Market Overview
Despite the passing of the big risk events of the week, financial markets still retain a slightly more cautious approach as we enter the final day of the week. The dollar has strengthened in the wake of the ECB meeting which provided a dovish takeaway with Mario Draghi unwilling to reveal any prospect of tapering of asset purchases. EUR/USD was the main mover in a fairly volatile reaction but the euro has subsequently dropped to its lowest level since March against the dollar. This has meant a seven month high on the trade weighted dollar index, although it is interesting to see the yields on Treasuries have been dropping in the past week on the slightly more cautious sentiment. The cautious mood is also reflected in the yen which has become far more steady, and even more so overnight in the wake of an earthquake in Japan measuring 6.6 magnitude. Recent moves higher on commodities have also seen a mild bout of profit taking too with gold dipping back lower and oil also off on the stronger dollar.
Wall Street closed mildly lower last night with the S&P 500 down 0.2% at 2141, whilst Asian markets were also slightly weaker overnight (Nikkei -0.4%). European indices are mixed to slightly higher in early moves. In forex, the dollar strength from yesterday has broadly been sustained, with the euro remaining weak today. With the cautious sentiment though today, the yen is an outperformer. Commodity prices continue with the theme of caution with gold around $1 lower and oil also very marginally lower.
There is little to drive sentiment today either with only really Canadian inflation at 1330BST with CPI expected to rise by +0.2% for the month which would be +1.5% for the year (+1.1% last) but the core year on year would be flat at +1.8%. Also watch out for Bundesbank President Jens Weidman at 1000BST.
Lucky 8 – FX Trader of the Year 2016 competition update
I am now moving on to look at a new set of Lucky 8 instruments for Week 3 of our competition that we are running throughout October. I will be giving daily updates on how the Lucky 8 instruments of the week are performing.
- EUR/USD – The breakdown below $1.0950 has put the sellers firmly in control and already breached the Brexit day spike low at $1.0910. A drop towards $1.0800 is now possible as rallies continue to be sold into. The $1.0950 breakdown is the new level of resistance (See below for more detail).
- USD/CAD – Big volatility and a massive turnaround in the wake of the BoC. The bulls have subsequently regained control of the near term outlook. A daily bull hammer was followed by a strong bull candle and is continuing today. The old resistance around 1.3250 is under threat now with the resistance at 1.3312 being key. Support at 1.3220 and 1.3185.
- EUR/JPY – The bears remain in control and despite some volatility from the ECB a retest of Wednesday’s low at 113.10 is on. A breach reopens the next key supports between 112/112.50. Use intraday rallies as a chance to sell. Initial resistance today at 113.45/113.85.
- CAD/JPY – The bulls have seemingly lost control again as the drift lower is developing. The support of the breakout at 78.90 has broken and has now become a basis of resistance. The hourly chart shows bearish configuration of near term momentum with rallies being sold into. Support at 77.95 could come under pressure now.
- USD/TRY – A breach of 3.0685 completed a small top pattern and the corrective signals are racking up with RSI, Stochastics and MACD lines giving negative near term signals on the daily chart. Whilst the rebound resistance at 3.0750 remains intact the outlook is for a drop to test 3.0495, 3.0405 and perhaps even 3.0320.
- DAX – The bulls are fighting hard to break the consolidation and series of lower highs but there is still a nagging doubt with the failure to close above 10,705. Today’s session will be crucial for the near term outlook. The hourly RSI moving above 70 would really suggest the bulls are gaining real confidence. Holding above 10,657 would add confidence with key support near term 10,587.
- Gold – The breakout above $1265 implies $18 of upside. The bulls will look to use a band of support $1260/$1265 as a buying opportunity to retest $1274 resistance and $1277. A loss of support at $1256 negates. (See below for more detail).
- Wheat (WZ6 or W#_Z16) – The bulls have lost the impetus in the rally and a rolling over has set in. Reflected in the deterioration in the Stochastics the breakout support at 412 is coming under pressure. The hourly chart shows a series of lower highs has been posted with 423 and 424 protecting the key near term resistance at 428.
EUR/USD
The volatility was ramped up for the ECB monetary policy press conference however the bears remain very much in control. An initial spike simply found resistance once more under the $1.1050 and leaving a high at $1.1039 and the selling pressure resumed to break below the key support at $1.0950. This breach has been confirmed on a closing basis to open the downside. The initial test has already now broken the post Brexit spike low at $1.0910 and the key long term support around $1.0800 is once more within sight. Momentum indicators remain bearishly configured with the RSI once more approaching 30, Stochastics turning lower and MACD lines also negative. The hourly chart shows negative configuration on the hourly RSI and that moves to unwind towards 50 are a chance to sell. Initial resistance is around the old resistance at $1.0950, with $1.0950/$1.1000 now likely to be seen as a sell zone.
The bulls could not make the break above $1.2330 and with the resistance holding almost to the pip, clearly this is a level that the market is paying great attention to as a ceiling. The bulls have though subsequently retreated somewhat and a trading range seems to be the more likely scenario rather than a base pattern. The drop back below $1.2270 adds once more to the resistance today and this is a level the bulls will need to overcome even before $1.2330 can be contemplated. The market is relatively settled early today but if support of yesterday’s low at $1.2210 is lost then a concerning trend will be beginning to emerge of lower highs and lower lows again. Subsequent support is $1.2175 and then key at $1.2130.
The market seems to be building a range now above 103.15 as the daily chart shows little real direction have been achieved for almost two weeks now. Near term indicators are beginning to drift back which could suggest a slight negative bias but is probably more of an unwinding move. Subsequently, the market looks to be in need of a catalyst once more. The hourly chart shows that yesterday’s gains seem to already be under pressure of the profit-takers today and the resistance is at 104.20, interestingly the second time this level has been a ceiling but also the turning lower under the old 104.30 resistance once more. A MACD sell signal on the hourly chart suggests another retreat today with support 103.45/103.55 protecting 103.15. A breach of 103.15 would open the key near term support at 102.80 again.
Gold
The key move above near term resistance at $1265 competed a small base pattern (on the hourly chart) that implies an upside recovery target of around $18 towards $1283. On the daily chart there is no obvious base pattern, however the daily RSI called the improvement early but the Stochastics and now the MACD lines are also turning higher to give multiple confirmation of a near term bounce. The three consecutive bullish daily candles also add to the improving outlook and the bulls. The hourly chart shows a series of higher lows since the low at $1247, with $1256 and subsequently $1260 meaning there is a support band that the bulls will look to use as a buy zone for an unwinding correction between $1260/$1265. The early dip today is now right back into that band of support and gives a near term buying opportunity. A move below $1256 would abort the recovery phase. The resistance is at $1274 and $1277 is overhead and beyond that the next real resistance is not until $1300.
WTI Oil
WTI oil just does not seem to be comfortable in a break above the old key June high at $51.67. Wednesday’s failure to hold an initial break, in addition to the profit taking and resistance found on Thursday shows that the market is still unsure. This ranging phase above the support band at $48.75/$49.15 subsequently continues. There is a concern that the momentum indicators are losing their way now and the Stochastics are now in decline, whilst the MACD lines have plateaued. If the RSI starts to decisively fall as well then the outlook could begin to come under pressure. The hourly chart shows the market is back mid-range once more but a loss of yesterday’s low at $50.25 could begin to be a concern again. The bulls need to move back above $50.70/$50.90 to regain traction for a retest of the highs.
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