Market Overview
With a lack of geopolitical drivers, markets have entered a somewhat quietened period of trading. On the equities side, with volatility having reduced (the VIX is below 16 versus its long run average of closer to 19/20) we see the recovery gains continuing to be squeezed out.
Breakouts are being pushed across European and US markets and there is increased focus on corporate earnings which have so far been positive on the whole in the US. The big question is whether this move can continue. The reaction to the first signs of a correction will be key, can support form around the breakouts? This has coincided with Treasury yields pulling higher. However, with the ongoing flattening of the yield curve, the dollar has been unable to take part in this increase in yields, also seemingly shackled by the undertone of the ongoing trade dispute.
It seems there are some big moves on commodities now, with strong gains on silver and another breakout to multi-year highs on oil. With Saudi Arabia needing to fund fiscal measures and economic reform, it should come as little surprise that the Kingdom is pushing for a higher oil price (saying it would be comfortable with $80/$100 per barrel). This suggests that OPEC’s main driver is likely to push for continued oil production limits. The big mover in G10 forex in the past few days has been the correction in sterling. A raft of tier one UK data has seem the strong outperformance unwind. The data continues today with UK Retail Sales.
It was a mixed session on Wall Street with a slight dip on the Dow, whilst the S&P 500 has been supported +0.1% at 2708. With Wall Street futures all but flat, in Asia, there has been a mildly positive outlook with the Nikkei +0.2%, whilst European markets are also mildly higher in early moves.
In forex, there is very little direction other than slight underperformance of the yen, whilst the Aussie is surprisingly positive despite softer employment data.
In commodities there is another slight gain for gold, whilst oil is hanging on to yesterday’s strong gains.
The UK tier one data continues to roll out, with the focus on UK Retail Sales today. The data announced at 09:30 BST with ex-fuel retail sales expected to fall by -0.4% for the month, but this would still mean a year on year improvement to +1.4% (previously +1.1%). However, after the surprise improvement in real wages last month it will be interesting to see if there is an upside surprise to this, although it may be still too early for this.
The Philly Fed Business Index is at 13:30 BST and is expected to slip to 20.1 (from 22.3) however after the New York Fed survey saw a sharp negative surprise the importance of this indicator has been elevated.
Weekly Jobless Claims are at 13:30 BST and are expected to again be around similar levels at 233,000 (230,000 last week).
The Fed speakers continue with Loretta Mester at 23:45 BST tonight (voter, hawk) and this could impact the dollar overnight and into tomorrow.
Chart of the Day – Silver
For two months the silver price has been stuck trading in a little sideways trading band between $16.16/$16.86, however this range was smashed yesterday by a huge upside breakout. The technical implications of such a move call for an upside target of $0.70 (or $17.56). However the long term technical show the resistance of the falling 12 month downtrend comes in around $17.40 today. The resistance is also sizeable between $17.40/$17.70 (from the October to January highs). The momentum indicators have responded positively to the breakout but it will be interesting to see if the bulls can hang on this run higher with the sizeable overhead barriers to gains. Since the beginning of 2017, the bull runs have struggled with the RSI around 70 so there seems to be limited immediate upside potential. The temptation could be to quickly lock in some profits and in this case an unwinding move back to the breakout at $16.86 could be seen now. This has been a key pivot level in the past six months and is now supportive. A closing breakout above $17.70 would signal a significant shift in the longer term outlook on silver.
Anyone trading EUR/USD at the moment will probably appreciate just how frustrating it can be. Once more a candlestick was formed yesterday that does little or nothing for traders looking for decisive direction. The longer term trend remains positive and whilst the medium term trading range continues to dominate, but for now, trading is tough going. A 4 pip gain on the day has left another incredibly indecisive candlestick (all but a doji). There is a very slight positive upside bias to the outlook but the RSI has plateaued in the past few days whilst the gradual advance on the MACD and Stochastics lines is slowing. The hourly chart will show a run of higher lows, whilst the pivot around $1.2345 continues to be used as a basis of support near term. There is a mild pressure on the resistance at $1.2413 which protects the key March high at $1.2475, however sustained gains are like getting blood out of a stone currently.
