Market Overview
Financial markets have started the new trading week in a cautious mood with the prospect of the first Presidential debate and key developments in the oil market set to drive sentiment. With the September FOMC meeting out of the way, traders will turn focus towards who will be the next President.
With the candidates seemingly running on equal footing in the polls, the live debates could be the swing factor as to whether Trump or Clinton claim the White House. So these debates will be volatility factors for traders and the first is in New York tonight.
Traders will also be watching developments in Algeria with meetings taking place between OPEC and Non-OPEC (ie. Russia) over the potential to freeze or perhaps even trim oil production. Meeting developments and leaked updates will provide volatility for oil and impact on general market sentiment/risk appetite. Wall Street closed down on Friday as oil fell sharply into the close, whilst Asian markets have begun the week on a negative footing with the Nikkei 225 -1.3%. European markets are cautiously lower around the open today.
In forex markets there is little appetite for direction this morning with hardly any real direction although the dollar is mixed in early moves, with the yen performing well but sterling weaker again. Gold and silver have slipped slightly, whilst oil has bounce by around 1% after early encouraging comments from the Algerian oil minister.
Traders will be watching out for the German Ifo Business Climate at 0900BST which is expected to pick up very slightly to 116.4 (from 116.2). The {{ecl-222||US New Home Sales}} are at 1500BST but are expected to drop by over 8% to 598,000 (from 654,000 last month, although that number was especially large). There will also be comments from central bankers to watch with the SNB’s Jordan at 1030BST, ECB’s Draghi at 1605BST and the FOMC’s Tarullo at 1645BST. The first Presidential Debate will be at 0200BST tomorrow morning.
Chart of the Day – NZD/USD
Despite the general dollar weakness in the wake of the FOMC, we have seen the Kiwi coming off. This corrective move resulted in the breakdown of a four month uptrend on Friday and the potential for a head and shoulders top pattern to complete is now growing. A second successive strong bear candle was competed on Friday in the move and the momentum indicators are looking to be on the brink of a corrective move, with the RSI closing at its lowest since late July and MACD lines falling away. The Stochastics are the most concerning with the recent recovery barely registering an improvement before turning lower again on Friday. The big support level is now at $0.7200 which has been supportive since mid to late August. A close below $0.7200 would complete the top pattern and imply around 285 pips of downside, a move that would open the key June/July lows around $0.6950. The deterioration in the outlook on the hourly chart shows that selling into strength is viable as a strategy near term, with a resistance band $0.7280/$0.7300 being eyed today on an initial bounce
The positive drift higher seen in the wake of the FOMC meeting continues but there is still no real suggestion that this is going to be a move that breaks strongly higher. The sequence of lower highs over the past five weeks continues with the latest around $1.1285 meaning that $1.1257 from last Thursday could again be a further resistance in place. The resistance of the downtrend that has been in place since April comes in at $1.1280 and also adds to the overhead barrier to gains. The momentum indicators have ticked higher from the past few days of upside but there is little conviction in the move. I do not see this rally lasting too much longer before another mini correction sets in again. The hourly chart shows that an old pivot around $1.1200 is still an interesting gauge with hourly momentum very much pointing to a continued range play. A move below $1.1180 would open $1.1120 the key support again.
Despite the continuation of the medium term trading range above $1.2800, sterling has been trending lower now for the past three weeks and the bears look to be preparing for a test of the range lows again. The daily chart shows a number of strong negative candles which are driving the direction whilst consolidation candles in between are providing the next chance to sell. The momentum indicators show little real signs of any sustainable improvement or imminent recovery and with the MACD lines again falling away this bodes poorly for the bulls. If the RSI moves back below 40 on a consistent basis then the pressure will mount to the downside. The pivot around $1.3060 is still also a key gauge to monitor even though Thursday’s high was at $1.3120. Looking on the hourly chart shows that the bears retain control and rallies should be sold into. I have discussed previously the resistance band $1.3060/$1.3160 and this is an ideal sell zone but you could probably tighten this up to $1.3060/$1.3120 now. I expect a retest of Friday’s low at $1.2912 but the post Brexit lows of $1.2863 and $1.2796 could come under pressure in the coming days.
Since the two central bank meetings disappointed in their own different ways the flight back into the yen has been a drag on Dollar/Yen once more. The technicals continue to suggest that rallies are a chance to sell and that the two retracement candles from Thursday and Friday are going to be seen as such. The momentum indicators are still negatively configured with the RSI and MACD lines falling away. It will be interesting to see how the Stochastics react now though as there has been a positive cross but in isolation this is a signal to be wary of. The break below 101.20 means that this has turned into resistance, with the primary downtrend now coming in as a basis of resistance at 102.10 today. The hourly chart shows the momentum indicators rolling over in this bounce and the sellers look ready to resume control. The continued gravity back towards a test of 100.00 is still a factor that cannot be ignored.
Gold
The near term bulls may have pulled gold higher from the key long term support again, but the medium term range is still intact and there is sequence of lower highs which is ongoing over the past three months. The latest resistance at $1352.60 means that a $75 range has now become effectively a $50 range above $1302. The momentum indicators are not suggesting that the bounce in the past week is anything that will lead to an upside breakout yet. Friday’s doji candle of just $7 of traded range did not suggest that there was a great appetite to continue to chase gold higher, whilst the early retracement today also backs this view. The hourly chart shows that the support band $1325/$1330 will now become important in the next couple of days. The bulls would be looking to build a new basis of support from this range to push higher from. However losing $1325 could re-open pressure on the range lows again. The hourly momentum dropping off is not a great signal for today. Could Thursday’s high at $1343.60 be another key lower high?
WTI Oil
The volatility of the past few weeks continued on Friday with another huge swing on the day saw the market closing sharply lower and leaving the resistance at $46.50. This comes ahead of what could be a week with even greater volatility as the OPEC/Non-OPEC meeting in Algeria will provide plenty of different views/headlines over the prospect of a production freeze. This will make playing the technicals very difficult this week. Coming into the meeting, the RSI and MACD lines are all but neutral and the Stochastics are also flattening around neutral, which given the converging trend lines, this seems to be a fairly solid condition. Perhaps this is understandable given the importance of this meeting. However, there are key levels to watch, now with the old pivot around $46.50 being added to at the end of last week, just under the downtrend resistance at $47.25. The uptrend support is tighter at $43.35, whilst the key support is $42.55. Initial support is at $44.20 from Friday’s low.
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