Market Overview
The sharp move into safe haven assets seen during the early stages of yesterday’s session has unwound as forex markets have begun to settle down once more. Heightened geopolitical tensions over the provocative actions of North Korea have eased for now and this has pulled gold and the yen back lower, US Treasury yields have bounced and equities are also on the rebound. However, the near term market uncertainty has been elevated by the geopolitics as with Trump noting that “all options are on the table” this could genuinely mean that anything could happen. This should help to underpin a degree of positive safe haven flow and simply because the dollar has rebounded, that does not necessarily mean that all is suddenly risk positive once more. After all, with such unpredictability from the leadership of both the US and North Korea, who knows how this might turn out? Subsequently, prevailing trends are likely to continue.
Wall Street managed a positive close after intraday weakness, with the S&P 500 +0.1% at 2446, whilst Asian markets have also rebounded nicely with the Nikkei reversing its losses, to be +0.7% higher. European markets are all higher across the board as yesterday’s losses are unwound.
In forex, there is a sense of calm overnight, whilst the reaction of markets today to the intraday recovery for the dollar in yesterday’s US session could set the tone for some near term direction. As risk appetite has improved, the yen is the big underperformer, with the Aussie dollar stronger.
In commodities, gold is over $20 back from yesterday’s high and is around -0.1% lower. Oil is drifting back once more as the southern US states continue to struggle with the impact of Tropical Storm Harvey.
US employment and economic growth are in focus for traders today. However the first key data to watch is the German inflation data which is released regionally throughout the morning with the countrywide reading at 13:00 BST. The forecast is for August prelim German headline CPI to increase to +1.8% for the year and this would give the euro bulls interest ahead of the key eurozone prelim inflation tomorrow.
The ADP employment change at 13:15 BST is expected to show 186,000 jobs slightly up from 173,000 last month. The Prelim (i.e. second) reading of US Q2 GDP will paint a more decisive picture of growth and is expected to be mildly revised higher to +2.8% (from +2.7% at the Advance reading last month).
Chart of the Day – USD/CAD
Despite recent dollar weakness, there are some interesting developments on USD/CAD as a key long term support seems to be holding and a near term bounce could be seen. The May 2016 low at 1.2458 was briefly broken by the sell off last month, but the market never really confirmed the break and bottomed at 1.2412. This support band that has subsequently been left has potentially just caught another low. The rebound in the dollar yesterday has left a bullish key one day reversal and signals that there are still potential buyers in the market. The move has come with the momentum indicators now hovering around improving levels, with RSI ticking higher around 40 and interestingly the Stochastics crossing back higher (and close to confirming a buy signal). After two consecutive positive closes, the bulls come into this session more confidently and will be eying last week’s resistance at 1.2597.
This comes with the hourly chart threatening to complete a short term double bottom base pattern above pivot resistance 1.2540/1.2550 which implies 100 pips of additional upside now in a recovery. Hourly momentum is also more positively configured as the bulls look to build a recovery. However, this would still just be a near term rebound within the near four month downtrend (today at 1.2920), with the recent rebound high at 1.2780 being key resistance.
The bulls have held on to the breakout above $1.1909 however the way that the market turned back from an intraday peak of $1.2069 suggests a little reticence. A doji candle (open and close at or very close to the same level) reflects uncertainty and coming with an intraday gain of over 90 pips, the reversal into the close poses some questions now. The market is flat this morning, however the momentum indicators have lost some impetus in the breakout.
The bulls will now need to hang on to the breakout support at $1.1909 otherwise the momentum in profit-taking could set in. For now the market looks pensive though, with the hourly chart showing momentum indicators back at levels where the buyers have tended to resume control. However a further drift backwards today could begin to gather corrective momentum. A move back above the psychological $1.2000 would help to re-energise the bulls.
The bullish upside break above $1.2930 could not be held into the close and leaving a mildly corrective candle yesterday leaves a question mark over the near term recovery. The market has just started to consolidate overnight and it will be interesting to see how the European and subsequently US sessions begin to move as if the market resumes a drift lower then the momentum in resumed selling pressure could build.
The hourly chart shows hourly momentum is back around levels where the buyers should be ready to come back in, but a move back below the support at $1.2915/$1.2930 would be a further set back for the recovery. Near term support at $1.2840/$1.2870 is important for the bulls now. Holding back above $1.2930 would help to rebuild confidence with a move back above $1.2978 re-opening the upside once more. The market looks in the balance though for now.
An incredible one day turnaround ended with the market 50 pips higher on the day and a big bull hammer candle. The momentum in this recovery now needs to be continued today to be confirmed as a reversal. The market has found 109.80/90 as being pivotal in the past few weeks and if this resistance can be decisively cleared then a recovery to test the key near term resistance at 111.00 can be set in motion. With the volatility in yesterday’s move, a 150 high low range and massive intraday rebound, this means that today’s session is key.
The near term outlook is somewhat uncertain, with Asian traders all but sitting on their hands overnight. However, European traders seem interested to buy initially and the daily momentum indicators are showing signs of improvement, with the Stochastics tracking higher, whilst the MACD lines are also bottoming. Hourly momentum has also got a more positive near term configuration. A move above 109.90 would continue the recovery with initial resistance at 110.35 before 111.00 comes back into view. Initial support is 109.40 and 109.00.
As the safe haven asset flows turned back during yesterday’s session, it is interesting to see that the intraday reversal on gold has not done the same technical damage to the prevailing outlook as it has on Dollar/Yen. The technical outlook for gold remains strong, with all momentum indicators still positively configured on the daily chart. Having been over a percent higher only to close all but flat on the day will have been a disappointment for the bulls but the $1300/$1310 previous resistance band now becomes supportive. However, as with many charts that I look at, it will be today’s session that sets the tone.
Yesterday was a high volatility day, but as the dust settles there will be a more considered look to the market and a more decisive outlook will emerge. That is why if the bulls can close above $1310 then the bulls will be more confident once more. The hourly chart shows momentum has unwound back to levels where the buyers should look to resume their move, with support at $1304.70 initially. A close back below $1300 would be a big disappointment now, with the seven week uptrend at $1290 today.
WTI Oil
The oil price is beginning to decisively track lower after another negative candle and a close at a five week low. The market continues to post lower highs and lower lows as the momentum continues to turn increasingly negative. The RSI is falling again, the MACD lines are close to falling below neutral and the Stochastics have again turned lower. Intraday rallies are increasingly being sold into now. It was also interesting to see the old medium to longer term pivot at $47.00 one more acting as a basis of resistance. This means that any intraday rally into the $46.45/$47.00 resistance is now a selling opportunity.
The next support is at $45.40 but the more decisive the downside momentum becomes the market will be at increasing risk of a retreat towards the key support at $43.75 again. Monday’s rally high at $48.20 is now key resistance.
Although the bulls managed to post an admirable rebound yesterday there is an increasing feeling that the rallies are a near term chance to sell. The run of lower highs in place over the past few weeks in addition to the near term corrective momentum indicators suggests that there is likely to still be further correction which could drag the Dow back towards a big uptrend that dates back to January. The counter argument to this could be found in today’s session. In the wake of such a strong intraday rebound, the bulls need to continue their move. However, this could be difficult as with the resistance bolstered at 21,913 and a recent three week downtrend coming in at 21,925 today there is a barrier to gains that is preventing a resumption of bullish control.
The hourly chart shows the importance of the Fibonacci retracements of 21,496/22,179. There is a band of resistance now between the 50% Fib at 21,838 and the 38.2% Fib at 21,918 that will be now watched to gauge the near term outlook.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.