Market Overview
Oil prices are pulling higher again ahead of the OPEC meeting next week which is expected to see OPEC and Non-OPEC countries (driven mainly by Russia) look to push for an extension to production cuts. Coming with the API announcing a larger than expected drawdown in US oil stocks, suddenly the recent highs on oil are back in range. This jumped has helped to support improved sentiment which along with recent positive US economic data has driven equity markets to rise once again. However there is a confusing factor for markets to consider as longer dated US yields stubbornly refuse to take part, and the dollar is being impacted.
Tax reform is increasingly crucial to the shape of the US yield curve and despite President Trump insisting that there would be a tax cut in time for Christmas. Bond traders seemingly either disagree or just don’t care. With markets increasingly pricing in shorter term rate moves by the Fed and factoring for increased shorter dated issuance by the Treasury, the yield curve continues to flatten at a significant rate. This is hampering the dollar which remains subdued ahead of the Fed minutes tonight. Sterling is in focus on Budget Day in the UK.
Wall Street closed at all-time highs yesterday with the S&P 500 +0.7% at 2599, whilst Asian markets were also positive overnight (Nikkei +0.5%). European indices are subsequently starting the day on a positive note again.
In forex, the weaker dollar is still evident, with the greenback underperforming across the majors with the mild exception of the Aussie.
In commodities, gold is again supported by a weaker dollar, whilst oil has been boosted once more in early trading, with WTI hitting multi-year highs again.
With Thanksgiving in the US on Thursday this is a packed day of data to get through for traders. After a quiet European morning, the UK Annual Budget is announced at 12:30 GMT. This is a speech that goes on a while and will contain fiscal changes, spending pledges and economic forecasts. Sterling could be choppy throughout.
US data kicks off at 13:30 GMT with the Durable Goods Orders which is expected to show the ex-transport, or core data, rising by +0.5% for the month (down from +0.7% last month).
The weekly jobless claims are also at 13:30 GMT and are expected to be 240,000 slightly better than last week’s 249,000. The revised reading of Michigan Sentiment is at 15:00 GMT and is expected to be slightly upwardly revised to 98.0 (from 97.8 at the flash reading).
Weekly EIA oil inventories are at 15:30 GMT, with crude oil stocks expected to drawdown by -2.2m (after a second week of inventory build last week of +1.9m barrels), distillates are expected to also drawdown by -1.9m (-0.8m last week) and gasoline stocks are expected to build slightly by +1.0m barrels (+0.9m barrels last week). Finally the market also gets a look at the FOMC minutes for the November meeting at 19:00 GMT, with traders keeping an eye on the prospects for future rate hikes in 2018.
Chart of the Day – EUR/NZD
The euro rally has stuttered in recent days and is now threatening a correction against the Kiwi. The market has been in an uptrend channel in recent months but has posted a high at the top of the channel of 1.7410 and now is closing in on a near term top. Calling a top within an uptrend channel before it happens is always speculative but the two strongly negative candles suggests that the pressure is growing now. The Stochastics have posted a sell signal similar to the two from October, but still needs confirmation. That is why waiting for a break below the support at 1.7115 would be key. This would complete a 290 pip top pattern and imply another retreat within the trend channel towards 1.6825. The hourly chart is already reflecting the deterioration with a seven day uptrend broken, the RSI failing at 60 today, whilst the MACD lines failed under neutral and the hourly moving averages are turning lower in bearish sequence. There is a band of support 1.7115/1.7150 but after 1.7060 there is little real support until 1.6900. A close below 1.7115 would confirm the breakdown.
The euro has begun to consolidate as the recent drift lower has just started to find a touch of support. Yesterday’s almost doji candle (which added just a handful of pips on the day just reflects a settling of recent selling nerves. This comes ahead of what is likely to be the most interesting trading session of the week (packed with US data announcements ahead of a likely quiet end to the week in light of Thanksgiving). Daily momentum indicators are also settling down with the RSI and MACD lines neutrally configured. I have spoken recently about the euro trading in a near to medium term “neutral zone” now above the support band $1.1660/$1.1730 and the resistance of the November high at $1.1880. This continues to be the case, with yesterday’s low at $1.1712 and the hourly momentum indicators in recovery mode. Initial resistance is now at $1.1810.
Cable could be the place for volatility today. With the UK Budget, a number of minor US data announcements in the afternoon and the FOMC minutes tonight there is a run of market moving factors. All the while, the pair continues to drift serenely higher, which is remarkable given the political uncertainty of the UK government and Brexit which has so often pulled the market sharply around. The run of small bodied candles continues to suggest a lack of conviction in the recent bull move however, once more as the European traders take over, the market is again higher. This marginal bullish bias is reflected in the momentum indicators which are drifting higher. The hourly chart confirms this configuration and whilst the five day uptrend was tested yesterday the bulls have marginally the upper hand going into the day’s key risk factors. Resistance at $1.3280 protects $1.3300 and then key highs around $1.3335. Initial support at $1.3210.
The dollar is under pressure once more as the rally is once more sold into and the run of lower highs seems set to continue. The downtrend of the last couple of weeks is still a factor in pulling the market lower, with the latest rebound failing around 112.70. The outlook of selling into strength is reflected on the falling momentum indicators which are increasingly correctively configured. The inference of this is for a test of the support band 111.45/111.65 and a move to the near term top pattern target of 111.50. Monday’s low at 111.87 is the initial support and with the hourly chart showing the breach of the 112.20 pivot along with negatively configured hourly momentum (with downside potential), using intraday rallies to sell remains a viable strategy for a test of these supports. The hourly chart shows a resistance band initially at 112.50/112.70.
Gold
Gold remains a difficult market to play with any real conviction on a near term basis. However there is still a mild upside drift of higher lows that has now seemingly left another support in place at $1274.90 as the market has once more picked up into weakness. Yesterday’s mild positive candle could almost sum up the near term outlook for gold in one day. A slightly positive candle but with an intraday failure that resulted in a retreat to the mid-point of the range, to leave the bulls scratching their heads. Daily momentum indicators are interesting as the RSI and MACD lines have unwound to neutral, however the Stochastics are showing signs of fatigue again. The market is a struggle for the bulls, with only marginal gains tending to be made before retracements kick in. Resistance overhead comes in around $1288/$1289 before the high at $1297 and then the long term resistance at $1300/$1310.
WTI Oil
A strong bull candle has broken the near term trend lower and as the bulls continue to push this morning, the market looks now set up for a retest of the $57.92 high. The medium term indicators are all positively configured and with the Stochastics turning higher the market is ready to move with upside potential now. The hourly chart shows good support having formed around $55.50 and the higher low from yesterday’s session at $56.33. The hourly momentum is positively configured for the move and intraday weakness is now a chance to buy. A close above $57.92 would be a two year high with the round number of $60 next up and then the key summer 2015 highs around $61.50.
The bulls are back again as the market has driven a sharply stronger bull candle that pushed to a new all-time high. Although the bulls could not quite manage it yesterday, a closing breakout above 23,602 would now re-open the upside once more. This move comes on a huge turnaround in fortunes for the bulls and just a few days after threatening a key near term breakdown. The daily momentum indicators have turned positive, with the RSI ticking back above 60 and the Stochastics crossing back higher. This also means that there is now renewed upside potential. A second day of a closing breakout above 23,602 would imply an upside break from a consolidation range has been seen. This would then imply around 350 ticks of upside towards 23,950.The bulls will now be viewing the support band of 23,485/23,602 as a “buy zone” for intraday corrections. The medium term importance of the support at 23,250 also grows stronger.
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