Market Overview
The next month or so is likely to be increasingly dominated by the US Presidential Election. The first debate between the two main candidates last night seems to have been deemed to have Hilary Clinton coming out on top. The markets would see Clinton as the safe pair of hands, the continuity candidate. So the impact has been for risk appetite to improve and safer havens to be shunned. After a very negative day for equities (especially in Europe) yesterday there is a rebound underway, whilst the safe havens such as the Japanese yen, gold and Treasuries have been sold off. The dollar is also performing better today. It will be interesting to see the extent to which markets take a view from these debates, so today will be interesting for traders. It is likely that volatility will rise, but positioning may not last for long as traders will have the spectre of the unexpected Brexit vote in mind. Still for now though, the risk trade is back on, but how long will it last? There is still plenty to play out in this Presidential Election before we know the winner.
On Wall Street, the S&P 500 closed lower by 0.9% prior to the debate, but Asian markets have moved solidly higher today with the Nikkei +0.8% and European equities are also higher in early moves. In forex markets there is a mix of risk on and a stronger dollar. The riskier currencies such as sterling and the commodity currencies are all stronger, whilst the safer currencies such as the yen and the euro are under corrective pressure today. Gold is a couple of bucks lower but interesting with the mixture of risk and dollar strength, silver is marginally stronger. The oil price will continue to dance to its own tune this week on noises out of Algiers on production caps, limits, freezes and cuts driving the price.
There is very little driving data this morning so traders will be looking towards the US data to impact on markets. The S&P Case Shiller House Price Index is at 100BST and is expected just to dip back slightly to +5.0% (from +5.1%). The Markit US Flash Services PMI is at 1445BST and is expected to be 51.1 (last 51.0). The Conference Board’s Consumer Confidence is at 1500BST and is expected to drop to 98.6 (from 101.1), with the Richmond Manufacturing Index also at 1500BST which is expected to improve to -2 (from -11). Traders will also be interested in what the FOMC’s Stanley Fischer has to say at 1615BST.
Chart of the Day – Silver
The precious metals reacted strongly last week in the wake of the FOMC decision not to hike rates, but the rallies on both silver and gold have been unable to be sustained and the markets look to be holding on to their medium term range play. Just as it did on gold, the early September resistance on Silver has remained intact and the market has pulled lower from $20.06 to strengthen the resistance at $20.13. The corrective candle of Friday and another equally negative candle yesterday have had an impact on the near term recovery. The momentum indicators are suggesting this remains a range play with the RSI failing around 60 and the Stochastics lines now crossing lower again. There is a pivot band around $19.20 which has been a consistent magnet for prices in recent weeks. This $19.20 pivot also comes around the neutral point of a range above $18.50. The market is retreating back to test $19.20 once more with the hourly chart also showing a band of support $19.20/$19.30 which could now come under threat. There is a band of resistance around $19.65/$19.75 which could now be seen as a selling area for near term traders.. I expect the range to continue on silver but a breach of $19.20 would open the lows again with $18.65 and $18.50 possible.
The run higher has closed with four consecutive bullish candles now in a move that has taken the pair to the resistance of the five month downtrend once again. This means that the move is now at an important junction. The recovery is into a band of resistance with the $1.1283 high up to the September peak at $1.1325. However the dip back into the close may now be ready to leave another lower high within the downtrend as today’s early move has been a retracement. I do not see this move higher as having too much momentum behind it and the resistance band will now be tempting for the profit takers. The hourly chart shows the reaction low at $1.1220 as initial support and with the hourly RSI dropping away the momentum may begin to build for the dollar near term again. The 55 hour moving average (at $1.1233) could also be seen as a near term gauge of support and a breach would be an early signal. I expect the euro will continue in its medium term consolidation phase and this means a likely retracement back towards the pivot around $1.1200.
Cable remains subdued with the trend lower over the past three weeks opening a likely retest of the medium term range lows. However, as I suggested yesterday there seems to be a pattern of single sharp bearish daily candles lower followed by a few days of consolidation before the next decline. The 3 pip gain on the day yesterday was in keeping with this outlook. However the momentum indicators are all negatively configured now and rallies continue to fail. I expect this downtrend will continue lower and the bears to remain a controlling force. The hourly chart shows the price action of the past 24 hours has helped to unwind near term stretched momentum but is showing little real capacity for a sustained recovery. There is a minor resistance around $1.3000 but the main resistance is now the old pivot around $1.3060 to the reaction high at $1.3120. I expect a retest of $1.2912 from Friday, with key range supports at $1.2863 and $1.2796.
The support around 100 yen remains an attraction for traders but there seems to be a reluctance to breach it. The long term downtrend is still dragging the price lower and coming in today at 101.95, is moving ever lower to squeeze the price towards 100 yen. Once more though, despite yesterday’s strong bear candle, the support remains intact. Twice now in the past week the market has bounce from just above 100 (interestingly 100.07 on both occasions) and the bulls are not quite yet ready to give up. The bearish outlook remains intact with the momentum indicators negatively configured but it will be interesting to see if the overnight gains (post the Presidential debate) can be sustained. There is little reason to believe they will at this stage and rallies continue to be seen as a chance to sell. The hourly chart shows the pivot of the old support turned new resistance around 101.20 and bearish indicators have now got renewed downside potential. I still favour pressure on 100 yen and a breach would open 99.53 and 99.08.
Gold
The consolidation of the past few days suggests that the bulls have lost the impetus in the rally and are waiting once more. A second consecutive neutral/indecisive candle (almost another doji candle again) is adding to the resistance at $1343.60 from last week. The trend that is marginally falling and is connecting the lower highs currently comes in at $1347 and is adding to the overhead barriers to gains. The momentum indicators have lost their way too, and this all suggests that the medium term range will continue and there could be another retracement building. Today’s early losses certainly adds weight to this argument. The hourly chart reflects the consolidation well with the hourly momentum increasingly neutral. The support band $1325/$1330 remains important for the near term outlook, as a breach would re-open the range lows once more. The assessment that Hilary Clinton seems to have come out well from the debate has improved risk appetite and this has also weighed on gold overnight.
WTI Oil
Volatility remains high as a sharp rebound yesterday has unwound almost all of Friday’s sell-off. The suggestion that the Saudis are ready to offer a production cut of 1m barrels per day to Iran could be tempting and this has supported the oil price. However although the market bounced strongly on this yesterday, the chances of an agreement remains very much uncertain. This means sticking close to newsflow on oil this week is essential. The rally means that the resistance around $46.50 is once more back within range, whilst the bulls will be dreaming of testing the downtrend which today comes in at $47.25. Friday’s low at $44.22 is supportive. The technials remain very choppy and the outlook is very uncertain still for oil over the coming days.
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