Market Overview
The past 24 hours have just seen a slight pause in the recent risk negative/dollar positive move across major markets. It comes as some chinks of light start to form in the will they/won’t they saga of a US fiscal support package. The Democrats have drafted a $2.4 trillion package that want to negotiate on and potentially hold a vote next week. It would be another shift in the risk narrative and help to improve sentiment once more if it is achieved. Wall Street closed a choppy session last night in positive territory, whilst futures are again pointing higher today. It comes with the dollar rally also on pause. The question for traders is whether this is a consolidation for the dollar strength before a further surge, or a reversal. Newsflow on this US fiscal support package will certainly have a part to play. It comes with other greenshoots of good news on Brexit trade negotiations, where the foundations of another round of negotiations have been laid for next week. However, news of the development of COVID second wave infections and the response of authorities over social restrictions could be the difference as to whether we move into a new trading week with positive risk appetite. For today, a mild positive bias, but will the weekend change all of this?
Wall Street closed slightly higher, with the S&P 500 +0.3% at 3246, whilst futures are ticking slightly higher again (E-mini S&Ps +0.3%).. Asian markets were mixed to slightly positive with the Nikkei +0.5% but Shanghai Composite was -0.4%. European futures look mildly positive too, with the FTSE futures +0.4% and DAX futures +0.2%. In forex, the USD strength is just slipping back this morning, with the dollar being a mild underperformer. A slight positive risk bias is heling a bounce on AUD and NZD, whilst GBP is also a slight outperformer. In commodities, a weaker dollar is helping gold find support, whilst the wild selling pressure on silver has eased even if it is slightly lower. Oil is consolidating a shade lower today.
It is a quiet European morning on the economic calendar, but into the US session the focus will be on US core Durable Goods Orders for August at 1330BST. Market consensus is looking for a ex-transport goods to grow by +1.0% on the month (from +11.4% in July).
There is also a Fed speaker to look out for, with John Williams (NYSE:WMB) (centrist) speaking at 2010BST.
Chart of the Day – DAX Xetra
Wall Street has sold off hard in recent weeks, but European markets have appeared to be less impacted. Far less of a weighting in tech stocks and euro weakness have softened the blow, but the DAX has still had a key downside move that is potentially outlook changing. Breaking a three month uptrend with Monday’s sharp sell-off, the DAX has also breached the support band 12,630/12,800. The problem is that the rebound from 12,505 is now finding this old band of support at 12,630/12,800 as a basis of resistance. Given the deterioration in momentum we have seen, with RSI into the 30sand Stochastics and MACD lines at multi month lows, the outlook is becoming increasingly worrying for the bulls. If this band of resistance 12,630/12,800 continues to be seen as a sell zone, the downside pressure will grow. Initial support at 12,505 held yesterday’s early decline and is key again today. If this is breached on a closing basis it would open 12,253 which is the first really important higher low of the bull run. How the market then reacts around 12,253 would then be the key as to whether this is a near term pullback or something far more bearish. An early tick higher today brings the bulls into play again though and they need to look for a close above Wednesday’s high of 12,830 to improve the outlook. Also we see the 55 day moving average (around 12,910 today) as an important gauge and needs to be breached to suggest a more sustainable move higher could be building.
After the dollar went on a surge of strength earlier this week, the move has just begun to consolidate slightly in the past 24 hours. Picking up from 1.1625 yesterday, a mild positive candle formation on the daily chart has just tempered the negative pressure on EUR/USD. The outlook recently turned decisively corrective with closing breaches of the support band 1.1695/1.1750. This band now becomes resistance of overhead supply for a rebound. How the market reacts to this 1.1695/1.1750 resistance is key for the outlook. There is room for a little pullback rally near term, with the downtrend of the past three weeks sitting around 1.1825 today. We look towards momentum indicators to signal how far a rally could go and the next likely selling area. The daily RSI into the 30s could rebound towards 50 whilst Stochastics could also rebound into the 30/40 area. A bull failure between 1.1695/1.1750 would be a near term opportunity to sell for the top target of around 1.14/1.15. Initial support at 1.1625 now protect the downside move towards next supports at 1.1420/1.1490.
