Market Overview
Market sentiment continues to improve again as the key risk events that drove the safe haven flow at the end of last week continues to unwind, which has helped the dollar and equities higher. With the destruction of Hurricane Irma not as bad as feared and Kim Jong-un opting simply for a party that did not go off with a bang, there has been a significant retracement of some of the huge declines on Treasury yields. The 2s/10s spread is widening out again and this has helped a rebound on the US dollar with key markets such as EUR/USD and Dollar/Yen unwinding recent decisive moves.
The next question is whether this will prove to be simply a knee-jerk reaction higher for the continuation of the embattled dollar or the beginning of something more sustainable in recovery. The reaction of the euro and sterling, both of which have begun to form support again which may give traders some clue. Equity markets have certainly taken the relief well and have bounced strongly, with Wall Street showing strong gains which were mirrored in Asia, whilst European markets are also continuing their rally from yesterday, whilst the FTSE continues to lag behind the rebound on the DAX.
There has also been a and a correction back on gold which has unwound over $30 from last week’s high.
There is little on the economic calendar today but the outlook for UK inflation will be a key driver of sterling. UK CPI is released at 09:30 BST and is expected to increase to +2.8% for the headline CPI (from +2.6% last month) and increase to +2.5% on the core CPI (from +2.4%). UK inflation came in well below the estimates last month however forecasts have suggested that the rate will tick back higher again in the final months of the year. The PPI Input prices will also be of interest, expected to increase to +7.3% (from 6.5% last month) after also surprising to the downside a month ago.
Markets will also be looking at the US JOLTS job openings which is expected to dip back to 5.96m (after jumping to 6.16m last month) although this would still be way above recent levels and a very strong number.
Chart of the Day – GBP/JPY
After struggling throughout July and August, the sterling bulls have made a comeback in the last couple of weeks. A rebound has been testing the resistance at 143.20 but this was decisively blown away by yesterday’s huge bull candle. The move was so decisive that it has instantly also broken through the 144.00 pivot. The old resistance at 143.20 now also becomes a basis of new support. It will also now become important as the bulls need to confirm the move and this looks to be coming through this morning with further gains.
Momentum indicators are increasingly positive now with the RSI rising above 60, whilst the MACD lines are accelerating higher and the Stochastics remain strong. Another completed positive candle today which continues to hold above 144.00 would be a strongly positive sign that the bulls are confirming the move, whilst would also bring further gains towards 146.80 into play. On a medium term basis, the low at 141.15 is now a key higher low.
EUR/USD
A sharp negative candle has unwound the market back below $1.2000 again, but this still looks to be simply a near term move to help renew upside potential. Even though the Stochastics have crossed lower, the medium term momentum remains strong. With the uptrend channel firmly intact today at $1.1755 as long as the support band $1.1820/$1.1910 remains intact, there is little really for the bulls to be too concerned by. Even today the market has started to find support again around $1.1945. It may take a couple of sessions for the bulls to regain their poise again but there is little to suggest this move is any more than a near term blip for the euro. $1.2000 becomes resistance again, with $1.2040 from yesterday’s high adding to near term barriers.
After such a strong run higher, a correction yesterday has taken some of the steam out of the move, but the reaction of the bulls today seems to suggest there is still a potential test of the high at $1.3265 possible. The resistance is at $1.3225 from Friday but momentum remains strong with the RSI up in the high 60s, the MACD lines pulling higher and Stochastics strongly configured. The hourly momentum indicators suggest that the move has simply unwound back to levels where the bulls see an opportunity to buy. There is a MACD buy signal with the hourly Stochastics swinging strongly higher as the European session has started well for the bulls today. Support is at $1.3160 on a near term basis. If the market can push above $1.3225 there is little reason not to expect a retest of $1.3265 again. Holding above the $1.3000/$1.3050 band of support is still bullish.
After a huge bull candle yesterday there are question marks over the continuation of the selling pressure. A rebound of well over 200 pips in less than two sessions is a sizeable move and has taken the market through resistance between 108/109. However the sequence of lower highs remain intact, and unless 110.65 is breached the sellers will remain in control. The close on today’s candle could be key, with just 20 pips higher into the European session now. The daily RSI is at 50 again and rallies towards here have previously been used as a chance to sell. An old pivot at 109.80 will be a key gauge near term today.
The gold chart has put together a couple of negative candles in succession and the run higher is coming under pressure now. Is this just another pullback within the uptrend? Momentum indicators have been impacted by the move, but the Stochastics have shown similar signals on several occasions in recent weeks, only to hold up above 60. Similarly, the RSI is still above 60 and the MACD lines are yet to cross lower. The uptrend now comes in around the the long term support band $1300/$1310 and will be keenly watched if gold continues lower today. There is room for a further slip in the price on a near term basis, but still hold on to the bullish medium term outlook. A close below $1227 which is an old gap would suggest $1300/$1310 comes back into play.
WTI Oil
Having rolled over to leave resistance at $49.42, Friday’s strong negative has cut the bulls off once more. This has now neutralised the outlook one more. The momentum indicators which had been improving in configuration but the RSI is back around 50, the MACD lines are flat around neutral and the Stochastics have tailed off. Yesterday’s rebound has helped to lend a slight positive bias to leave initial support at $47.00 which has previously acted as a pivot and will once more be a key near term gauge. With the falling seven month downtrend at $49.70 and resistance at $49.42, the outlook will be broadly neutral now under this band, whilst holding above $47.00 support.
After three sessions of consolidation the outlook has once more been decisively shifted as the bulls are back in the driving seat. The gain of over 250 pips and way over 1% on the day has formed a strong bull candle on a breakout above near term resistance at 22,039 has once more opened the highs again. This comes with a significant improvement in the momentum indicators with the MACD lines crossing higher above neutral whilst the RSI and Stochastics have turned higher also above neutral. There is an opening gap higher from 21,847 and the reaction of the bulls today could be key as to whether the market now begins to break the shackles of a range built up over recent weeks. The day after such a strong candle can often be a retracement move, but if the bulls can sustain the momentum then the 22,179 all-time high is once more within reach and then likely further gains.
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