Market Overview
There seemed to be a shift in sentiment on Friday on the rhetoric of FOMC member Rosengren, as the market’s collective fear of a Fed rate hike jumped. There have been subsequent reactions across major forex, bond and equity markets as the dollar has strengthened, Treasury yields pushed higher and share prices come under pressure. When a traditional dove (in this case the FOMC’s Eric Rosengren) makes hawkish comments the market sits up and takes notice. Having been almost complacent in its holding of support in recent weeks, the VIX volatility index jumped from around 12 to over 16 as equities sold off. Although the economic data would certainly not be shooting the lights out, the stance of another historic dove in calling for normalisation of rates for fear of damage being done to the economy, the prospects for a move in September have jumped again. This jump in “fear” led to a drop on Wall Street of 2.5% for the S&P 500 in a move which filtered into the Asian session (Nikkei down 1.7%) and European markets are sharply lower at the open today.
In forex markets there is a mixed outlook for the dollar which gained some key ground on Friday. Interestingly the euro and Japanese yen are clawing back some of those losses, whilst the higher risk commodity currencies are under pressure still, with the Aussie and Kiwi mildly underperforming. Gold and silver are trading around the flat-line today, but the oil price is still under pressure again, down around 2%.
There is no key economic data due today but traders will be waiting for a previously unscheduled speech from FOMC voting member Lael Brainard (habitually dovish) at 1800BST, in the wake of the recent hawkish comments from Eric Rosengren.
Chart of the Day – DAX Xetra
The DAX has been following a shallow uptrend over the past two months. However having now left a lower high below 10,802 at 10,780, the corrective move on Friday has now broken that trend line and the opening weakness today means that the support band 10,370/10,475 now seems to also have been broken. This band is key today as there is a big opening gap lower at 10,539 that needs to be filled. Traders will be looking for how the markets reacts to this previous support band today. Closing below the old support of the late August low at 10,442 completes a top pattern that implies 360 ticks of downside and a move back towards 10,080. The deterioration in the daily momentum indicators is clear with the Stochastics having crossed lower and accelerating to the downside, whilst the MACD lines have also given a “bear kiss” and the RSI dropping to its lowest since early July, all as the downtrend has broken. Furthermore the 21 day moving average (at 10,600) has also rolled over to reflect the deterioration. This is a range phase that is now turning corrective once more with a top pattern. Rallies are likely to be seen as a chance to sell today with the hourly chart showing resistance at 10,380 (today’s traded high), 10,443 (range low) and 10,492.
Although the volatility seems to have taken a step up in the wake of the ECB’s decision to stand pat, there has been very little real change in direction on the euro. Moving into the new week there is once more a degree of mild bullish bias within a largely neutral momentum configuration. Those who would have been hoping for traders to move decisively are therefore still waiting for the catalyst. A slightly corrective candle was seen on Friday which unwound the gains post the ECB, whilst the early moves of today are again counter to that move with mild gains. Looking on the hourly chart there is a slightly more negative look to the hourly momentum, with the MACD lines now dropping below negative again, whilst the $1.1233 old pivot can again be taken as a bit of a near term line in the sand. Take Friday’s extremes as a signal for sustained near term direction with $1.1197 being supportive, whilst $1.1285 holding back the bulls.
The technicals continue to play out a medium term trading range as a third negative candle on Friday saw the market drop further back from the highs now in place above $1.3445. The momentum indicators are also in reverse with the Stochastics in decline and the RSI dropping back to neutral again. Looking on the hourly chart there is a rather orderly corrective move with trading over the past few days forming a downtrend, which this morning comes in around $1.3295, and hourly moving averages which are all turning lower. The hourly chart also shows the significance of the support at $1.3250 which is an old pivot level but which if decisively broken would open further correction. There are some key levels below with $1.3160 initially and then the key medium term pivot level at $1.3060. The hourly RSI and MACD lines confirm a near term corrective configuration and rallies should be seen as a chance to sell. The resistance is at $1.3335 which is Friday’s high, beyond which is $1.3375.
The recovery in the past couple of sessions has dragged the pair back higher towards the overhead barrier of the long term downtrend channel once more which comes in around 103.20 today. The momentum indicators continue to suggest that rallies are still an opportunity to sell and interestingly the market has just backed away once more from Friday’s minor resistance at 103.05. This is coming with the momentum indicators having shown a rather tepid reaction to the two day rally that ended last week. The hourly chart could give an early indication of if the decline will resume, so watch the hourly RSI for a drop back below 40 and the hourly MACD lines dropping consistently below neutral again. The overnight low at 102.27 is initially supportive with a pivot around 101.90 more of a near term key level now. A break back above 103.05 would reinvigorate the bulls today with further resistance at 103.80 and 104.30.
Gold
The prospect of an imminent upside break from the medium term consolidation range is dwindling again as the corrective move has now completed a third consecutive bear candle. The pivot line around $1330 is close to mid- would be very bearish and would complete a top pattern that implies range and is a good gauge for the near term prospects, however it has been creaking. The daily momentum indicators are fairly neutrally configured, however the Stochastics have just crossed lower and again suggests near term corrective pressure is building. The hourly chart show that the $1330 is in the process of being broken but the $1325 support (which I would see as a confirmation of this break) is yet to be breached decisively. The hourly indicators are more negatively configured now and there could be a change to the outlook, but $325 needs to be taken out as support. I still see $1330 as a key near term pivot. There is resistance now overhead at $1339.40.
WTI Oil
The volatility on oil remains elevated and prices are moving around on two factors now, with the rhetoric from OPEC/Non-OPEC players surrounding the issue of production freezes impacting, but also the movement of the US dollar too. The positive near term technicals took a significant hit on Friday and this corrective move has continued in the early moves today, so this looks to be another corner turned for oil on a near term basis. The support of the reaction low at $45.75 has been broken and as can be seen on the daily chart, a far more corrective outlook has taken hold of the hourly momentum indicators. The previous band of support $45.75/$46.50 will also now become a basis of resistance for intraday rebounds. The daily chart shows an increasingly choppy outlook with a wild ride and a series of strong candles higher and lower. This is not having a particularly reliable effect on the momentum indicators which are struggling to provide reliable signals for now. It does seem as though when markets become bound by newsflow, the technicals take more of a backseat role and it is becoming increasingly that way inclined. However the near term direction seems to having shifted negatively again, but until the key levels are breached with a support at $43.00 and resistance at $47.75 decisive trading will be difficult.
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