Contrast the moves on EUR/USD with those on Cable. After a solid trend higher in the past week and a half the market has turned into reverse. This is a correction with the longer term bull trend and will likely now be seen as another chance to buy Sterling which has been the best performing G10 currency over recent months. It should simply be a question of timing. The five month uptrend (not the long term uptrend) comes in at $1.4030 so there is still room for a corrective slip, whilst the Stochastics are just crossing lower (which is a near term corrective signal). The two strong negative candles have given the profit takers a handle in this market, whilst the rising 21 day moving average (which has previously been a basis of support for corrections) is at $1.4140 today. The hourly chart shows yesterday’s spike low at $1.4170 is initially supportive today whilst there is a basis of support between $1.4100/$1.4150 which looks to be a decent area for the bulls to work from. This correction on Cable certainly has the look of near term profit taking and can be expected to find the bulls regather themselves for a push back towards the recent $1.4375 high and beyond once more.
The market reaction of the past 24 hours shows that the stature of the support at 106.60 is increasing. The past couple of weeks has seen the market trading in a range between 106.60/107.75 and the implications of the next breakout are becoming increasingly important now. There is a positive bias to the outlook even though momentum indicators have tailed off in their recovery. The market is still posting support at higher levels (the latest at 106.85) but the hourly chart shows that in the past week, forays above 107.40 have been sold into. Can this change today? The concern is that the resistance between 107.50/107.90 remains strong and an area where the bulls continue to struggle. This remains a range play until a closing breakout above 107.90 confirms a bull move, or below 106.60 confirmed renewed downside. Even though the daily chart shows a broken recovery uptrend, the bias is still to a recovery. However this remains a market in the balance.
Gold
The medium term trading range remains intact but once more the bulls are testing the water. In the past three and a half months, every time the market has pushed into the $1356/$1366 range, profit-takers have set in. This recent creep higher in the gold price saw the market coming within sniffing distance of $1356 only to slip back once more. The subsequent posting of a third consecutive long upper and lower shadowed candlestick with a small real body does not suggest that the bulls are well positioned for a decisive move higher. There is a positive bias within the range as momentum has ticked higher to reflect the improvement in the past few sessions. However nothing on a technical basis is calling for a big upside break. A shift in the geopolitical risk outlook could drive a breakout, but technically the market does not look convincing. Despite this, the market continues to leave a trail of higher lows, at $1333.50 before $1337 and now $1342. The near term outlook is mildly positive but the bulls lack conviction in the move. Perhaps the big question is whether gold will be dragged higher with the other breakouts across the commodities complex. A breakout above $1366 brings the market to multi-year highs but also into key long term resistance at $1375 and $1391.
WTI Oil
The correction on WTI seems to have been short lived as the market has used the support around $65.40 to renew a move into new multi-year highs. The outlook for oil remains strong as the position around geopolitics in the Middle East fuel expectations of reduced supply (mostly Iran) in the region, whilst yesterday’s larger than expected drawdowns across crude, distillates and gasoline stocks in the EIA inventories also lend near term momentum. The breakout above $67.75 yesterday now opens the $70 psychological level as the next key barrier, as the market continues to unwind the precipitous sell-off of late 2014. The next price resistance comes in a small range $73.25/$77.80 from November 2014 but realistically this is somewhat insignificant now. The hourly chart shows stretched momentum which could induce some unwinding but there is now a basis of support $67.00/$67.75 to use as a chance to buy.
The bulls continue to build on the breakout above the pivot band 24,450/24,650 and improve the outlook. The recovery trend of the past two weeks is now supportive around 24,630 which is building a confluence of support now in more positive territory for the Dow. The momentum indicators continue to track higher with the RSI into the mid-50s, Stochastics in bullish configuration and the MACD lines accelerating in their recovery. Although yesterday’s candlestick reflected a market that was a touch reticent to push on, however this is likely to have simply been a consolidation, whilst any corrective move should still be seen as a chance to buy. Tuesday’s high at 24,859 is unlikely to provide too much resistance and a continuation of the recovery is likely in the coming sessions as the uptrend re-asserts. Next resistance is 24,978 but the bulls will be eying a test of the key March high at 25,450 in due course.
"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.