Market Overview
With markets in a relative state of calm, key moves in key markets have a tendency to resonate with traders. The dollar has been in a bull trend but a strong intraday run higher yesterday (on seemingly very little reasoning) hit the buffers yesterday and is just coming off the top again in the early European session today. This is coming as the oil price is also starting to show signs of a correction once more and this could begin to turn trading sentiment more corrective. With the agreement between OEPC members to cut output starting to show cracks of disagreement again and a surprise increase in the American Petroleum Institute inventories, the oil price has just begun to fall away again. Falling oil tends to be taken with cautionary approach by the markets and there is a slight deterioration in sentiment that is taking hold today. The strength in two year Treasury yield as the ten year yield stutters reflects a market that is setting up for a Fed rate hike but also cautious on growth.
Wall Street close slightly weaker by -0.4% on the S&P 500 although Asian markets were mixed with the Nikkei +0.2%. European markets are looking a little cautious in the early moves. In forex markets there is little real sign of a correction on the dollar this morning, with sterling again weaker. However the big mover is the Aussie which is outperforming after stronger than expected quarterly inflation data showed a year on year jump to +1.3% (+1.1% exp) from +1.0% which will be of relief to the RBA. Gold is holding on to yesterday’s gains, whilst oil is under pressure and close to testing the key near term support at $49.15 on WTI.
There is little real market moving data today, although traders will be keeping an eye on the US New Home Sales at 1500BST (601,000 exp) after the strong Case Shiller HPI yesterday. After the bigger than expected increase in API inventories, the EIA crude oil inventories at 1530BST (+0.7m barrels expected) will be keenly watched and are likely to drive volatility.
Chart of the Day – DAX Xetra
The bulls will be getting increasingly frustrated with the inability of the DAX to decisively complete the breakout above the key August resistance at 10,802. The last couple of sessions have seen intraday peaks just above the resistance only to be shot back down again. The concern will be that after a string of positive candles, a bearish corrective candle with a close towards the low of the day was posted yesterday and is the second consecutive candle where the intraday rally has been sold decisively into the close of the day. The RSI is again back at the 60 level where previous runs higher in the ten week consolidation have tended to fail, whilst the Stochastics are also beginning to roll over again. Today’s session subsequently becomes key as a two week uptrend is coming under pressure. The hourly chart also shows a deterioration in the hourly momentum, whilst a move back below the breakout support at 10,690/10,705 would really put the corrective momentum running. A move below 10,590 would open the downside once more. Resistance today comes in at 10,827 and it would take a positive close above 10,802 to suggest a bullish breakout.
The euro has been starting to build support over the past few days, and despite a brief breach of support yesterday the prospect of a near term recovery remains on. A second consecutive mildly positive candle stunted the selling pressure, and early in the European session today there is the threat of traction in a rally. The momentum indicators have started to turn higher with the RSI back above 30. It is likely to be on the hourly chart where the signs of a recovery are being seen with the hourly RSI having consistently failed under 60 in the past few days, now breaking higher. Also a move above the near term resistance around $1.0900 has been seen which opens $1.0950. However I believe that the bulls could struggle to sustainably engage a rally through the overhead resistance at $1.0950 which is the old key breakdown level and area of overhead supply. I continue to favour selling into strength and a move back to test $1.0800 will be seen in due course.
The selling pressure ramped up again yesterday as the stronger dollar really impacted negatively on Cable. The key supports that had been building within the range have been breached by the decline, however the interesting move was the brief drop below $1.2086 by just a handful of pips. The market would have been viewing this as a key reaction low and testing this level would have been an important move. Only breaching by 5 pips before bouncing suggests the sellers are not ready to take control to decisively break this almost three week range quite yet. There are mixed signals on the daily momentum indicators with the MACD cross but the RSI is dropping again. Today’s candle will be very important now as the intraday rebound failed at $1.2205 and the hourly momentum suggests selling into the rebound now and another drop back below $1.2100 would be bearish for the range. Key resistance is now at $1.2250.
The bulls seemed to be taking control yesterday with the intraday breakout above the recent peak at 104.62. However yet again there is a nagging doubt over the break as the market was again unable to close the session above 104.30, but this time posted a candle that was not far off a shooting star reversal which has left resistance at 104.87. It will be very interesting to see now how the bulls react to yet another failed move to breakout. This comes as the RSI is again around 60 and the MACD lines are plateauing, whilst the Stochastics are in decline. The early consolidation today would suggest that there is still an uncertainty over this rally. The hourly chart shows the momentum indicators have now unwound any stretched momentum, whilst the hourly RSI holding up above 40 will be a key signal to suggest that the bulls remain in control.
Gold
In the face of a significant run of dollar strength yesterday, the fact that the gold price was still supported was a strong signal. The posting of a strong bull candle will give the gold bugs much hope that the momentum that is building in the RSI (at a three week high), the MACD lines (crossing higher) and the Stochastics (accelerating higher) will translate into further recovery gains on gold. The near term resistance at $1273.80 was breached yesterday and the bulls will now be eying the final rebound resistance at $1277 which is the only barrier that stands between an unwinding move back towards $1300. The implied target for the small base pattern above $1265 is for a recovery to $1283. The momentum indicators continue to improve with the Stochastics accelerating higher and the RSI at a three week high. The near term bulls will now look to build support above $1270, whilst the support at $1260 is now key.
WTI Oil
Can the bears hold off the increasingly corrective momentum that is building up? The market has basically been consolidating between $49.15/$51.93 in the past couple of weeks in which a failed break above the key resistance at $51.67 was seen. However, this consolidation has also been met with the RSI rolling over and falling back below 60 to a four week low, the Stochastics crossing lower and beginning to accelerate and also the MACD lines giving a bear cross. These are all negative near term signals. Although the market reacted well off the dip to $49.60 on Monday, the selling pressure resumed yesterday and the higher lows within the range have been breached. The key support at $49.15 is now under threat and a breach would complete a small top pattern that would imply a downside target of $46.70. The hourly chart shows the overhead resistance building for three consecutive days now at $51.00 and hourly momentum is correctively configured to suggest rallies are being sold. There is a nearer resistance in the band $49.60/50.15.
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