Market Overview
Market sentiment is once again back under pressure with the continuation of yesterday’s slide which has come with markets being dragged lower by a falling oil price. It is incredible how markets are now turning on almost every word from the oil ministers of the Middle East, however it is now the turn of the Saudi Arabian oil minister to put the mockers on the oil price rally. His comments suggested that there was little appetite and perhaps more importantly, little trust behind the potential for any production cuts from oil producers. This suggests no halting the supply glut and the price has fallen again. This has impacted on sentiment through financial markets again, with equity markets falling away, risk appetite amongst forex majors weakening and driving the prices of precious metals higher. Wall Street closed lower last night with the S&P 500 down 1.3%, with Asian markets weaker across the board (Nikkei down 1.0%) and European markets are lower in the opening moves.
In forex markets there is little decisive moves but there are signs that the US dollar remains strong, but the yen is again stronger. The news of a weaker fixing of the Chinese yuan has also helped to drive more of a risk averse outlook. However, interestingly, despite the oil price sliding back by over 1%, gold has pared some of yesterday’s gains as the correlation on the safe haven plays (such as the yen and gold) continues to be questioned.
Traders will be looking out for the US flash services PMI at 1445GMT which is expected to dip slightly to 52.5 (from 53.7), whilst the New Home Sales are announced at 1500GMT and are expected to slide back by over 4% to 522,000. The EIA crude oil inventories report at 1530GMT is always good for volatility and is expected to show another building inventories by 2.0m barrels (2.1m last week).
Chart of the Day – AUD/USD
Is that a failed breakout on the Aussie? The resistance of the key February high at $0.7245 was breached yesterday on an intraday basis before falling back into the close. Following on from Monday’s strong bull candle this move would have come as a disappointment for the bulls who have been building steadily for this move in the past couple of weeks. However, the rising 21 day moving average (currently around $0.7122) has provided the basis of support for the bulls for three weeks now and the overnight dip back once more seems to have been seen as another buying opportunity. Momentum indicators are reflective of the improving outlook with the RSI pushing towards 60 and the Stochastics rising solidly. This is now a key moment for the Aussie as so often in the past few months the bulls have run out of steam with the RSI around these levels and there needs to be a decisive move to convince that there is further upside towards resistance around $0.7300 and the key November high around $0.7385. The near term breakout support around $0.7170/$0.7185 is supportive today and the bulls will need to react quickly to retest yesterday’s high at $0.7260 otherwise the failed break will be validated. Intraday corrections are being bought into and last Friday’s low at $0.7065 is now a key near term support.
Having seen a two day close back below the $1.1050 support the outlook continues to deteriorate. The momentum indicators are negatively configured now with the MACD lines having crossed lower and the Stochastics in a rather concerning acceleration lower. The RSI is also back below 50 and it would be a real concern now if it dropped decisively below 40 which would be a 3 month low. The bulls will still be pointing towards the fact that an old breakout support area around $1.0990 has held for the past couple of days and has continued to do so in Asian trading overnight. However, equally, the euro is finding the old pivot band $1.1050/$1.1100 will now also be seen as an area of overhead supply. This all increases the likelihood of the euro settling into a new trading band $1.0800/$1.1050. A close back above $1.1100 is now needed to abort this view. The hourly chart shows bearishly configured momentum with rallies seen as a chance to sell. Subsequent support is in the range $1.0940/70.
The bears remain in control and it does not look good for sterling right now. The breach of $1.4080 yesterday brought the key psychological $1.4000 level into play and despite initially being seen as supportive yesterday, the Asian trading session has seen a breach of the support. How the Europeans react to this breach (albeit minor) will be very interesting today as there is likely to be some big positioning around such a key level. If this is seen as a trigger limit, there could be some sizeable downside still to be seen. Cable is now at its lowest since 2009 with the lows at $1.3650 and $1.3500 now the next realistic support. The technical momentum looks rather precarious with sharply bearish configuration on Stochastics, the MACD is falling and the RSI still has further downside potential at around 31. The hourly chart shows bearish momentum indicators but stretched, and rallies will be seen as a chance to sell. Initial resistance today comes in at $1.4000/20 and $1.4055, with $1.4150 the first real resistance.
The outlook remains negative with the bears in control and with the pair once more falling strongly yesterday, a retest of the lows at 110.98 still looks the most likely course of events. As yet there is very little in the momentum indicators that would suggest a recovery is on the cards, with consistent bearish configuration on the MACD lines, the RSI still has downside potential at 30 (previous bear phases have reached 24 and 19) and the Stochastics are also negative. Rallies are still seen as a chance to sell, with the hourly chart showing a downtrend channel has formed in the past week, the top of which currently comes in around 112.90. The hourly momentum indicators also reflect selling into strength with a near term pivot at 112.40 looking like a decent selling area currently. Expect further pressure on the initial support around 111.70 whilst 110.98 still seems likely.
Gold
I highlighted yesterday the consolidation triangle pattern that had formed over the past couple of weeks, but also that we were coming to the breakout point. The overnight move through the top of the consolidation triangle increases the prospect of a true upside break. However for that, we would have to see a move above $1239.50 which is the lower high from last week. I am also still a touch reticent to call a bullish break as the momentum indicators do not confirm this to be the case, with the RSI still looking to be falling away, the MACD lines having topped out and the Stochastics also seeming to have rolled over. I do not think that the bulls are ready yet and I believe that gold could continue to fluctuate around the 23.6% Fibonacci retracement at $1216. Also looking at the hourly chart, there is a feeling that the momentum has also rolled over with the hourly RSI failing at 70 and the MACD lines crossing lower. The hourly chart also shows resistance being formed around an old pivot around $1232. I would expect the consolidate to continue.
Volatility and newsflow surrounding the potential for a production freeze continues to dominate oil prices, with a sharp decline yesterday afternoon on the back of a comment by the Iranian oil minister who believed that a production freeze was “laughable”. Prices dropped over 4% in just a couple of hours following the announcement and have continued lower today. The WTI price chart is not as positive as it might seem, as due to the new front month contract, there is a near $2 gap on the Reuters chart. Still the daily candlestick shows a bearish trade across the day and a corrective move. The uncertainty will continue on oil whilst the market moves appear to be determined by newsflow. The daily technicals continue to reflect a broadly improving picture still and with the 21 day moving average bottoming out the outlook is seriously questioning the bull control. Upside pressure is building for a test of $33.60 which protects the key January high at $34.80.The support at $29.05 remains key.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.