Market Overview
There is a slightly negative outlook on markets today as a decline in the oil price has hampered sentiment, which has deteriorated slightly over the past day. The strength and risk appetite following on from the payrolls report last Friday has been lost and traders are questioning the bullish outlook once more.
The higher than expected EIA crude oil inventories has hit the oil price recovery and added to increases in Saudi oil production; the near-term outlook for oil is under pressure again. This is permeating to the equity markets, which are cautious again. Wall Street closed lower with the S&P 500 off by -0.3% whilst Asian markets have been mildly weaker overnight and European markets opening mixed to mildly lower too.
In the forex markets, there was a 25 basis point rate cut by the Reserve Bank of New Zealand to 2.00% overnight, but as with the RBA rate cut last week (which the Aussie strengthened off), the kiwi has gained as markets did not see the RBNZ as going far enough.
Forex majors are trading around the flat-line other than that, and with little real economic data of any note today, markets are possibly waiting for the next batch of Chinese data tomorrow (fixed asset investment, industrial production and retail sales) and also the US retail sales too.
Gold pared gains into the afternoon yesterday and this move lower has continued today, down by a few dollars. The oil price is only mildly lower today with a brief pause for breath after yesterday’s decline.
Traders do not have much to go on today so the US weekly jobless claims at 1330BST will get the most attention, although again the figure seems to be fairly settled with 265,000 expected (269,000 last week). Japan is on Mountain Day public holiday.
Chart of the Day – AUD/USD
An incredible run higher on the Aussie despite the RBA cutting rates by 25 basis points last week. The Aussie has burst through the resistance at $0.7675 to take the pair to the highest level since late April with yesterday’s high at $0.7756. This came as outgoing RBA Governor Stevens suggested that there was reduced efficacy from monetary policy and that the government needed to pick up the slack with fiscal stimulus.
The Aussie has been trending higher for the past two and a half months with a series of bull runs and near-term corrections that have formed a bull trend that is currently supportive at $0.7545. A two-day close above the previous resistance band $0.7650/$0.7675 reflects the bull control now, with corrections being seen as a chance to buy now.
The momentum indicators are interesting as the RSI is bullish at these levels but close to 67, which has been limiting the bull runs of recent months, however, in a strong trend it can be risky to call for bull market corrections purely on the RSI. I am bullish on the breakout, however I would be far more comfortable on buying into weakness.
The breakout level becomes supportive initially at $0.7650/$0.7675 now, with the hourly chart showing a sharper uptrend over the past two weeks that is supportive around the breakout today. There is further support with recent day lows but the main support is with the near-term pivot at $0.7575. The breakout has re-opened the April highs with minor resistance at $0.7765 not much protection for $0.7835.
There is a sense that on a medium-term basis the outlook is very mixed now. There is a lack of real trend that has come with the sequence of bear runs and bull retracements. The latest move has turned higher with a couple of strong bull candles in the last two sessions. The momentum indicators are giving off mixed signals too on a medium-term basis, but have just turned higher again to reflect the latest upswing.
Ever since the market began to settle following Brexit, the moves have lasted for maybe a few days to a week before reversing again. In these instances the flat Bollinger Bands can often be a good gauge, with the upper band currently around $1.1225, which coincides with the August reaction high, so this is a realistic resistance area now for this rally.
The hourly chart shows the initial resistance around $1.1190 today as hourly indicators roll over again, and perhaps there are already thoughts of locking in near-term gains for the retracement. Initial support is around the pivot at $1.1150 today with $1.1120 also supportive.
The sterling bulls have again been unable to gain any traction in a recovery and the outlook remains negative for cable. The recent break below the late July floor at $1.3060 now means that there is a 40-pip band of resistance $1.3060/$1.3100 which is being eyed as a near-term sell zone now. The concern is that the daily momentum indicators are turning negative again with the MACD lines set to cross lower, the RSI back below 40 and the Stochastics firmly in negative configuration.
The daily chart shows that any rallies (even if they last more than just a day) should still be seen as a chance to sell and I favour continued pressure back on the $1.2954 low from this week before testing the July lows of $1.2850 and the 31-year low at $1.2796.
The hourly chart also reflects all of this negative outlook, but also that there is renewed downside potential too. Above the $1.3162 high just prior to Nonfarm Payrolls would improve the near-term outlook, but rallies will continue to be seen as a chance to sell.
Yen strength has been a significant feature across forex markets in 2016 and the current moves are nothing different. The latest two daily candles have been negative, costing the pair around 50 pips each to the downside and maintaining the negative outlook. Rallies continue to be sold into and there seems to be little on a technical basis that changes this mindset for now.
The configuration of the daily momentum is bearish across the board with the RSI falling away again (with further downside potential), the Stochastics turning back lower and the MACD lines still falling below neutral.
The hourly chart shows that the market has turned higher a touch this morning from around 100.95, which is unwinding a little bit of the negative momentum, and it could be argued that there is a slightly rangy feel to proceedings between a key low at 100.65 and 102.80.
However, I would be looking for the next sell signal into any strength though today, with 101.65 acting as a near-term pivot. I continue to expect a retreat back to test the 100.00 level in due course.
Gold
Gold is turning into a bit of an interesting chart now as the bulls just lost their way a touch yesterday. The $6 gain on the day does not tell the whole story as the bulls lost momentum into the close and posted a somewhat disappointing candle in the end. This has been followed by a mildly corrective open today.
I continue to see gold with a positive medium- to longer-term outlook but it is becoming a little bit of a range play. The bulls need to sustain the momentum for a push back above $1367 and they appear to have just dropped the ball once more.
The hourly chart shows resistance has been posted at $1357.20 and the market has retreated back below the old pivot at $1346 once more. The $1338 support which was a near-term upside breakout level becomes supportive now, and although I would continue to see $1330/$1338 as a near-term buy zone, a loss of $1330 would now be disappointing for the bulls.
Volatility on oil continues around the EIA inventories report. Perhaps this time the drawdown in gasoline stocks was not as much of a bull surprise as the focus has been on another surprise increase in crude oil stocks. This has driven a correction that has interestingly left resistance once more (for pretty much a third day) around $43.50.
The technicals on the daily chart continue to show the recovery on the momentum indicators has rolled over with the MACD lines flattening, whilst the sensitive Stochastics are starting to cross lower again. A decisive move back below the 38.2% Fib level of the $26.05/ $51.65 bull run at $41.90 is a concern for the bulls as this would also be back below the trend channel again.
The hourly chart shows the near-term importance of the neckline of the base pattern at $42.10, which is now a pivot and will continue to be seen as a key gauge for the near-term recovery. The support at $41.05 remains key and a breach would change the outlook back to negative.
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.