Market Overview
Market sentiment has taken a hit after the FBI announced further investigation into Hillary Clinton’s use of a private email server whilst in government. The potential for this to harm her bid for Presidency (and therefore improve the prospects of Donald Trump) has increased the level of fear in the markets impacting across asset classes. VIX volatility jumped on Friday with equities under pressure. In currencies, the dollar has also taken a hit whilst safer havens such as the yen and gold have also benefitted. Will this be anything more than a blip that gives another opportunity to buy the dollar again? It is unlikely to derail Clinton who remains the front runner in the election campaign but volatility is benefitting in the near term. There is a further hit to sentiment from news out of a meeting in Vienna for non-OPEC countries to discuss the potential for production limits, but there was no agreement and this has pulled out lower again. Markets will be looking out for inflation from the Eurozone and the US today as the main economic events.
Wall Street was again lower on Friday (having looked to be positive prior to the news breaking from the FBI). The S&P 500 closed 0.3% lower at 2126, whilst Asian markets have been mixed to mildly lower (Nikkei -0.1%) and European indices are also weaker in early moves. In forex we are seeing the dollar looking to claw back some of the losses from late on Friday, whilst gold and silver are relatively settled. The oil price is around half a percent weaker.
Inflation is key for traders today with the Eurozone flash inflation at 1000GMT expected to pick up to +0.5% (from +0.4%) whilst the core Personal Consumption Expenditure from the US at 1230GMT is expected to be +0.1% for the month and staying at +1.7% for the year. The Chicago PMI at 1400GMT is expected to dip slightly to 54.1.
Chart of the Day – USD/CHF
Dollar/Swiss has been spending the past week testing the key resistance at 0.9950, however just has been unable to make the breakout. The momentum indicators suggest that the bulls are running out of time and the loss of impetus could begin to drive a correction. Will Friday’s big bear candle be the beginning of that correction? The Stochastics have already given a crossover sell signal and the MACD lines are also crossing lower, whilst the RSI again failed in the mid-60s as it has done on previous tests of the resistance. The corrective candles had been racking up in recent days prior to Friday’s drop. An imperfect shooting star (due to the close higher on the day) has been followed by negative and doji candles to reflect the uncertainty of the bulls for the run higher. There had been a spike to almost bang on parity (0.9998) that failed also last week only for subsequent candles to again find resistance around 0.9950. A move back below Wednesday’s low at 0.9900 now suggests the loss of bull control and another corrective move within the 8 month range 0.9475/0.9950. The old support around 0.9900 is now a basis of resistance and a failed rally would increase the resistance and put the support at 0.9840 under pressure. It needs a close above 0.9950 to re-energise the bulls.
The pair jumped strongly late on Friday in the wake of the FBI investigation to Hillary Clinton’s emails. This meant that a strong bull candle was posted that took the price back above the resistance at $1.0950. I had been seeing this as a key level of overhead supply where old bulls had been suffering losses and would be looking to sell out. I am now looking for the next sell signal as I believe that there will be further downside potential and dollar strength that will be pulling the pair lower again. I am now looking for this sell signal in the $1.0950/$1.1050 area. We have seen early today a retreat from $1.0992, however this is now important as the Stochastics have now crossed higher to give a near term positive signal. The movement on the daily RSI will be key now as a failure below 50 would confirm this to be a near term selling opportunity. Also a loss of support at $1.0950 would suggest a failed rally too and re-open the lows around $1.0850.
Despite the late selling pressure across the dollar pairs on Friday, Cable has seen little discernible change to the outlook. The range that has been in place for the past three weeks is finding the support at $1.2080 increasingly being eyed. The momentum indicators are negatively configured and although the daily hart reflects a holding pattern, the hourly chart is more of a concern for the bulls. Rallies are being sold into and the market is forming a new lower resistance around $1.2215 as the rallies are being sold into. This is ow protecting the bigger resistances overhead at $1.2250/70 and $1.2330. Expect further pressure on the low at $1.2112 and the key range low at $1.2080.
Can the dollar bulls maintain the run higher? Friday’s corrective move has left a high at 105.53 which was almost to the tick at the initial resistance of 105.52. The subsequent decline has posted a bearish daily candle that threatens the trend higher. The daily momentum indicators do not show too much concern yet, but another corrective move today and this could really begin to negatively impact. It is the hourly chart that shows the effect of Friday’s selling pressure with a seven day uptrend being broken and the RSI dropping below 40 for the first time during that uptrend. The bulls will be looking to regain the initiative today otherwise a deeper correction could set in, with resistance around 105.00. The support of Friday’s low at 104.24 will also become key, so there is an important period of trading now ahead to determine the near term outlook. A loss of 104.24 would mean a lower high and lower low formation and begin the development of a new corrective trend.
Gold
Gold is hanging on to the recovery outlook, with the neckline of the base pattern at $1265 still lending a basis of support. It is interesting also that with Friday’s bull candle (in the wake of the renewed FBI investigation into Hillary Clinton’s emails) the gold price achieved the minimum $1283 implied target from the small base pattern above $1265. However the market still seems to be a little uncomfortable with rallies and the price has dropped back by $10 again .I do not believe that a rally will have too much traction and expect selling opportunities to be used before further renewed downside pressure. The RSI is unwinding back towards 50 and the Stochastics are now beginning to lose impetus. The reaction today could be telling as to whether the market can continue, however I am expecting renewed selling pressure. Resistance is at $1284 now, with the support band $1260/$1265 still key near term.
WTI Oil
WTI oil seems to now be breaking lower again as the rally has rolled over. The price closed below the $49.15 support on Friday and this has completed a small top pattern that would imply a $2.45 downside projection to $46.70. With further opening losses today the market seems to be ready to confirm the corrective outlook for the near term. The concern is that the momentum indicators continue to deteriorate on the daily chart, with the RSI at a 4 week low, the MACD lines have crossed lower and the Stochastics continue to decline. Last week’s intraday low at $48.87 and the old breakout at $48.75 is also a basis of support that has been broken by today’s move. The next supports are $47.75 and $46.50 and these could be tested in the coming days.
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