Market Overview
As the US returns from Labour Day, market sentiment remains cautious with tensions over North Korea still at the forefront of traders’ minds. The US is looking for the UN to take a hard line with North Korea, whilst in the immediate proximity South Korea continues to prepare for military manoeuvres.
Markets retain their safe haven bias from trading yesterday. This means that assets such as gold, the yen and the Swiss franc are all still performing well. Treasury yields that had closed strongly higher on Friday are also being pegged back as the US comes back on line after being closed for Labour Day public holiday. Quite how US traders react today, having missed out on yesterday’s safe haven shift could be key for near term market direction. It was interesting to see equities paring initial losses into the close yesterday and, at least on the European side, initially being supported in early moves today.
Forex markets show mixed moves but with the dollar generally weakening amid a safe haven bias which is seeing the yen stronger. The Reserve Bank of Australia left rates unchanged at 1.50% for a thirteenth consecutive month, as widely expected by the market. The RBA sees inflation being subdued by the high level of the exchange rate, whilst low wages are also an issue. This path of monetary policy seems set for a while with only a slow recovery expected. The Aussie is mildly higher against the US dollar.
In commodities, gold is hanging on to its strong gains from yesterday, whilst it is also interesting to see not only the creep higher in oil, but also the WTI/Brent Crude spread beginning to close once more.
Traders look at the services PMIs today with the final eurozone services PMI at 09:00 BST expected to be confirmed at the flash reading of 54.9 (which would be down from 55.4), whilst the eurozone composite PMI is expected to be 55.8.
The UK Services PMI at 09:30 BST and is expected to drop slightly to 53.5 (from 53.8 last month). US Factory Orders at 15:00 BST is expected to drop by -3.2% on the month (after a rise of +3.0% last month).
Chart of the Day – NZD/USD
With the Kiwi having now been trending lower for the past five weeks, the pair broke below the key medium term support at $0.7200 and seems to be unable to recover back above it. This shows that the Kiwi is now under pressure against the dollar as one of the worst performing majors of recent weeks. Technically, with a run of lower highs and lower lows, the outlook is increasingly corrective. Yesterday’s rebound only serves to help renew downside potential with momentum indicators correctively configured and suggesting that rallies are now a chance to sell. The RSI and Stochastics are stuck in bearish configuration, whilst the MACD lines continue to fall below neutral. The retreat back to the support around $0.7200 which had been a key floor from June and July was broken last week and this pivot of old support has now become an overhead barrier to gains. This means that there is subsequently a near term key sell-zone $0.7200/$0.7240 that the market will be eying for an opportunity to sell into strength. This is also around where the five week downtrend comes in today. Expect an initial retest of last week’s low at $0.7130 in due course with a further retreat towards $0.7050 which has been a pivot throughout Q2 2017 also likely..
After Friday’s bearish session, a degree of support has come in again for the euro. This has come with the US out for Labor Day yesterday, so a rebound of 30 pips sounds good but in reality this is just a market in consolidation. The chart shows that a bulk of underlying demand comes in around $1.1820 and this also managed to capture the support of last week’s low and will be a main reference for the coming days. I remain a buyer into weakness and with the selling momentum from Friday failing to catch on, this is positive from a technical perspective. Momentum indicators are all but neutral on a near term basis now, whilst remaining in strong medium term configuration. The way the US traders come back in today will be key for the near term outlook, with initial resistance at $1.1922 before the lower high at $1.1980. Increasingly traders will also be keeping an eye out for the ECB on Thursday.
It looked as though the Cable bulls were beginning to find some traction after Friday’s close above $1.2930 however the intraday retreat yesterday has simply unwound the move back to the key neckline once more and the consolidation appears to have resumed. Momentum indicators which had been looking to improve have been pegged back once more with the RSI hovering around 50, whilst the MACD and Stochastics are just creeping higher. It would appear that the market is in need of an injection of life with a lack of direction perpetuating now. Support is in place initially at $1.2900 but a closing break of $1.2850 would be a key gauge. Similarly, there is resistance from yesterday’s failed high at $1.2965 initially before the resistance increases just under the psychological $1.3000 level.
The near term significance of the pivot at 109.80 continues to grow as it once more comes in as resistance overnight. This leaves the market with a negative bias and increases the potential for last week’s high of 110.65 to be another key lower high. The selling pressure through the Asian session has taken the market back to trading around the 50% Fibonacci retracement of 100.07/118.65 at 109.35 and the closing support around 109.00. The concern the bulls will have is that the momentum indicators have rolled over again and are corrective near term once more. This suggests that the reaction of the returning US traders could be key today as the market seems to be approaching another crossroads. A decisive close below 109.00 would be something not seen since April and suggest the Dollar/Yen sellers are well on top. The resistance remains the 109.80 pivot, especially on a closing basis. The negative bias is reflected on the hourly chart.
The market gapped strongly higher yesterday and shows no sign of retreating to fill this gap as the technicals become increasingly bullish. Despite a doji candlestick yesterday (open and close at the same level) which could still signal a degree of uncertainty, the early move in the Asian session today has been for traders to hang on to this strong gold outlook. The reaction once the US traders resume will be key as this gap from $1328.80 remains open and arguably needs to be filled. The reaction to how the market fills this gap could be key to the near term outlook. Despite this, the eight week uptrend is strong $1297 today, whilst momentum is increasingly bullish. The hourly chart shows a strong configuration with corrections supported. Overhead resistance is from yesterday’s high at $1339.50 before $1343.60, $1352.60 and the major 2016 high at $1375.
WTI Oil
WTI is at a crossroads today and could be close to a recovery. Brent Crude has been testing a key overhead resistance, whilst the price of WTI has so far struggled to replicate this positivity. However, a trend lower of the past few weeks is though now being breaking as the bulls seem to be putting together a string of gains as the recovery from last week shows renewed bullish intent in the market. Thursday’s bullish engulfing candle is now a key legacy to drive the bulls into this week. The rebound back above the medium term pivot of $47.00 is also a key development, whilst a move back above the 38.2% Fibonacci of $50.43/$42.05 at $47.23 would re-open the 23.6% Fib at $48.45. This would also confirm a break of the three week downtrend which comes in today at $47.30. The hourly chart momentum is also turning a corner and if the market can now build another higher low above $46.55 the bulls will begin to look more confident.
The bulls have maintained their recovery of the past few days and continued the run of positive sessions that have broken the three week trend of lower highs. Momentum indicators are taking a decisive improvement with the RSI back above 60, Stochastics in a strong advance and the MACD lines close to a crossover buy signal. Leaving the 21,913 old resistance behind, this now becomes a basis of support and pushing back above 22,000 will be seen as another psychological breakthrough. The next resistance to test is the mid-August high of 22,085 which protects the all-time high of 22,179. The hourly chart shows a far more positively configured set of momentum indicators now, which suggests that intraday weakness will be seen as a chance to buy. Having cleared the 38.2% Fib retracement of the correction from 22,179 to 21,600, the next barrier is at 23.6% Fib at 22,043. Any near term weakness that may be seen in the wake of an overhang from the market being closed for Labor Day yesterday should still be seen as a chance to buy.
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