Market Overview
The dollar has started the new trading week slightly on the backfoot, with a slightly improved appetite for risk forming this morning. After causing a stir last week on a pause in its vaccination trials, the AstraZeneca/Oxford University collaboration for a COVID vaccine has resumed. Although there has been little real move through bond markets, there is a mild improvmenet in equity markets and the dollar is slipping back. This move may be tempered due to comments from Repbulican leaders over the weekend that suggested a fiscal package agreement seemed to not “look that good right now”. Having digested a dollar rebound and equities decline in recent weeks, broad markets have begun to form ranging conditions in recent sessions and this looks set to continue today.
Wall Street closed a mixed session just a shade higher on Friday with the S&P 500 +0.1% higher (at 3341). US futures are though pulling decisively higher with the E-mini S&Ps +1.1%. Asian markets were higher overnight with the Nikkei +0.6% and Shanghai Composite +0.3%. European markets look towards mildly positive early moves with FTSE Futures +0.1% and DAX Futures +0.4%. In forex with a better feel to risk appetite today, we see USD slipping slightly across major pairs, with NZD and GBP stronger. In commodities the weaker dollar is helping gold and silver to find support, whilst after a phase of recent selling pressure the oil price is also beginning to look a shade more stable with gains of just under half a percent.
There are no major announcements on the economic calendar today. However, there will be interest for sterling traders in the Bank of England’s monetary policy hearing before the Treasury select committee with Governor Bailey speaking during the European morning.
Chart of the Day – AUD/USD
This is a key crossroads for the Aussie. A corrective slip over the past couple of weeks from 0.7415 has unwound the market to the latest breakout support around 0.7240. The fact that this is also a confluence of the three month uptrend support (today also at 0.7205), makes this an even more significant basis of support for the medium term outlook. A closing break back below last week’s low of 0.7190 would be a signal for further correction. We also note the 14 day RSI has not been below 50 since the recovery really got going in April makes this also a key signal to watch as weakness has consistently been bought into. There is a key band of support 0.7060/0.7240 which would be a neutral zone for the market, whilst below 0.7060 turns the market decisively medium term corrective. Bulls will be looking to hold positions above 0.7325 (last week’s high) to generate positive momentum to test 0.7415 once more.
A rather choppy phase of trading for the euro has just begun to show signs of stabilisation. Three positive closes in a row have come to firm the support around 1.1750 with the late August lows and the four month uptrend. With the RSI turning higher again around the 50 mark this is a move that can still be considered to be an unwind within a broad uptrend. For this to continue the support of 1.1750 needs to hold now. Losing support would test 1.1695 as the key medium term support and at that stage a corrective drift could turn more considerable. Hourly indicators reflect the near term minor improvement but needs to now move to hold initially above 1.1880 but then a close above 1.1915 is needed to generate sustainable improvement again.
Thursday’s decisive decline was the latest in a line of deteriorating chart factors for Cable. Having broken 1.2980/1.3000 the market has rapidly retreated to the next key band of support between 1.2650/1.2810. Cable has lost its bullish outlook and is now in a medium term neutral zone. If support at 1.2650 is broken then a much deeper move lower can be expected. The bulls need to be careful as the near term drive lower may have stalled in the last couple of sessions but there is nothing that suggests renewed buying pressure around here. A near two week trend lower is around 1.2980 today and a move back into the 1.30s is needed to suggest the bulls are regaining control. The coming days will be crucial for the medium term outlook.
On numerous occasions in the past few weeks we have discussed how 106/107 is a key band of overhead supply of sellers. We continue to see that over the last two weeks 106 has become even more of an attraction. This is an ever more neutralising phase for Dollar/Yen but based on the overhead supply and what is now a ten week downtrend, we do still prefer short positions for a test if 105.10. Effectively, momentum retains a negative bias and rallies are a struggle. There is resistance around 106.50 above the downtrend (falling at 106.30) and 55 day moving average (at 106.35). A close back under 106 would be a negative signal now, whilst under 105.75 opens the six week range lows at 105.10.
The control that the gold bulls had during July and early August has been lost. An uptrend that supported the run higher during the summer months has now been broken as a phase of neutral trading has set in. What we now see is that gold has developed a range between $1902/$2015. Anything into the low $1900s is finding support, but as the market again fell over on Friday, the bulls cannot now sustain traction in a run higher. Momentum has been neutralised, with daily RSI, MACD and Stochastics all around their neutral points. The 23.6% Fibonacci retracement (of $1451/$2072) at $1926 is still a key element of support (on a closing basis especially) and is seen as a key gauge. However the bulls seem to be increasingly misfiring. It was interesting to see the old$1955 pivot coming back in as a basis of resistance again on Friday. This resistance will need to be decisively overcome for the bulls to believe that traction is beginning to be made again. Initial support is $1937/$1940 which is protecting the 23.6% Fib level again today.
The corrective pressure on oil remains as the market completed an eighth negative close in the past nine sessions on Friday. Although the acceleration lower has eased, the technical rally failing under the $41.30 old key support is a real concern for the bulls. With the negative sessions resuming towards the end of last week, the risk is for further downside below the initial support at $39.30 and towards the next key support around $37.00. Momentum remains negatively configured and rallies will continue to struggle for traction. A decisive close back above $41.30 is needed to change this outlook.
The Dow has developed an important phase of trading and a key crossroads in the outlook. The sharp correction from 29,200 seemed to have been contained mid last week around the old key 27,580 breakout support. However, the pressure continued into the close of the week, and effectively the formation of a month long top pattern is a realistic possibility now (head and shoulders top). The bulls need to at least find a closing break above 28,206 (last week’s high) to ease the pressure and regenerate a degree of positive momentum once more. However, for now, the risk is still that a closing breach of 27,465 support would confirm the top and imply a move back towards the July low at 25,990.
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