Market Overview
The global cyclical downturn continues to play out and the dark clouds are massing. At least this is the message coming out of the IMF as it has downwardly revised its expectations of global growth in 2019 to +3.5% (from +3.7% previously) and for 2020 down to +3.6% (from +3.7% previously). Highlighting weakening market sentiment and the trade tensions between the US and China, further deterioration could be seen with a deeper slowdown in China and a disorderly Brexit. So with a lack of positive newsflow from Wall Street to steer markets yesterday (due to Martin Luther King Day public holiday in the US) and little further development surrounding the US/China trade negotiations, we subsequently see a more negative risk appetite taking over this morning.
This is culminating in US Treasury yields falling, risk aversion in the forex majors amidst a yen strengthening and equities dropping back. This move does though seem to be relatively contained so far, but the risk positive breakout of Thursday last week is seeing a retracement. With a lack of US data forthcoming, due to the US Government shutdown, it seems as though the dollar is benefitting from the relative weakness of other economies. Subsequently, in the wake of continued slowdown in China, there will be a focus on the German ZEW today to give further clues as to the state of Europe’s economic powerhouse.
Wall Street was shut yesterday, but futures are lower by -0.8% this morning. Although this is the US playing a degree of catch up on a mildly negative session elsewhere yesterday, it still reflects broad risk aversion today. Asian markets were roundly lower overnight (Nikkei -0.5%, Shanghai Composite -1.3%), whilst European markets are a little less negative but still cautious, with FTSE futures and DAX futures both around -0.3% lower.
In forex, there is broad risk negative moves, with the yen the main outperformer, whilst the dollar is gaining ground elsewhere amongst the majors. The commodity currencies are feeling the pinch with the Aussie and Kiwi around -0.3% lower.
In commodities, there is little real move on gold or silver, but oil is around a percent lower, suffering amidst the risk negative moves.
The UK wage growth for November will be a key focus early for traders in the European session. UK Unemployment is at 09:30 GMT and is expected to stay once more at 4.1% (4.1% in October) however, Average Weekly Earnings are expected to stay at +3.3% (+3.3% in October) which would mean that real wage growth continues to improve in the UK.
German ZEW Economic Sentiment for January is at 10:00 GMT which is expected to deteriorate further into negative territory at -18.4 (-17.5 in December).
US Existing Home Sales are at 15:00 GMT and are expected to fall by -1.2% to 5.25m (5.32m in November).
Chart of the Day – Silver
Last week we highlighted the faltering of the Christmas rally on Silver. This is a move that seems to now be accelerating. With a run of lowers highs and lower lows in the past week, the move has broken initial support at $15.30 and there is now little real support until a drop back to the breakout support band $14.90/$15.00. This comes as momentum indicators are accelerating lower, the RSI falling below 50, MACD deteriorating further following a bear cross and the Stochastics falling sharply. Intraday rallies are a chance to sell now, with minor resistance at $15.30 but main resistance formed now at $15.45/$15.50. The hourly chart shows strong corrective configuration now with any unwinding move towards 50/60 on hourly RSI being an area where the rallies appear limited. Yesterday’s low at $15.15 is initially supportive.
The euro remains a currency on the near term slide as another negative candle formation yesterday showed the bulls failing to get a foothold in the market for a recovery. Resistance is building under the $1.1420 pivot line and the now consistent failure to break back above means that the downside pressure is mounting. Throughout November and December, moves towards $1.1300 would find buyers and it looks increasingly as though the bulls’ resolve will be tested again. Trading a shade under all the moving averages shows that there is a lack of positivity now and there is a shallow uptrend at $1.1335 which is a near term gauge. Looking at the momentum indicators though adds to concern, with the Stochastics falling at two month lows. If the RSI begins to trade below 40 this would also confirm an increasingly negative outlook.
There is seemingly a pivot of support around $1.2800/$1.2815 which has been a floor for Cable in the past week. The bulls survived an intraday test of this as yesterday and actually managed a fairly positive candle into the close. However, positive momentum configuration is just now beginning to wane as the Stochastics begin to roll over. This is a warning. A move on the RSI back below 50 would add further concern. For now this is a consolidation under the resistance at $1.3000 and given the political deadlock on Brexit, this could remain in place now. A close below $1.2800 would add a more corrective dimension back for $1.2700. The hourly chart reflects the more neutral configuration.
The dollar has been performing relatively well across the major currencies, so the fact that Dollar/Yen has begun to slip back reflects a slightly more cautious sentiment. The run higher of four bull candles came to an end with yesterday’s failure to breach 109.88 and it will be interesting to see how the bulls respond to an early drop back today. The implied recovery target from a near term base is 110.40 and if the pair begins to drop below 109.10 it would be confirmation that this near term rebound within a medium term bear move has failed. The RSI turning back from under 50 adds credence to this too. The hourly chart shows a move back to test a recovery uptrend today around 109.35, but momentum is on the brink of turning corrective again. Another lower high between 109.45/109.70 would pressure this uptrend. Hourly RSI below 30 would also increase the pressure. Can the bulls hold on?
Gold
The key near term support at $1276 came under pressure yesterday but has held on to the initial test. The fact that this came with the US on public holiday will mean that today’s test will be more meaningful. However, for now the support holds and the market has also maintained the trend support of what is now a seven week uptrend channel. The risk is that a closing break of $1276 would complete a small top pattern that implies $22 of correction into the mid-$1250s. Initial support would be at $1266 from a historic pivot. Concerns of this correction are increasing, amid a deterioration in momentum, with the RSI at seven week lows (a move below 50 would signal an acceleration of the deterioration), whilst the MACD lines accelerate lower and Stochastics deteriorate sharply. The momentum indicators seem to be leading the market lower now. The hourly chart shows initial overhead supply at $1286/$1290 which needs to be overcome for the bulls to regain a sense of control again.
WTI Oil
A trend higher continues as the market spent Martin Luther King Day in consolidation, looking to confirm the breakout above $53.30. The break above the previous reaction high at $53.30 opens the way towards a retest of the December highs again at $54.75. Leaving the 23.6% Fib level behind (at $50.50) means that the 38.2% Fib level (at $55.55) is now in prime view. An upside breakout above $54.75 would also be a key change in the medium term outlook and complete a two month base pattern as the recovery continues. Momentum indicators are confirming the upside break with the RSI above 60, the Stochastics rising again above 80 and MACD lines rising towards neutral.
The market was closed yesterday for Martin Luther King Day. So, as traders return to their desks, the run higher on the Dow is accelerating as the bull move has pushed decisively through the barrier of the 50% Fibonacci retracement at 24,333 which opens 61.8% Fib at 24,950. Momentum is increasingly bullish now with the RSI rising above 60, Stochastics consistently camped in bullish territory and MACD lines accelerating higher. The next resistance on the chart is at 24,828 which is a minor old high, before a pivot around 25,000. The 50% Fib at 24,333 now becomes a basis of support for a retreat and with the hourly chart looking stretched initially, there is a real sense that intraday corrections will now be bought into.
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