Market Overview
A sudden bout of selling pressure ripped through Wall Street yesterday to leave traders scratching their heads. Maybe stocks can go down as well as up after all? The tech-led decline was seen most significantly through a -5% decline on the NASDAQ, but with little real catalyst, it seems to be simple profit taking. As eye watering a decline as it may seem, it is important to note that the NASDAQ has simply unwound to levels of Monday last week. The question becomes how will traders respond now? A correction just shy of -10% was seen in June, but was a brief shakeout and just a set up for the next bull run. This has developed a sense of negative sentiment across markets, with bond yields falling and risk aversion hitting assets such as oil. Despite this, the near term dollar rebound has begun to stall, perhaps due to the upcoming Nonfarm Payrolls report today. Traders will be wondering whether this is now another opportunity to sell USD as the broad outlook for the dollar remains negative. A ultra-dovish Federal Reserve, backed by continued dovish Fed speakers (Charles Evans suggesting rates would not go up until inflation hit 2.5%) leaves the dollar under ongoing pressure. It is likely that jawboning from the ECB over the strength of the euro, and the perception of a “no deal” outcome from Brexit trade negotiations hampering sterling could now create an increasingly choppy outlook for major USD pairs. Focus will turn to payrolls later today, with the growth of jobs in the US economy continuing but signs of a slowing pace.
Wall Street closed sharply lower as big profit-taking pulled the S&P 500 -3.5% lower to 3455. E-mini S&P futures are falling by another -0.5%. This selling pressure hit Asian markets, with the Nikkei -1.1% and Shanghai Composite -1.0%. European futures are on the back foot too, with FTSE futures -0.6% and DAX futures -0.4%. In forex, there is a degree of consolidation coming ahead of payrolls, although a mild risk negative and USD positive bias is hinting. In commodities, gold and silver have found a basis of support from recent declines. The selling pressure on oil continues to develop, with another half a percent lower today.
The big focus for today on the economic calendar is the August US jobs report, with the US Employment Situation released at 1330BST. Headline Nonfarm Payrolls are expected to once more show good growth, with +1.400m jobs created (after +1.763m jobs gain in July). Although the ADP employment report again disappointed sharply to the downside on Wednesday, hopes are high for another positive payrolls. Unemployment is expected to improve and to drop into single digits again to 9.8% (from 10.2% in July). The anomaly of wage growth continues to show through, with Average Hourly Earnings expected of zero growth in the month of August, whilst the year on year wage growth is expected to decline to 4.5% (after 4.8% in July).
Chart of the Day – DAX
A bull failure on an intraday breakout above the 13,313 old July high leaves the bulls at a tricky inflection point on the DAX. A sharp intraday correction off the session high of 13,460 say the market lose over -400 ticks into the close and complete a “bearish engulfing” candlestick (or bearish key one day reversal). This reversal is a powerful single session signal and suggests a near term corrective move threatens. There is a two and a half month uptrend coming in around 12,825 today which could now come under pressure. This becomes a confluence around this week’s earlier low of 12,850 and helps to bolster the 12,620/12,800 area of pivot support. Momentum indicators have been suggesting a market struggling to push higher in recent weeks, and this could now play into a near term corrective move. How the bulls respond today to the sharp decline will be interesting, with early indications of weakness today (although it is Nonfarm Payrolls today so this may begin to consolidate). There can often be a knee jerk reaction higher following such a strong negative session, but if gains are then sold into it will be an indication that market sentiment has shifted corrective for now. Important support is at 12,630 and if breached opens 12,253.
The strengthening of the dollar eased into the close of yesterday’s session and this has allowed EUR/USD to stabilise near term. An only marginal decline on the close of yesterday’s session included a rebound of +60 pips off the day lows and has allowed support to begin to form once more. The strong ongoing technical outlook on EUR/USD still suggests that corrections into support are still a chance to buy. The market has been posting continual higher lows and higher highs for several months now and the latest retreat which has found support above the key band between 1.1695/1.1750 means that this is favoured to be another chance to buy. Momentum indicators are warning that the medium term position is not as strong as a few months ago (given the drifting negative divergences), however daily RSI holding in the mid-50s is still suggestive that this correction is favoured to be bought into. The hourly chart shows that if the market can break decisively above 1.1880 it would be a bullish signal that sees the bulls back on track to test higher once more. With hourly indicators having unwound, this is a key inflection point coming into Nonfarm Payrolls today.
