Market Overview
As markets increasingly consolidate, it appears as though traders are now just preparing for the FOMC and BoJ meetings next week. Another batch of disappointing data out of the US yesterday (Retail Sales and Industrial Production both disappointed) has taken some momentum out of the dollar and once again pulled shorter dated Treasury yields lower.
The market is now firm in its pricing that the Fed will not hike rates next week. This “bad news” is good for equities, which love the everlasting accommodative monetary policy from the Fed. Wall Street pulled back higher yesterday with the S&P 500 +1.0%. Asian markets also reacted higher, with Asian markets bouncing (Nikkei +0.7%) but despite this, European markets are cautious and mildly lower around the open.
However, looking at the moves across forex markets there is a sense of trading around the edges in recent days with little conviction in moves, and this could easily now continue right up to next Wednesday where we have both the Bank of Japan and the Federal Reserve announcing monetary policy that could have a profound impact across markets.
Once more as the European session takes over there is little real direction on forex markets to speak of, whilst gold and silver are also around the flat line. The oil price is once more under a little pressure in the early moves, lower by around half a percent.
Traders will look at US CPI to be announced at 1330BST. Expectation is that there will be a pick up in the headline CPI to +1.0% (from +0.8%) whilst the core CPI data is expected to be unmoved at +2.2%. There is also the preliminary reading of Michigan Sentiment at 1500BST, which is expected to improve marginally to 90.8 (from a downwardly revised 89.8 last month).
Chart of the Day – NZD/USD
Can the kiwi hang on to the medium term improving outlook? I spoke last week about the breakout looking stretched and a correction duly arrived, but the move unwound further than the initial breakout support at $0.7300 and tested the support at $0.7200. This level has held for the past three days of intraday corrections, and now with yesterday’s second consecutive positive candle the bulls are regaining a bit of confidence.
The corrective move has dropped back to form an uptrend dating back to the key May low and this needs to be the moment where the bulls return, otherwise the daily momentum indicators will begin to look far more precarious on a medium term basis. The RSI has been consolidating around 50 which has been an area where the bulls have returned in the past 6 weeks, whilst the Stochastics are in the process of crossing positively, which would be a bullish near term signal.
The rising 55 day moving average (at $0.7215) has also been a basis of support in the past few corrections. The bulls have managed to move back above the old breakout around $0.7300 once more and will be looking at the lower high at $0.7363 as confirmation of renewed upside. The hourly chart shows how the hourly RSI has pushed above 65 and the MACD lines have moved into positive territory, which suggests increasingly positive near term outlook. The hourly chart shows a support band at $0.7230/40 above the $0.7200 key medium term support.
The lack of direction on the euro in the past week continues and there is little sign that this will change now ahead of the FOMC meeting next week. With a raft of US data again broadly disappointing but unable to generate direction, there is one more potential driver in front of the meeting and that is CPI inflation. Again I am unconvinced that this will do anything to get traders to take a view.
The market is now supported at $1.1200 with resistance at $1.1285 and more importantly at $1.1235. The momentum indicators have been becalmed and everything in in need of a catalyst. The hourly chart shows an even more neutral outlook with yesterday’s high of $1.1283 just a brief spike before retreating. The euro is desperate for direction, but if the CPI today cannot provide it then we could be another few days away from the next decisive move.
Sterling has been on a negative slide now for the past eight days and rallies have continued to be sold into. However the outlook remains neutral on a medium term basis and the drift back towards the pivot level support at $1.3060 is closing in. Wednesday’s low of $1.3135 remains intact for now as the market yesterday formed a doji candle and the selling pressure seemed to be looking to subside again.
The daily momentum indicators are corrective but in no way are the sellers bursting through support levels. The decline is far more controlled. The hourly chart shows the downtrend formed during the corrective move is still intact at $1.3265 today, whilst it is also interesting that the old pivot band around $1.3250 is still a basis of resistance. The bulls need to push back above Thursday’s high at $1.3278 which would break the corrective downtrend. However, if the $1.3250 pivot continues then I fully expect the slide towards $1.3060 to be seen.
The consolidation that has built up over the past week and a half continues. Although there is a minor higher low at 101.40 above the 101.18 September low, the market is showing no desire to bid up dollar/yen. The retreat in the last couple of days back from 103.35 has again maintained the long term downtrend channel. The momentum indicators are still neutrally configured, but it is interesting that the Stochastics have started to pull lower, suggesting there is something in this for the bears.
However, looking on the hourly chart the outlook is still rather neutral and once more the price has gravitated around 102.00 which is a minor near-term pivot. I am not expecting too much direction in front of the BoJ and FOMC next Wednesday and am anticipating the market to consolidate between 101.18/103.35. Near term resistance is at yesterday’s high of 102.75.
Gold
After a brief degree of support on Wednesday, the corrective move on gold resumed yesterday with a dip back to hit a low of $1309.25. The move is now right back to the confluence of the long term uptrend (currently around $1309) and the rising 89 day moving average (also around $1309) which has been the basis of support for the big corrections. The medium term range support is a little lower around $1302, but this is certainly the sort of area the long term bulls will be thinking about the next opportunity to buy.
However, for now the near term outlook remains corrective, with the hourly chart showing the consistent band of resistance between $1325/$1330, hourly momentum indicators negatively configured and intraday rallies being sold into. The low at $1309.25 is near term supportive but there is little appetite to buy as yet and no real sign of any impending improvement on the technicals.
Oil remains under corrective pressure as the price falls ever closer towards a retest of the September low at $43.00. This is a key near to medium term support and a breach would open initial support at $41.10 with a full retreat back towards the August low at $39.20 subsequently possible. Intraday rallies are being sold into as the momentum indicators turn increasingly corrective, with the daily Stochastics accelerating lower.
Watch for the daily RSI moving below 40 (which was the early September low) as a breach could signal an impending breach of $43.00. The hourly chart shows the downtrend in place over the past week, with yesterday’s high at $44.35 being initial resistance whilst the band between $44.55/$44.75 is a more substantial barrier. A decisive breach of $43.40 which is an old key support could accelerate the move lower.
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.