Market Overview
All of a sudden, after weeks of being fairly sanguine at the prospect of a Clinton victory in the US Presidential Election, markets are concerned they may have got it wrong. With a number of individual polls suggesting Trump is ahead, markets are now having to price the realistic prospect of a Trump victory. In short, that means the dollar is being sold off, safe havens (gold, yen, US Treasuries) are rallying, and risk plays (equities, emerging market assets) are under pressure as shown by the spike higher in the VIX volatility.
Politics are “Trumping” the fundamentals and it is incredible to say but the market is unlikely to pay too much attention to the FOMC meeting tonight if there are more polling revelations today. In spite of this apparently being a “live” meeting, the FOMC will not move on interest rates today, instead choosing to make their move in the December meeting, which is not only clear of the politics once the election is out of the way, but also has a press conference (which today’s meeting does not). Subsequently, anything that suggests today that the race for the White House is increasingly tight will continue this move out of the dollar and into safe havens.
Wall Street closed lower last night with the S&P 500 dropping through a key technical support at 2120 with a 0.7% decline and a close at 2112. Asian markets have also come under pressure with the Nikkei feeling the double impact of yen strength and risk aversion in closing 1.8% lower. European markets are also weaker in early moves. In currency markets, the dollar weakness hit yesterday has continued, whilst there is also still a safe haven bias with the yen and Swissy both stronger. The precious metals are marginally higher again as they hold on to yesterday’s gains. The oil price remains under pressure after a larger than expected build in the API inventories.
US politics remains the key factor for traders but there will be attention paid to the Eurozone Manufacturing PMI at 0900GMT (53.3 exp) whilst the UK Construction PMI will also be watched at 0930GMT for implications of further post-Brexit impacts, with a dip to 51.8 expected (from 52.3). The ADP Employment change is at 1215GMT and is expected to improve slightly to 165,000 (up from 154,000). Also the weekly EIA crude oil inventories at 1430GMT is expected to show a build of 1.8m barrels. Finally the FOMC monetary policy at 1800GMT. No change in rates is expected but there could be minor tweaks to the statement effectively preparing the market for a December hike.
Chart of the Day – Silver
A key move was seen on silver yesterday but is it going to change the outlook? The precious metals have gained ground as a safe haven play on the improved showing for Donald Trump in the polls. For silver, the breakout above $18.00 opened a near term vacuum of pricing with the price moving quickly towards the next resistance at $18.50, which is already being tested. This is a key technical improvement with a strong bull candle, but the next hurdle comes quickly into view. The old support at $18.50 is a key area of overhead supply and there is a band of resistance between $18.35/$18.65. The RSI is also up to the point at which previous rallies have failed, around 60. So if the bulls can break through $18.65 this would then be a move that would open a recovery towards the downtrend which links the key highs of the recent few months, which currently comes in around $19.55. The initial support at $18.30 will be watched for an unwinding move but the configuration of the hourly momentum indicators suggests that corrections are a chance to sell.
The dollar is getting sold off as the market is now having to price in a higher potential for a Trump victory. The bull candles started following the FBI announcement on Clinton’s emails and as the polls have tightened, EUR/USD has moved higher. The strong bull candle from yesterday is now through the resistance at $1.1050 which is a key near term breakout. This is an old pivot which has previously acted as a basis of resistance in October. However, politics is winning over and the volatility as we approach the final days of the election campaign is beginning to ramp up. If the pols continue to tighten, expect EUR/USD to continue to rally. The next resistance is the upper limit of the 50 pi long term pivot at $1.1100, however the way the market is moving currently, this could prove to be little barrier. The daily momentum indicators are all rising now and there is further upside potential if the bulls choose to run. The hourly chart shows that $1.1050 is initial support with further minor support around $1.1000/$1.1025 if there is any unwinding of yesterday’s move.
It was very interesting that in spite of yesterday’s dollar weakness across the forex majors, there was very little uplift on Cable. The market still remains in consolidation mode. The daily candle was very neutral and reflects a lack of willingness to bid up sterling, even in the face of dollar weakness. The hourly chart shows that $1.2250 remains a near term barrier that the market is looking at, with a resistance band now $1.2250/$1.2280. However, there is now a basis of support around a near term pivot at $1.2210 which is a basis of support in the past couple of days. There needs to be a decisive breach of $1.2250 and above $1.2280 to give the chart a more positive bias but until the resistance at $1.2330 is breached then the outlook will remain one of consolidation. In the absence of a Trump victory I continue to favour a retest of $1.2080 and a likely downside break. There will also be the added volatility in the next couple of days with the Fed tonight and Bank of England tomorrow.
The appetite for safe havens has increased as the polls in the US Presidential Election have tightened. This has driven yen strength and pulled the pair lower. A strong bear candle yesterday was a second consecutive candle of lower high and lower low (which in early moves today has become a third consecutive lower high and lower low). The daily momentum indicators are now gaining corrective traction with the Stochastics falling sharply and the RSI at a four week low. With today’s weakness continuing the correction, the market now seems to be falling back for a test of the key reaction low at 103.15. The hourly chart shows the decisive broken uptrend and the more negative configuration of the hourly momentum indicators where rallies are now being seen as a chance to sell. Initial resistance is now between 104.00/104.25 for an unwinding rebound. The concern would be a breach of 103.15 would be a key break, opening 102.80 below which the bears are in decisive control once more. It would need a break of 105.10 to end a sequence of lower highs on the daily chart.
Gold
The improved prospects of a Trump victory drive safe havens higher, and this means that gold is now on a rally. The real move higher began late Friday evening after the FBI announcement, and the bulls candles have subsequently been posted. Yesterday’s close higher by $11 and intraday gains of $15 has taken gold to achieve the $1289 target from the original base pattern above $1265. However, now the bulls will again be eying a retracement to the old breakdown back from early October. The absolute support is at $1302 however $1300 will also be a psychological barrier. The momentum indicators are strong with the Stochastics pushing higher again and the RSI towards 60. However this will also be a key moment for the RSI which has seen previous rallies failing with the RSI around 60. Initial support is at $12884/$1285 now and corrections are being bought into. I see gold rallying whilst Trump is still in the race, however there could be a significant amount of volatility as the identity of the new President becomes clearer.
WTI Oil
Having broken sharply lower on Monday, yesterday’s disappointing fall into the close would have been disheartening for the bulls. There is now a key test ahead. The downside target of the top pattern at $46.70 has been achieved and interestingly the old pivot support around $46.50 is yet to be decisively breached. The market will also be paying close attention today to the primary uptrend and the 144 day moving average which are both supportive around $46.40 today. The concern is that the early weakness today has seen the RSI dip below 40 which has provided the support on each of the past two major corrections. Also the Stochastics continue to fall which adds to the continued near term concern. The hourly chart shows that the near term outlook remains bearishly configured and that rallies remain a chance to sell, with $47.35 as initial resistance.
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