Market Overview
The impact that the price of oil is having on financial markets cannot be overstated, it would seem. Once more the direction of the oil price has had a profound impact on currencies, equities and precious metals. A rally in oil has improved market sentiment but is it going to last? The EIA oil inventories report did not seem to be too far away from the estimates in a build of crude oil stocks of 3.5m barrels yesterday, whilst the gasoline stocks and distillates showed slightly reduced inventories. However the oil price turned sharply higher on the news which had had a knock on impact across markets. Wall Street has turned sharply to close higher on the day (S&P 500 up 0.4%), with Asian markets following suit (Nikkei up 1.4%) and European indices also stronger today. The oil price falling back a touch today could temper the bulls a touch, whilst there are also a few other caveats. The daily fixing of the Chinese yuan was weaker for a second straight day and this dragged on Shanghai equities, whilst US data yesterday was also something of a concern.
Tuesday’s consumer confidence disappointment was a warning shot across the bows, but the fact that the flash services PMI data turned below 50 and into contraction territory will be a real concern now for the bulls (in addition to disappointing New Home Sales data). The market has been relying on the US consumer to drag the US economy away from the jaws of economic contraction, but if this flash PMI rings true there are significant alarm bells ringing now. Next week’s ISM Non-manufacturing data will now take on a whole greater significance.
However, for now the oil price is the driver of sentiment and the improvement in sentiment coupled with disappointing US data has dragged on the US dollar. This has driven what could turn into a recovery for the euro, whilst sterling has also been supported. The oil price falling back has just resulted in a bit of a consolidation on the commodity currencies. The gold price is interestingly strong today as it continues to outperform silver.
Traders will be watching out for the second reading of UK GDP today at 0930GMT which is expected to come in at +0.5% for the quarter which would be in line with the first estimate. There is also US Durable Goods Orders at 1330GMT which is a notoriously spikey data point, which is expected to come in at +0.2% for January’s core month on month data (ex-transport). The Japanese inflation data is late tonight at 2330GMT and is expected to show a drop to zero (from +0.1%) on the core CPI.
Chart of the Day – Silver
Analysing gold every day it is interesting to note that the silver price is still lagging the bull move on gold. The big question is whether silver will be the one to drag gold lower. For now the technicals on silver are waning. The head and shoulders top pattern which threatened so significantly on Monday (failing to close below $15.05 key near term support) remains a distinct possibility after yesterday’s sharp intraday reversal. The concern for me is that whilst the gold momentum indicators are uncertain, the silver momentum indicators are in corrective mode, with the RSI breaking its uptrend, the MACD lines crossing lower and the Stochastics in decline. Every day this week we see the price dropping back towards the $15.05 support which for now continues to hold. The bulls are being tested. The 21 day moving average could become interesting as it has been a basis of support and is now at $15.07. The 38.2% Fibonacci retracement of $13.71/$15.95 is also in at $15.09 and closing below this level would be negative. The consolidation could yet turn into a top pattern and correction, and also one which could be a drag on gold. An interesting chart to watch for implications on the precious metals.
Could there be a turnaround in sentiment for the euro once more? Despite no explicit buy signals coming through yet on the daily chart, the nearer term signals could be close to a near term bottom. The daily chart shows a third consecutive close below $1.1050 and also a second session where this level has acted as a basis of resistance. Momentum indicators are still corrective although the RSI has begun to settle just under 50. The interesting feature I am now looking at on the daily chart is a 12 week uptrend from the December low that is being flanked by the 55 day moving average (currently $1.0970). Moving to the hourly chart though and with yesterday’s intraday rebound from $1.0955 and today’s solid gains in the Asian session, and there is now the prospect of a near term base pattern. The old $1.1050 pivot is now a resistance that if it is breached would become a neckline of a completed base pattern. The upside recovery target would only be around 95 pips higher to $1.1145 but it still would be a mini recovery for the bulls. The hourly momentum is also continuing to improve but look at the hourly RSI pushing decisively above 60 to be seen as a confirming move. Further resistance comes in at $1.1100 and then $1.1135. The initial support is at $1.1000 today with a move below $1.0955 continuing the sell-off.
Right about now the sterling bulls will probably take anything, but there is still very little to really get excited about in terms of a recovery. The sell-off may have bounced off $1.3875 but there really is very little support until $1.3650 which is the March 2009 low. The daily candle yesterday shows a 75 pip rally into the close but even then the closing price was below the mid-point marabuzu line and the chart is bearishly configured. The momentum is still deeply bearish across all RSI, MACD and Stochastics and perhaps the only factor to point to is that the RSI has just gone below 30. Under normal trading conditions you could argue this is getting oversold but in a strong downtrend this is only reaffirming the bearish intent whilst the January sell-off did not stop there and went back to 15 before support was formed. The Asian session has been benign overnight and looking on the intraday hourly chart we see a broken two day downtrend. However there is no real sign of any recovery and the move is still to be considered as unwinding a near term oversold position. At some stage there is likely to be an unwinding short covering rally but for now I do not believe this is it. There is resistance in the range $1.3960 to $1.4015 which I would see as a chance to sell.
It is loosely possible that a low is forming. It is very interesting that twice the market has seen intraday sell-off to 111.00 (initially 110.98 and now yesterday at 111.04) but each time there has been an intraday recovery of over 100 pips to close back above 112.00. Yesterday’s candle actually resulted in a close higher on the day with a candle that was somewhere between a Dragonfly Doji and a bull hammer (but not quite). Either way though it reflects a bull recovery into the close which the bulls have tried to continue today. There could also be an argument made that suggests that momentum indicators whilst still rather bearish are now far more benign in their negativity. Today’s candle now becomes key as if there is a negative close, the impetus from the late recovery last night will have been lost. Also there has not been a close below 112.00 throughout the past few weeks (despite 5 intraday dips below), so that occurring now would also be bearish. The big concern I have is that the intraday hourly chart shows a recovery from the bottom of my downtrend channel all the way to the top this morning only to fail in the rally. The 112.00 level could be key today, but also the resistance now in place at 112.60.
Gold
There is a somewhat confusing picture developing on gold now, albeit bullish. The upside break from the symmetrical triangle was a bull move that pushed above the key near term resistance at $1239.50 yesterday, but a sharp intraday correction now muddies the waters slightly. I am still concerned by the momentum, with the RSI showing lower highs, the plateauing MACD and the Stochastics which are also not as bullish as perhaps they should be. The reaction to what is actually quite a corrective candle (bordering on negative – if I have mentioned a bull hammer on dollar/yen then I have to suggest a near shooting star on gold) has though actually been positive. Also a positive close will negate the impact of yesterday’s candle to a certain degree. Furthermore, the intraday hourly chart shows a more positive configuration on hourly momentum whilst also seeming to now form a pivot around $1221. A close back above $1239.50 would be a bullish move that would imply pressure back on the $1261 high.
WTI Oil
From a point at which the recovery in the oil price was being seriously questioned, the bulls have returned to sharply improve the outlook once more. A significant intraday turnaround (in the wake of the EIA oil inventories report) resulted in a positive close and the outlook is more positive now. The improvement comes as the RSI is now pushing above the 50 level which has so often been a point of where the sellers have returned. This is coinciding with the breaking of the 3 month downtrend, whilst also now finding support at the now gradually rising 21 day moving average (currently $30.67). Could this now be a higher low in place at $30.55 above the key reaction low at $29.05? The market will now look towards the $33.60 resistance as a key level to watch for the bulls. The intraday hourly chart also shows the 144 hour moving average has been the basis of support for recent lows and the hourly RSI towards 30 is being seen as a chance to buy.
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