As the recent dollar rebound has dragged back Cable, is this a chance to buy again? The technical outlook suggests that this is a near term pullback within a bigger medium term uptrend. A Two month uptrend comes in at 1.3215 today whilst there is a good band of breakout support between 1.3185/1.3265. Daily momentum indicators may not look as strong as they have done previously (arguable medium term slowing and negative divergence) but the price outlook remains positive around these levels and this corrective slip still looks to be an opportunity. The hourly chart shows initial resistance to be overcome at 1.3320, but a move above 1.3355 would really open the renewed upside. A close below the rising 21 day moving average (currently 1.3175) would signal a more corrective move, but the bulls would only really lose control below 1.2980. We favour buying into the weakness for another test of 1.3480.
Once more we see a rally into the 106/107 band of overhead supply is struggling to sustain upside traction. Yesterday’s doji candle denotes uncertainty with the run higher and end a string of positive closes this week. Interestingly, one more the magnetism of the old 106.00 pivot has come into play again. We have noted previously the resistance of the two month downtrend, and this stopped the rebound almost to the pip yesterday. The trendline falls at 106.55 today and remains a basis of resistance, whilst the falling 55 day moving average (around 106.50) is also still seemingly a gauge of resistance. The hourly chart shows a (slightly redrawn) near term uptrend still intact but the run is lacking intent now. Resistance is building around 106.50 for another potential lower high. We continue to view rallies as a chance to sell on Dollar/Yen within the four week trading range 105.10/107.00 and favour pressure towards the lows once more.
Coming into Nonfarm Payrolls today, the strong bullish medium term outlook sits at an inflection point. The dollar rally of the past few days has dragged gold back to test its 12 week uptrend. Yesterday’s slight intraday breach could not be held into the close yesterday, but an early consolidation today continues to sit around the trendline (which rises at $1931 today). We have talked previously of the continues support found into the close around the 23.6% Fibonacci retracement (of $1451/$2072) at $1926 and once more this held as support yesterday. Clearly though, this level remains under pressure and a decisive closing breach of $1926 would begin to signal a shift in sentiment. A close below $1902 (last week’s intraday low) would really confirm a corrective outlook taking hold once more. For now this slide back is part of a growing consolidation between the low of $1902 and recent resistances $1991/$2015. The RSI moderating between 49/60 suggests there remains a bullish bias to the consolidation. Holding the supports though would be key, as RSI into the mid-40s would be a key warning that the bulls are losing their control. The hourly chart shows resistance now between $1945/$1955 which needs to be overcome to generate positive traction once more.
There has been a decisive shift in the outlook for Brent Crude in the past few sessions, as the selling pressure begins to mount. In the past seven completed sessions there have been no positive daily candlesticks. This suggests that intraday rallies are being consistently seen as a chance to sell. The market has breached the support at $43.60/$43.90 and even if this has not been confirmed on a closing basis, the market is once more lower today. This deterioration is really being reflected through momentum indicators now, with RSI below 50 and falling at its lowest since April, whilst Stochastics accelerate lower towards bearish configuration and MACD lines are also falling away. A close below $43.60 would also be below the 55 day moving average (currently $43.80) which has not been closed below since turning up as part of the big recovery. An arguable top pattern would also complete which would imply a retreat towards $41.30 which is the first really important support of the recovery. There is resistance now between $43.60/$44.55.
A massive reversal of sentiment has seen Wall Street sharply lower on the back of a tech driven sell-off. Although the Dow exposure is relatively tech-lite, there was still a sizeable decline which pulled the market back by -2.8%. The one day candle formation was a “bearish engulfing” (or bearish key one day reversal) which has left resistance at 29,200 to fall sharply back. This is a very clear negative signal now and how the market responds in the coming days will be important. Another negative session today would suggest the market is on for a near term correction at least, to unwind some of the overbought position of recent months. The RSI turned back from 76 in June and the Dow corrected -9% in just three sessions. The RSI has turned back from 75 this time. Very near term support has been breached, but this now brings the market to test the 28,000,28,155 breakout support band. A closing breach would see the market retreat back towards its five month uptrend, currently around the old 27,580 breakout key support. Initial resistance at 28,660/28,735.
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