As with EUR/USD there has been a mild tick higher on Cable as the strength of the dollar rally has just eased in the past 24 hours. However, this is likely to be another chance to sell as the growing medium term pressure on 1.2650 support builds. The trend lower of the past three weeks comes in around 1.2825 today and there is a near term pivot around 1.2860 which we see will likely contain a rally before downside pressure renews. Momentum indicators are far more negatively configured on a medium term outlook now, but are just beginning to tick back higher again. This near term rebound should be seen as a chance to sell. We expect this week’s low of 1.2670 to come under further pressure and how the market reacts around 1.2650 (which is a breakout support band of old highs) will determine whether this move goes much deeper towards 1.2480 and possibly 1.2250 in due course. Above 1.2860 would improve the near term outlook, but the bulls need above 1.3000 to really push ahead once more.
Although the market formed a rather neutrally configured candle yesterday (a doji candlestick) the recent recovery remains on track. The pull above 105.10 to leave a run of higher lows suggests that intraday weakness is still seen as a chance to buy now. An early slip today is another test of this move higher, but there has been a big shift in sentiment this week. The bulls holding above 104.85/105.10 support will sustain the improvement even if there is a mild negative candle into the close today. Daily momentum indicators still have scope to continue to swing higher, with previous rebounds on daily RSI into the mid-50s. The improvement and recovery seen this week suggests a rebound continuing back towards the old 106.00 pivot area in due course. The resistance of a three month downtrend comes in at a shade under 106.00 today, as is the 55 day moving average, both of which have been a strong gauge of the price action in recent months. The hourly chart shows a small base pattern above 104.85 implies 105.70, whilst old breakout levels are now supportive.
The breakdown below not only $1902 but also $1863 have been key moves on gold this week. It means that the near to medium term outlook is now corrective. Momentum indicators deteriorating to levels that reflect this new outlook suggests that little near term rallies are now a chance to sell. A very mild positive session yesterday has left near term support at $1847 but how the bulls respond to a tick back higher will be telling of their mindset now. The band of support which we talked about frequently during August into September, between $1902 (late August low) and $1926 (the 23.6% Fibonacci retracement of $1451/$2072) is now resistance. The hourly chart shows $1882/$1894 is initial resistance. A failed near term rally around or below here would be seen as another chance to sell for a continuation of the pullback towards the 38.2% Fib retracement at $1835. We have drawn in a tentative six month uptrend, formed from the recent retreat. The rising 89 day moving average (around $1860) is also flanking this trend which we now watch with interest. A close above $1926 improves but the corrective phase of lower highs and lower lows remains in place at least whilst the five week downtrend is in place.
The bulls have been fighting hard in the past few sessions. Holding on to the pivot support at $41.30 throughout much of this week is a step in the right direction. We discussed yesterday about Brent Crude being in a broad four month range between $37/$46.50. The price has tightened support to $39.30 and resistance to $43.60 as a phase of consolidation has developed in the past three weeks. A $41.30 pivot is almost bang in the middle of these ranges. Momentum indicators are still very neutrally configured but are beginning to tick higher with yesterday’s positive close and today’s positive open. A move above $42.60 (Wednesday’s high) would open for pressure on $43.60 resistance.
A small bodied candlestick with long shadows (failures both lower and higher) ended with the market closing almost exactly in the middle of the day range yesterday. A degree of support forming but uncertainty. The bulls need to change the tone of this phase of trading. Positive sessions have only marginal gains, whilst negative sessions have big decisive moves lower. It builds the case for continues corrective outlook now. Selling into strength has been a feature for the past three weeks and as yet there is nothing technically to suggest this is ending. It will be interesting to see what the market makes of the new proposed fiscal package in Congress, and futures are ticking higher today. However, this needs to be translated into a strong bull session to generate confidence in a recovery. The 27,445/27,580 key resistance overhead needs to be overcome now. The near term outlook is still for a move towards 25,700 from the top pattern. Moving above the neckline would help to improve the outlook. Initial support at 26,535 is protecting 25,990.
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