Market Overview
There is more of a cautious sentiment that is taking hold this morning. The US is on public holiday for Martin Luther King Day, but the safe haven plays are in favour as the yen and gold are pushing higher. These cautious markets are coming as the sterling is under pressure once more as the prospect of a hard Brexit has spooked the market. UK Prime Minister Theresa May is making a speech tomorrow which is expected to lay out expectation for a “hard Brexit”. Any time this term is banded around, sterling gets hit and subsequently the pound is hitting lows not seen since the flash crash of early October. Equity markets are also in cautious mode with this, although with the weakness of sterling, FTSE 100 is set to outperform due to its negative correlation with sterling (around 70% of FTSE 100 revenues are generated in foreign currency).
Wall Street was mixed into the close on Friday, however Asian markets have all been strongly lower this morning with the Nikkei -1.0% on the yen strength. European markets are generally lower, with the one bright note being FTSE 100. Forex markets show the dollar is mildly higher today although the safe haven theme is helping to push gold once more back above $1200. The oil price is broadly flat.
There are no major economic announcements due today and with it being Martin Luther King Day public holiday in the US, there is very little to change the outlook for the day. With sterling in the spotlight so much today, it could also be interesting to look out for a speech by Bank of England Governor Mark Carney at 1830GMT which could also show his view on what is impacting the bank’s monetary policy.
Chart of the Day – USD/CHF
The dollar has been under pressure across the forex majors in the last couple of weeks, and the outlook against the Swiss franc is at risk now of completing a two month top pattern. The bearish candles have been building up in recent days and on Thursday and Friday, on an intraday basis, the price dropped below the support of the late December low at 1.0060 which has been supportive in the past couple of weeks. Although there has not been a breach on a closing basis, the bears are certainly testing the water. A close below 1.0060 would confirm a bearish break. The move is being led by the deterioration in the momentum indicators and a drop in the RSI below 40 would be a bear signal, whilst the Stochastics dropping below 20 would also be negative. The hourly chart shows resistance at 1.0120 with negative configuration on the hourly momentum. There is intraday support at 1.0042 with 1.0018 key before parity. The bulls will need a move above 1.0160 to improve the outlook.
The euro bulls are on the brink of a bullish move that would continue the near term recovery but just needs to have a final push. The euro ended last week with a couple of attempts to push on through the $1.0670 resistance but the bulls were thwarted and this resistance remains in place. The momentum indicators are also around key pivotal levels, with the Stochastics around 80, the MACD lines around neutral and the RSI in the 55/60 range. These are all levels that could see a bear market rally turn into something more positive. A continued move higher to close above $1.0670 opens initial resistance at $1.0710 but more importantly the key reaction high at $1.0870. The hourly chart shows that the price action of the past few days has been a consolidation above the $1.0600 support, where the market is actually beginning to form some slight lower highs. The early move today is slightly weaker and with it being public holiday in the US there is unlikely to be any significant direction. However a decisive loss of $1.0600 would re-open the $1.0500 pivot and question the bull run.
Cable is breaking down. The fear of Theresa May’s speech tomorrow on Britain’s position post-Brexit is weighing on sterling and the move has broken below the key range support at $1.2080 today. This has been a floor for the past few months since the market began to settle down in the wake of the flash crash of early October. The market opened after the weekend down over 120 pips and below the support, subsequently failing to reclaim the level. The outlook on momentum is bearish and suggests further downside potential, with any unwinding rallies seen as a chance to sell. Closing below $1.2080 today would open further moves below the psychological round number of $1.2000 which has already been broken in the early hours of today’s session. Whilst the market has traded below there during the October flash crash there is little is any reliable support below that. The hourly chart reflects the negative outlook and that there is a series of lower highs leaving plenty of overhead supply that will provide the resistance in the coming days. There is a sell-zone now between $1.2080/$1.2120. With the thin volume of the overnight $1.1980 low, this is unlikely to provide any significant support.
Whilst it had perhaps looked on Friday that there could be a degree of support entering the market, the correction has once more taken hold today and the market is in decline again. All momentum indicators on the daily chart are pointing to a continuation of this move and that the support at 112.84 will be tested. However there are other key levels also to watch around here. The market is also close to the 50% Fibonacci retracement of the 125.85/99.09 original sell-off at 112.47 however the really important support is the reaction low at 111.32 which if broken would be a really negative signal for the end of the bull run, however we are not there yet. The hourly chart shows the market falling and trading below a clutch of falling moving averages with negatively configured hourly momentum and rallies being sold into. There is now strong resistance near term between 115.00/115.45, with a minor pivot currently resistance at 114.50. The move below 113.65 re-opens the downside.
Gold
The rally continues as gold is once more breaking out above the $1200 resistance level that would be a key psychological move if the bulls could achieve a closing breakout. The momentum indicators are increasingly positive with the RSI now into the high 60s and MACD lines ready to move above neutral. The 50% Fibonacci retracement of $1047/$1375 is now in view at $1211 with the next price resistance at $1221. The hourly chart shows corrections are increasingly being bought into with any dips in price being seen as a chance to buy rather than a sell signal. Breaking back above $1200 this morning, the hourly chart shows this is being seen as a pivot near term now and holding above this level is bullish. Hourly momentum is yet to be truly positive but the run higher continues. Support below $1200 is $1187.50 and $1177.
WTI Oil
The mixed signals continue on oil. Last week we had two bear candles, two bull candles and a final bear candle to finish off a topsy turvy week. Momentum signals are reflecting the drift lower and there will be interest now in the $53.50 high posted on Thursday which could now turn into another lower high below $54.32 and there is a slightly negative bias forming once more near term. The pivot level around $52.00 remains a key barometer within what has become a trading range between $49.60/$55.25. The hourly chart shows there is a band of near term pivot around $52.00/$52.40. Furthermore, a minor lower high at $53.00 which is initial resistance today. A break below $52.00 would open last week’s low at $50.70.
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