Market Overview
Markets are looking cautiously optimistic again this morning after better than expected China Manufacturing PMIs although being right in the in the midst of a raft of central bank decisions could leave traders touch reticent. The Bank of Japan and the Reserve Bank of Australia both held rates steady overnight and the Federal Reserve begins its two day meeting today. The bulls will be pointing to the better than expected Chinese PMIs that should help to support risk appetite. Both the official PMI and the Caixin improved to 51.2 which o0n the official data was the best reading since November 2014. However, the caution is also over the impending US Presidential Election which could restrict serious market direction in the coming days. Hillary Clinton’s latest email scandal has pegged her back in the polls and the lack of certainty is leaving investors unwilling to make the big calls. The dollar has settled slightly after a choppy start to the week, with Treasury yields also holding firm once more. Oil continues to move around on changing elements to the OEPC production story with the cartel agreeing to a document that discussed a strategy of long term market management, however ongoing concerns over record production levels continue in the near term.
Wall Street closed almost entirely flat with the S&P less than a tick lower at 2126. The Asian markets have been cautious with the Nikkei +0.1% higher, whilst European markets are mildly higher in early moves. In forex trading there is a mild dollar strengthening, but the only real mover has been the Aussie on the back of the RBA standing pat and the better Chinese PMIs. Gold and silver are slightly positive, having been supported by the Clinton email scandal. Oil is trading slightly higher.
Traders will be watching for the PMIs throughout the day with the UK Manufacturing PMI at 0930GMT which is expected to drop back slightly to 54.6 after the strong 55.4 last month. The US ISM Manufacturing is at 1400GMT and is expected to hold last month’s better than expected reading with a 51.8 this time. New Zealand unemployment is at 2145GMT and is expected to stay at 5.1%.
Chart of the Day – EUR/GBP
Has the recent corrective move helped to renew upside potential? Although the market spiked to a £0.9365 high on the day of the sterling “flash crash”, the market made a more considered move to £0.9140 under normal trading conditions before a retreat over the past couple of weeks. However, the move unwound sterling to the support of the uptrend in place since the beginning of September, which built a basis of support at £0.8877 only for the bulls to start to pull the pair higher again. This was also nicely above the old £0.8725/£0.8815 breakout resistance which is now supportive on a medium to longer term basis. Friday’s bull candle started to break through near term resistance and this move continued yesterday despite the later dip into the close. However looking at the configuration of the momentum indicators it looks as though the bulls are now in control again. The Stochastics have crossed higher and are now advancing again, the RSI has turned higher again from the corrective move to the mid to high 50s, whilst the rising 21 day moving average is also shadowing the uptrend. A move above £0.9057 would re-open the resistance at £0.9140 again. The hourly chart shows a band of support £0.8940/£0.8980 which will now be seen as a near term “buy zone”.
The euro has been unable to continue the traction it had from the strong bull candle on Friday. The last two candles have found resistance around $1.990 and again early this morning the price has dropped away slightly. I have been looking at the market using rallies as a chance to sell and the next lower high coming in between $1.0950/$1.1050. There is little that has occurred so far to change my view. The RSI is failing in its recovery under 50 and whilst the Stochastics are rising, there is still a feeling that this is another bear rally. The hourly chart does reflect the recent improvement but the impetus has just been lost from the rally for the time being, with the hourly MACD lines tepid. Watch for the hourly RSI dropping back below 40 as a possible sign of deterioration again. Initial support at $1.0935 will be watched too as this is yesterday’s reaction low and a close back below the old support at $1.0950 would also suggest the bears regaining the momentum again. I continue to expect a retest of $1.0850. A move above $1.1050 would be needed to change the outlook to any sustainable degree.
The uncertainty over the outlook for sterling continues with the posting of a positive candle that helps to maintain the support once more at $1.2080. However there is still a feeling that this is a market that is fighting to hang on to the support and that there is a bear bias to the outlook. Momentum indicators are fluctuating and are certainly not reflecting the position of a sustainable recovery. On the hourly chart, once more the resistance comes in around $1.2250/70 from from the past week where the market faces a considerable near term ceiling of overhead supply. The bears will be looking for a break back below the support at $1.2210 which is a near term pivot, a decisive breach of which would open $1.2140 from yesterday’s low again. A move above $1.2270 would change the mood within the consolidation and re-open $1.2330. It needs a breakout above $1.2330 to really suggest a recovery is in process.
A very neutral looking, small bodied candle was posted yesterday in the approach to the BoJ today with the market full of uncertainty. However the BoJ have done little to provide any direction and the market is consolidating. The test of the resistance at 105.50 has so far been rebuffed and there is a concern that yesterday’s low broke a sequence of higher lows, whilst the Stochastics have also turned lower. The hourly chart shows that there is a battle to hold on to the continued improving outlook now as the recent uptrend has been broken and the hourly momentum indicators are increasingly taking on a more neutral configuration. This could begin to form a consolidation unless yesterday’s resistance at 105.22 can be breached. Support at 104.25 will also become increasingly important for the outlook.
Gold
Gold has stabilised again following a volatile session on Friday. It seems that as the polls tighten in the US Presidential Election, gold will be supported and this could help to maintain the support at $1260/$1265 near term. The base recovery is for a target range of $1283/$1289, the minimum target of which has been achieved as the market has edged higher. This still seems to be more of a gradual unwinding of the previous selling pressure rather than the beginning of serious renewed buying. It will be interesting to see how the bulls react with the RSI unwound to 50. The hourly chart shows support at $1270.80 as the market again looks towards $1284 resistance.
WTI Oil
The oil price is now at a key junction. Having broken down below $49.15 the oil price has corrected sharply. The move is coming with an acceleration in the deteriorating daily momentum indicators, with the RSI dropping towards 40 and the Stochastics in negative configuration. It will now be interesting to see if the RSI drops below 40 as this has been a supportive point for momentum in recent months. The implied downside target of the small top pattern is $46.70 which has been achieved, however there is an old pivot around $46.50, whilst we will now have to start talking once more above the primary recovery uptrend that is currently around $46.25 and is supportive. These are all key levels in the coming days. The initial move this morning has been to form some support at $46.70, however, rallies have tended to be sold into for the past two weeks. There is now a band of near term resistance between $48.15/$48.75, whilst the main line of resistance is now at $49.15.
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