Market Overview
Markets begin the final quarter on the year with a bit of good news on the US trade relations for a change. Just before the deadline for the talks to renegotiate NAFTA, Canada and the US struck an agreement which now mean the North America bloc can move forward with trade relations once more. Final sticking points over diary and autos between the US and Canada seem to have been ironed out and an agreement to push ahead with the tripartite agreement with the US, Mexico and Canada can now progress. This helps to reduce the risk of US protectionism that traders are having to price for in recent months.
The Canadian dollar seems to be the big winner out of this, whilst appetite for risk has been boosted by this, with Treasury yields jumping in early moves, the yen underperforming and equities looking stronger.
It will be interesting to see how the dollar fares from this, as it has been seen as a safe haven in recent weeks of the various trade disputes. Currently the euro is an underperformer (as concerns over the Italian budget rumble on) and this is supportive for the Dollar Index (which is well over 50% weighted against the euro).
Sterling will be worth watching today (currently little real direction against the dollar) as a Brexit laden UK Conservative Party conference takes place this week.
Wall Street closed a touch mixed on Friday (Dow +18 ticks, whilst the S&P 500 was almost entirely flat at 2914) but with futures higher today on the NAFTA renegotiation deal this has helped a positive session in Asia (Nikkei +0.5% to multi-year highs). European markets are mixed in early moves, but with risk improving on trade positivity, the DAX is likely to outperform.
In forex, the euro is slipping back further, whilst the dollar seems to be broadly stronger and the Canadian dollar is the best performer of the majors. In commodities, the stronger dollar is pulling gold back a touch, whilst oil remains supported.
The first day of the month is always a day jam packed with manufacturing PMIs. The Eurozone final Manufacturing PMI is at 09:00 BST and is expected to show no change from the flash reading of 53.3 (53.3 flash, down from a final PMI of 54.6 in July). The UK Manufacturing PMI is at 09:30 BST and is expected to show a shade lower to 52.5 (from 52.8 last month). The US ISM Manufacturing is at 15:00 BST which is expected to remain strong at 60.4 (61.3 last month).
Aside from the PMIs, there is also Eurozone Unemployment which is out at 10:00 BST and is expected to remain at 8.2%.
Chart of the Day – EUR/JPY
The euro has been under pressure in the past few sessions as concerns over Italian debt has spooked market sentiment. This has been a drag on Euro/Yen but this retreat could still yet prove to be a chance to buy. The trend higher of the past six weeks has come as the market pushed through a key pivot band between 131.15/132.00. However, the pivot is now supportive on the way down too as 131.15 provided the low of Friday’s session before a decent intraday rebound into the close. Retreats within the uptrend which rises at 130.30 today also look to be a chance to buy. The market is trading above all rising moving averages, whilst momentum is still positively configured despite the near term swing lower on RSI and Stochastics. The question is one of timing as the longer term outlook is improving.
The market is currently in a phase of pulling renewed dollar strength. However it will be interesting to see how long this continues. For now, breaching supports at $1.1650 and $1.1610 has opened the key support around $1.1500 again. This recent deterioration is still just part of a neutral outlook for the pair, unwinding back to flat moving averages and pulling back positive momentum indicators to a more neutral configuration. It would be a different story if $1.1500 were to be decisively broken. For now though, the run of negative candles suggests a bearish bias and the hourly chart shows initial resistance now $1.1630/$1.1650. Friday’s low at $1.1565 is initially supportive.
The chart now has a corrective outlook to it now that $1.3055 has been decisively breached on a closing basis. This small topping pattern implies a retest of the key higher low at $1.2800 again. Momentum indicators are deteriorating, with the bear kiss on Stochastics and a cross on the MACD lines all adding near term corrective pressure. This is a deterioration which has put a halt to the recovery on sterling, but has not yet done any lasting damage. The candles have been running in negative configuration but are not excessively bearish, leading to the inference that this is still a near term deterioration, rather than anything more negative at this stage. The hourly chart shows the corrective configuration, with the old support around $1.3045/$1.3055 now a basis of initial resistance this morning. Beyond Friday’s low at $1.3000 the support is in at $1.2895, but it will be interesting to see how the bulls defend that psychological support first.
There is a continued bull trend that is pulling the market through resistance and now into 2018 highs. Dollar/Yen has a tendency to consolidate for weeks but when it goes on a run, the market really does trend. This latest move seems to fit that theme, with the bulls having little regard for the resistance at 113.75 to now open the key 114.70. The momentum indicators are increasingly strong, with the RSI now into the 70s (the July bull run got to 74 on the RSI before it started to run out of steam), whilst MACD and Stochastics are very strong too. The support of a now redrawn three week uptrend comes in at 112.80 whilst old breakout resistance is now supportive between 113.15/113.75. The key higher low at 112.50 is now the level to watch for a confirmed end to the run higher. The hourly chart shows initial support at 113.30.
Gold
Despite Friday’s positive session, the gold bulls are still on the brink of a decisive turn lower again. The former higher low at $1183 has been marginally breached in recent sessions but without the confirmation, however, the fact that the deterioration is occurring means that the pressure is mounting. Momentum indicators are creaking but without a key trigger. The MACD lines have crossed lower but only marginally, whilst the RSI is toying with the 40 level but as yet nothing decisive. The hourly chart reflects the near term negative bias and that mini rallies are a chance to sell for the likely retest of $1183. Initial resistance is around $1194 and the bulls need a push at least above $1200 and probably more above the reaction high at $1204 to suggest serious re-engagement. The hourly chart shows $1180 now protects momentum gathering pace for a retreat back towards $1160.
WTI Oil
The bulls had a bit of a wobble mid-week, but ended Friday on a strong note with a decisive move higher into eleven week highs. The move re-opens the $75.25 multi-year high and given that Brent Crude has already pushed above its equivalent resistance, the WTI bulls will be confident. Momentum is swinging decisively higher again with the RSI in the mid-60s with upside potential towards 70, whilst the MACD lines confirm the near term breakout. The old resistance band $70.45/$71.65 is a basis of support and there is a notable higher low at $71.50 now from Wednesday’s low. Intraday weakness is a chance to buy.
In spite of selling pressure throughout European markets on Friday, Wall Street remained solid and the Dow posted a close that helps to build on the support now at 26,350. Momentum configuration remains strong with the RSI holding above 60, MACD lines holding up in positive territory and the Stochastics looking to turn higher again. This is a market which remains a buy into weakness within the uptrend channel. With the market now often using the rising 21 day moving average (currently 26,208) as a basis of support there is also now a basis of a six week uptrend which is also supportive at 26,335 today. There is a good band of support still at 26,030/26,168 but the bulls seem intent on buying at higher levels now. Initial resistance comes in at Thursday’s high of 26,557 and with the hourly chart showing a bottoming phase progressing a close above here today could be the trigger for further gains. The resistance of the all-time high is at 26,769.
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