Market Overview
It is not unusual to say that traders will be watching the US for their trade guidance, and so today is no exception as traders look to the US mid-terms as a driver of near term volatility across markets. Voters go to the polls today, so there is likely to be little real move with consolidation the name of the game until the key swing states start to announce their results overnight. This could be the calm before the storm.
With every seat in the House of Representatives and a third of the Senate up for re-election this is a key vote which will give the media and commentators an indication of how President Trump is viewed across America. Both Houses of Congress are in the balance, but the expectation is that there is a pricing for the Democrats to take the House and the Republicans to hold on to their Senate majority (most of the Senate seats up for re-election are currently held by Democrats).
The most dollar positive outcome would be the Republicans holding control of both Houses. This would allow Trump to continue with his domestic agenda and foreign policy which has to date drive a stronger dollar and yields to multi year highs. Dollar/Yen is likely to be a key reaction higher on this improved risk appetite. A Democrat win in the House and Republicans holding on in the Senate (most likely scenario) may be seen as marginally dollar/risk negative in what would likely be a relatively neutral response of the market, perhaps mildly dollar corrective. However, the biggest risk negative, dollar negative scenario (where the Japanese yen would be the big winner) would be Democrat control of both Houses which would effectively hamstring Trump on the domestic front. For today though, we wait and see.
Wall Street closed positively last night with the S&P 500 bouncing by +0.6% at 2738 whilst the futures are also ticking mildly higher today. This has helped a mixed to positive session in Asia, with the Nikkei +1.5% whilst the China Shanghai Composite was -0.4%. European futures are mildly positive for early session moves.
In forex, there is a slight risk positive look with the yen being the main underperformer, whilst the dollar is marginally lagging. Sterling is again towards the top of the performers list, whilst the Aussie is also ticking higher as the RBA kept rates on hold as expected. In commodities, there is a touch of weakness on gold and silver, whilst oil is one more edging lower.
Traders will be focusing on the US mid-term Congressional elections which are taking place today and the economic calendar is notably thin on the ground. The only really important data to be released is the US JOLTS jobs openings at 1500GMT which unexpectedly jumped well above 7 million last month to 7.14m, way above the previous record of 6.94m.
Chart of the Day – FTSE 100
The FTSE 100 stands at an important near term crossroads again. The recovery broke out through resistance at 7085/7114 last week in a move that re-opened 7220 (the September low and overhead supply). However, the move seemed to lose momentum last week in the wake of a couple of negative candles, the second of which was a fairly profound shooting star candlestick. However the bulls are not giving up their recovery gains without a fight and yesterday the previous mini breakout at 7085/7114 became a basis of support and near term pivot. However, with intraday rallies failing in the past three sessions, the technical importance of a closing breach of this support band is now far more elevated. The two consecutive negative candles at the end of last week have also negatively impacted on momentum with the Stochastics rolling over and threatening a renewed bear cross. So now the bulls need to regain control with a positive candle today but also to hold on to the support at 7085. Otherwise this technical rally could quickly reverse. Yesterday’s intraday low was 7077, a breach of which would open 7000 once more and the key low at 6851. The hourly chart shows how there is a small top pattern that would complete and imply c. 120 ticks to 6965 on a close below 7085. Resistance is initially 7140 below 7196.
The failure on Friday to hold the break back above $1.1430 (a near term pivot) meant that a high at $1.1455 has been left and a six week downtrend has formed. Yesterday’s mildly positive candlestick in effect cancelled out the previous negative implications of Friday’s candle, however the six week downtrend remains a key near term factor (today comes in at $1.1435). As does the resistance band that has built between $1.1430/$1.1455. The midterm elections in the US held today are likely to meant that there is very little move of any decisive nature today (there is a doji candlestick currently) but the bulls will need to see a break above $1.1455 to find traction in a recovery now. Momentum has ticked marginally higher as the market has picked up from $1.1300 in the past few sessions but for now this still has the configuration of selling into strength, especially whilst under the $1.1430/$1.1455 barrier. Initial support now $1.1355.
Sterling continues to edge higher as the UK papers continue to discuss the improved mood music behind a deal on Brexit. Yesterday’s positive candle on Cable included a close at a two week high, and the market is now testing a confluence of resistance with an old pivot at $1.3050/$1.3060 and also a 23.6% Fibonacci retracement of the $1.4375/$1.2660 sell-off at $1.3065. Near term momentum configuration also continues to improve with the MACD lines now crossing back higher whilst Stochastics and RSI also pick up into positive areas. Although Brexit chatter is still the major driver of sterling, on a technical basis, there is little reason why a rebound cannot continue should the current resistance be breached. The next main resistance is the October high at $1.3260. A slither higher on the day today is unlikely to be improved upon too much though as the US mid-terms dominate consideration. Support at $1.2920/$1.2950.
There is a very mild risk positive feel to markets today which is pulling yen underperformance. Subsequently yesterday’s doji candle (denoting uncertainty) at resistance of 113.40 has been followed by a positive move and the market ticking through to a four week high today. This continues the edge higher that has been seen over the past week where momentum indicators tentatively tick higher as the market tries to break out of the shackles of a ranging few weeks. Can this be the breakout this time? False breaks can be a feature of Dollar/Yen moves and ahead of the mid-term elections it would be a brave call. Despite this though, we still favour upside for a test of 114.55 in due course. Support at 112.55 is strengthening as a higher low.
Gold
With the market failing to make the breakout above $1236 (a long term pivot which is currently a barrier to gains) the market posted a second successive consolidation (or even very slightly negative) candle yesterday. A small body with an intraday test of the $1236 resistance which failed to ignite and closed mildly lower on the day. However this still looks to be a consolidation within an improving market which still holds a positive bias. The pressure is on $1236 still and a closing breakout would open $1266, whilst above $1243 would confirm this implication. Momentum is still positively configured on a medium term basis even if the near term impetus has slightly waned for an immediate breakout. This comes with RSI holding above 50 and Stochastics turning higher around neutral. The importance of the support band $1208/$1217 continues to grow the longer the low at $1211 remains intact. For now though, a range is in formation.
WTI Oil
After a stream of bear candles in recent sessions, the bulls tried to fight back yesterday, but just could not find the traction. The result was a rather drab looking almost doji candle and no recovery. However this is not the first time in the sell-off over the past four weeks that the market has formed such an attempt at a recovery, only for the move to simply play out as a consolidation to be sold into. In previous weeks, the consolidations have just unwound back to the resistance of the downtrend (which is today at $64.80). This time though, momentum does look stretched so we must be on the lookout for potential technical reversal signals. After briefly threatening a recovery yesterday, the RSI remains below 30 whilst neither MACD nor Stochastics lines are showing any positive signals. It is subsequently far too early to think about a rebound. There is also overhead supply at $63.60/$64.50 that is now a barrier. Initial support is now at $62.50 which is above $61.80 and the key psychological floor at $60.
The technical outlook on the Dow has been given a renewed sense of recovery again after yesterday’s solidly positive candle. A second consecutive bear candle would have been a real concern for the state of the recovery, but the bulls responded well. There is still a recovery look to the momentum indicators with the bull cross on MACD whilst RSI and Stochastics track higher. This is now a key crossroads on a technical basis, as there is a pivot band of resistance overhead at 25,590/25,800 with the RSI hovering around 50. Coming as the mid-term elections are likely to drive a key fundamental turning point too. Today’s session is unlikely to manage any real direction but the support now around 25,000/25,100 will be seen as a near term gauge for the continued recovery potential.
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