Market Overview
After a rather sedate day’s trading to kick off what could become a momentous week for financial markets, perhaps markets will get a touch more direction today. A raft of data releases will mean that just for a few hours at least, traders will need to focus away from Thursday’s key meeting of the Federal Reserve. There was not a great deal of decisive direction on Wall Street into the close last night with a minor slide of 0.4% on the S&P 500 amid low range, low volatility and low volume trading. Asian markets have traded mixed overnight too with the Nikkei 225 up .3%, but the weakness continues on Shanghai equities with another 3.5% decline. The Bank of Japan has again at on its hands, maintaining its QQE programme at 80 trillion yen per year and once more an 8:1 spit voting in favour of the action on the committee. European equities are mixed in early trading.
In forex markets, there is a lack of decisive moves, although the US dollar has shown some slight early gains, but the yen is performing well as the currency has taken strength from the inaction of the BoJ. The Aussie is trading slightly weaker today as markets continue to assess the impact of a surprise change in leadership after Prime Minister Tony Abbott was ousted on Monday. There are mixed performances on commodities with gold and silver slightly weaker and (for now) oil finding a little support.
The economic releases are far greater in number today and could certainly drive some intraday volatility. The UK CPI inflation data at 0930BST will certainly be eyed with an expectation of a slide back to zero inflation once more. Also watch the core CPI which is expected to dip back towards 1.0% (from 1.2%) which would be negative for sterling. The German ZEW economic sentiment at 1000BST will be interesting for DAX and the euro with an expectation of a dip to 18.4 (from 25.0) which would be a sixth month of consecutive declines. The US Retail Sales data is at 1330BST with the month on month ex autos number expected to come in at +0.2% which would show a stabilizing for the year on year data.
Chart of the Day – AUD/NZD
Following the rate cut by the RBNZ and the ensuing weakness on the Kiwi dollar, the cross on the Aussie/Kiwi has rallied back towards a key level once more. Over the past few months there has been a big trading range that has formed. The bottom of the range has come in repeatedly in a 40 pip support between 1.0890/1.0930, whilst the resistance has started to come in once the pair starts hitting the $1.1300 level. This is once more where we are beginning to see the resistance coming in. In the past two days there have been intraday moves above 1.1300 which have failed so once more the level is being tested. The technical indicators are now showing anything that would suggest that this is the time at which we will see a breakout, with the RSI very much reflecting ranging conditions and the MACD very neutral. The Stochastics are more positive than the other indicators and may suggest a move above 1.1300 could be seen. However, I would be expecting to find a sell signal in the sell in the band 1.1300/1.1430 (the top of which is a high from July). The intraday chart shows initial support in the band 1.1175/1.1260.
As we move ever closer to Thursday’s crucial announcement from the Federal Reserve, the market is likely to become ever more cautious. This may already be starting as yesterday’s trading showed just that. A spinning top is a candle that reflects uncertainty, and is the first time in six sessions that the euro has failed to close higher. It may still be a bit premature for traders to sit on the sidelines, but the early trading in the Asian session is also very cautious. Looking at the daily momentum indicators, it is only the Stochastics that suggest a decisive move, with RSI and MACD already flattening off. The hourly chart shows the failure at $1.1372 and the subsequent deterioration of the hourly momentum. It is difficult to call direction very near term on the euro and unless there is a move to a new near term high then the impetus could run out of steam. There is near term support at $1.1280 and a breach of support at $1.1253 would then pull the euro back into a whole band of congestion again above the key medium term pivot at $1.1100.
Another forex major that is already totting up the neutral candles is Cable. Following on very much of a consolidation day on Friday a “doji” candle will only add to the reflection that traders are beginning to move into “wait and see” mode. The daily RSI is already flattening off close to 50, and whilst the Stochastics are doing their best to suggest the near term recovery bulls are in control this is likely to begin to tail off too. For three days now Cable has failed to breach resistance at $1.5475 and the hourly momentum indicators are becoming increasingly rangebound. There is a key near term support level at $1.5335 which would be a trigger for a corrective move, but for now the support of yesterday’s low at $1.5370 will be a line in the sand. The announcement of both UK CPI and also US Retail Sales could create some near term volatility today so watch out for the key levels.
The ranging phase for the yen which has built up over the past few weeks continues to play out as the rally of the early part of last week has rolled over and the yen has started to weaken again. This range is reflected increasingly in the momentum indicators which lack any real direction and are extremely mixed in their configuration. The way that this pair has moved recently would suggest that there could now be a drift back towards the lows of the range 118.30/118.65. A bearish drift would seem to be more likely if there were to be a breach of 119.60 which has taken on the role of a key near to medium term pivot level, and the overnight strength of the yen means that this could come under pressure today. Watch for the hourly RSI though which has continually signalled support around the low 30s and resistance in the 60s in the past two weeks, which is again reflective of a range play. The resistance now comes in at 120.65.
Gold
Gold has been in an rather tight consolidation in the past few days and is now approaching a key near/medium term technical test. The downtrend resistance which has been pulling the price consistently lower over the past few weeks, today comes in at $1111 and this will be tested. I turned more negative as the price broke below firstly the support around $1117 and then at $1109, whilst the deterioration in all the daily momentum indicators also suggested this outlook. The has been a slight bottoming on the Stochastics but for now this is not really suggestive of a prospective rally. Even if there were to be a breach of the downtrend I would still not see this as anything more than a consolidation before continued downside as I still expect further pressure on the $1100 lows and subsequently back towards $1080. The unwinding of momentum on the hourly chart suggests this is a chance to sell within renewed downside potential. The initial resistance is the old support at $1117 and then at $1125.50.
WTI Oil
WTI is getting ever closer to a breach of the key support at $43.20. The downtrend of the past couple of weeks has continued to drag the oil price lower and is once again within striking distance of the support. Technical indicators are drifting away and also reflect the deterioration in the outlook. The concern is also that with Brent Crude having already broken below its equivalent support at $47.75 there is little reason why WTI will not follow suit. A breakdown would imply a move back towards $40 (as part of a triangle breakdown). The intraday hourly chart also shows the hourly RSI confirming the bearish configuration and all moving averages falling in bearish sequence. Rallies continue to be seen as a chance to sell, with the downtrend coming in around $45, and a failure around 50/60 on the hourly RSI seen as a selling opportunity. Beyond $43.20 the next support comes in around $41.50. Resistance is around $45.50.
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.