Market Overview
Markets increasingly cautious as the exuberant rally that ended 2016 on such a positive note in the wake of Donald Trump’s victory has given way to a far more reticent outlook. The drop away in Treasury yields has stunted the dollar rally and now equities have also moved into consolidation mode. The markets have digested the final speech of Obama as President and are cautious as traders look towards a press conference by Donald Trump today in the hope of further clues over the direction of fiscal policy which has had so many hopes pinned to. If the press conference does not give direction to the markets then this consolidation could continue to Trump’s inauguration next Friday (although Janet Yellen’s speech tomorrow night could also help to drive some direction). Once more today there is little real direction on major forex pairs, whilst equities are mildly weaker.
The mixed close on Wall Street had the S&P 500 closing dead flat at 2269, whilst Asian markets were mixed to slightly higher with the Nikkei +0.3%. European markets have opened mildly lighter as the caution continues. Forex markets show the ongoing consolidation with very little direction on the majors and only slight weakness on the yen being notable. Gold is managing to continue to squeeze higher towards the key old breakdown around $1200, whilst oil is stable following the sharp selling in recent days.
Traders have a fairly light economic calendar today but will be looking towards UK Industrial Production at 0930GMT which is expected to improve by +0.8% on the month and by +0.6% for the year (previous -1.2%). Other than that, the EIA oil inventories at 1530GMT will be driving the oil price volatility. The crude oil stocks are expected to increase by +1.8m barrels after a -7.1m barrels drawdown last week, whilst the distillates are expected to also increase by +2.1m barrels and the gasoline stocks are expected to increase by +2.4m barrels.
Chart of the Day – USD/CAD
The pair is once more at a critical juncture. Since May 2016 the market has been building a series of higher key lows that have formed a strong uptrend, with the recent corrective move back from the late December high at 1.3600 back to 1.3175, which is once more at the primary uptrend. The past three sessions have had the market consolidating above 1.3175 support whilst also being supported at the uptrend and also once more at the rising 144 day moving average (today around 1.3190). The Stochastics are negatively configured but are beginning to show signs of bottoming with the RSI also ticking higher. A move above Monday’s high at 1.3275 would be an improvement and a close above would signal that the bulls were beginning to be more confident, something that would also be a close back above the 1.3250 old long term breakout which has been a key gauge of recent months. The hourly chart shows that momentum remains negatively configured near term, whilst an improvement on the hourly chart above 60 and consistently positive hourly MACD lines would be a signal that the bulls were gaining control and is something to watch for.
The euro has moved into a phase of a very mixed outlook as the market has struggled for direction in the past few days. The spike high from late December at $1.0650 remains a basis of resistance as the market has failed around $1.0620/25 in three of the past four sessions. A mildly negative candle within a consolidation above $1.0508 has put the bears slightly in control today, but the lack of direction so far during the early morning trading reflects a market in need of a catalyst near term. The momentum indicators on the daily chart are all becoming increasingly neutrally configured with the RSI plateauing around 50 with the MACD and Stochastics also fattening. A close above $1.0650 is needed to put the bulls in control, whilst back below the old key low of $1.0456 would see a bearish outlook resume. The is also an old pivot on the hourly chart at $1.0500.
The bottom of the medium term range between $1.2080/$1.2775 is coming under increasing threat. However so far the bulls have rebuffed the assault, with yesterday’s mildly positive candle formation coming after an initial 55 pip drop early in the session. The concern is that despite a rebound into the close, the bulls have once more lost ground and the hourly chart shows that the old support at $1.2197 has come in as resistance to the pip before the selling pressure has resumed. There is a sense that the market is shaping up for another test of the $1.2080 support in the next day or so. A move below $1.2080 would be the lowest price since the flash crash of 7th October, whilst also putting $1.2000 within range. The resistance on the hourly chart is between $1.2197/$1.2270 needing a move above the latter to significantly improve the outlook. On a near term basis. I remain a seller into strength.
There is an ongoing battle for control underway as the consolidation that has formed over the past few weeks continues. The breakdown below 116.00 support last week has not been the corrective signal that it could have been, however the bullish reaction following Non-farm Payrolls last Friday has equally failed to inspire the bulls either. The continuing concern is with the momentum indicators which continue to correct back but with varying degrees of concern. The sensitive Stochastics are the most corrective and are now falling towards bearish configuration, however the RSI has merely unwound to 50 and the MACD lines are still positive. This suggests that whilst this is a move to be cautious of, for now it is just a bull market correction which remains likely to be bought into. The support above 115.04 is holding again today, however the lower high in place at 117.50 is resistance. The hourly chart shows a near term range play, with resistance at 116.35.
Gold
With the dollar bulls failing to grasp control once more in the wake of the payrolls report, gold has managed to continue to drift back higher. The mild gains of the last couple of sessions look to be continuing again today. I have been looking at a resistance band between $1180/$1200 as being a “sell-zone” for the next medium term high and I am still of this belief, however the market has picked up once more and the top of this resistance could come under pressure today. It could therefore be a pivotal day for the medium term outlook for gold, as there were key highs on gold posted in August and November where the RSI posted a peak of 63 before the bears resumed control and this is where the RSI is at today. The MACD lines are also back to neutral whilst the Stochastics are in overbought territory. The hourly chart shows a near term pivot at $1180, whilst the support at $1170 is now a key level to watch too on the downside. Above $1200 opens $1211 which is the 50% Fibonacci retracement of $1047/$1375 whilst also being an old support too. Beyond is $1233.
WTI Oil
The oil bulls have lost their grip on the market in the near term. After consolidating for the past few weeks above the old key breakout around $52.00, two strong bearish daily candles have changed the outlook. A breakdown below the $52.00 support has completed a near term top pattern that implies $3.25 of downside towards $48.75 (which also happens to be another old breakout and therefore support area). The initial support of the December lows between $49.60/$49.95 is now set to be tested. The momentum indicators have deteriorated and turned into corrective mode, with the Stochastics falling sharply, the MACD lines giving a bearish cross sell signal and the RSI at a 6 week low. The hourly chart shows the market pulled back to a find resistance at a near term pivot around $52.40 which leaves a near term resistance band $52.00/$52.40, with near term rallies a chance to sell. A breakdown below $49.60 would add to the deterioration of the near term outlook.
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