls get there with such a big overhead resistance? The intraday low at $1.1325 was a very minor breach of the support at $1.1332 but in effect this remains the key level that could trigger that profit taking.
The support at $1.4050 was breached yesterday on an intraday basis but in the absence of a closing confirmation move, the top pattern remains incomplete. The intraday rebound of 115 pips is certainly a positive reaction and one which the bulls will be encouraged by, but for now the pressure remains to the downside within the five week range (that is still threatening to turn into a top pattern). The RSI and MACD lines need to start falling decisively to add to the conviction. Watch for the RSI dropping below 40 and the MACD lines pulling below neutral. The hourly chart shows the near term resistance around $1.4170 which has been holding the bulls back in recent days and a near term rally through there would open the next resistance band $1.4240/80. The hourly momentum continues to suggest that rallies are a chance to sell though. The bears will remain in control below $1.4320.
There has been a sharp breakdown of the key support and the yen has been strengthening for the past five days now to accelerate the decline on dollar/yen to new lows dating back to October 2014. The momentum is clearly with the sellers now and the indicators show that there is further downside potential in the move. The RSI has only just moved below 30 (during the January sell-off the RSI fell below 20), whilst the MACD lines remain negative and the Stochastics are still in bearish decline. The question is whether to chase this lower though. The pair does tend to go on a run when there is a trend, however the hourly chart shows the RSI is deeply oversold near term and an intraday rally is perfectly possible. Perhaps waiting for an intraday rebound to unwind the RSI towards 40/50 would be preferable. The immediate resistance is 109.30/109.80, with further near term resistance at 110.50. There is little support on the chart with the implied target still at 107.15.
Gold
Although I continue to see the gold price in a downtrend channel I am beginning to see the momentum indicators just bottom out which suggests that downside impetus is waning now. The pressure is beginning to mount on the upper limit of the downtrend channel and resistance is being tested. The 21 day moving average having previously been supportive, turned into a basis of resistance a couple of weeks ago (currently $1235) but this is being challenged. The momentum indicators are also just beginning to pick up again with the RSI looking to break its equivalent downtrend, the MACD lines flattening around neutral and the Stochastics turning up. The hourly chart shows the resistance in at $1237 which is an old pivot and broadly speaking the high from Tuesday. A move above $1242.90 which was the late March high would change the complexion of the chart and improve the outlook once more. Near term support at $1216 protects the key near term low at $1208.10.
The rally on oil yesterday has sharply improved the technical outlook and once more goes to show that the technical aspect will be trumped by newsflow. In this instance, a double whammy of Kuwait’s insistence that there will be a deal agreed on production freeze, added to by the surprise decline in US crude oil inventories by 4.9m barrels. This has swung momentum positive once more with the daily Stochastics giving a crossover buy signal near term. Also, as the move on the intraday hourly chart shows, the rally has now broken back above the first lower reaction high at $37.20 and also breached the corrective downtrend. Looking at the improvement also seen on the hourly MACD lines this also suggests that momentum is improving now. This changes the outlook away from selling into strength towards something far more neutral. The falling 144 hour moving average (at $37.25) has previously been a basis of resistance and a break back above this adds to the conviction that the sellers are no longer in control. The resistance band $38.35/$39.00 is a key resistance band now with the lower support being the neckline of the small top pattern. There is a support band now between $36.60/$37.35.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.