Market Overview
Despite the major markets being stuck in a series of ranges in recent weeks are we finally starting to get some ground with some key technical breaks? The main mover has been the sell-off on Cable as sterling has come under pressure following increased fears of a hard Brexit. After three months of sideways ranging, with renewed weakness, sterling has now fallen to new multi-year lows. This could be a pivotal week to decide matters with Theresa May’s first big conference speech as Prime Minister which could put further pressure on the currency (whilst continued sterling weakness would also be a positive for the FTSE 100 once more as the strong negative correlation was renewed yesterday). The drifting dollar strength of the past week has added to the downside pressure on Cable but has also now broken long term trends with a key downtrend on Dollar/Yen and the uptrend on gold both being broken. For now this looks simply to be a continuation of the medium term range plays but it could turn into something a lot more in the coming days.
Wall Street unwound some previous gains yesterday with a dip on the S&P 500 by -0.3%. Asian markets have managed to hold off the bears and pushed higher, with the Nikkei (up +0.8%) helped by the slip in the yen recently. European markets are taking more of a cautious route today, although there will be added volatility with the DAX having been closed and issues with the capitalisation of Deutsche Bank (DE:DBKGn) as yet still unresolved. Forex markets show the dollar strength continuing, especially against the Euro, Yen and Sterling. The Aussie is slightly weaker as the RBA stood pat on monetary policy (rates at +1.5%). Gold and silver are mixed today although recent sessions have seen the selling pressure coming later in the day. Oil is marginally weaker.
Traders will be watching for the UK Construction PMI at 0930BST which is expected to remain below 50 at 49.1 (49.2 last). There are also a couple of FOMC speakers today which could drive some volatility, but it is also worth noting that neither Jeffrey Lacker (leans hawkish) or Charles Evans (dove) are voting members.
Lucky 8 – FX Trader of the Year 2016 competition update
Continuing to trade the markets in Week 1 of our competition that we are running throughout October. I will be giving daily updates on how the 8 instruments of the week are performing.
- USD/JPY – The improvement in the dollar continues and has now broken out above 101.85 a breakout which has opened the key resistance at 102.80. Intraday dips are being bought into, with 101.60/101.85 now supportive. Outlook changes below 101.20. (see below for more detail).
- AUD/USD – The Aussie has dropped back slightly on the RBA monetary policy but the technical outlook remains positive near term with support around $0.7640/50. With the bulls still in control near term a retest of $0.7690 looks on with $0.7710 resistance key.
- AUD/NZD – After the RBA pulled the Aussie lower there is still the prospect of a big top pattern, with the support around 1.0470 protecting a big head and shoulders top completing. The initial support is at 1.0500 today whilst the pivot at 1.0555 is resistance with 1.0585 key.
- GBP/JPY – Yesterday’s sterling weakness has bounced and the neutral outlook is back in play near term with moving averages flattening. Continue to play this as a bit of a range near term so the oscillating RSI is giving classic signals. Initial support 130.00.
- USD/SEK – The market is choppy and to an extent is a range play. This should mean being able to use classic overbought/oversold momentum signals on the hourly momentum indicators.
- US30 (Dow Jones Industrial Average) – An extremely choppy range play has formed between 17,992/18,450 with hourly momentum suggesting to play the range. Above 18,370 re-opens 18,450 but expect the range to continue.
- Silver – Breaking to the downside below $18.89 has re=opened a move back to $18.50 again. The momentum indicators are correctively configured and suggest that using rallies as a chance to sell. The old support band $18.89/$19.00 is now resistance.
- Coffee (KCc1) – The breach of 149.00 has now opened 147.00 and if that goes the way is open for 145.00. Resistance at 154.95 is now key, but yesterday’s high at 151.70 is also important. Momentum indicators suggest selling into any strength near term.
The lack of volatility and neutral outlook on the euro continues with once again another very small trading range for the day yesterday. The lack of direction has been a feature of the chart now for the past month with the market ranging between $1.1120 up to $1.1325 but the resistance has now been refined to $1.1280. However, there is a bout of dollar strength impacting the chart today as the momenutm indicators begin to turn lower, most notably, if the market closes here the daily Stochastics will have crossed lower. The near term support is at $1.1150. However, the hourly chart shows a pivot around $1.1200 (which is effectively in the middle of the recent range) that has been acting as a magnet for the market for the past few weeks and this cannot be ruled out again.
After yesterday’s sharp sell-off the sterling bulls are splintering and the early weakness today has dragged sterling to its lowest since 1985 against the dollar. This medium term range that has been supported above the key reaction low at $1.2796 posted on 6th July will be confirmed on a breakdown if there is a closing price below $1.2796 today (but preferably a two day close on such important support). This would confirm the completion of a downside break from the consolidation range and would imply a further downside target of around 650 pips in the coming months. The daily momentum is negatively configured with the Stochastics falling again and the RSI also at a seven week low. The downtrend in the past four weeks comes in at $1.2963 today and this could be a gauge in the coming days for any potential oversold rally. The hourly chart shows resistance at $1.2850 initially, with $1.2895 near term.
USD/JPY
The rally on the dollar has now completed its fifth consecutive positive candle as the rebound continues. The most interesting feature is the improvement seen on the Stochastics, but also the fact that this rebound is now breaking the long term downtrend that has been in place throughout 2016. A closing breakout would be a real statement of intent for the bulls, but also a move above the reaction high from 21st September (the day of both the BoJ and FOMC) at 102.80. The hourly chart shows positive momentum and higher lows/higher highs whilst the breakout means there is now a basis of support between 101.60/101.85. Looking to buy into any intraday correction today.
Gold
The strength of the dollar continues to have a negative impact on gold over the past few weeks. There has been a sequence of negative candles which have pulled gold back from $1343.60 and to now test the medium term range support. The key development in recent days has been the long term bulls losing control with the breaking down of the uptrend since December and the 89 day moving average. But now gold is at risk of breaking down on a medium term basis and a closing move below $1300 would complete a top pattern that would imply $50/$75 of downside. The momentum indicators are corrective on a short term basis but they are not yet calling for a medium term breakdown. Today’s candle could be crucial as after such a consistent run of bear candles, to post a bull candle above support could mean traders think about the range continuation rather than the top pattern completion. The hourly chart shows the momentum is negative but again without suggesting massive selling pressure. Initial resistance is $1313/$1320 but the main band overhead is the pivot band $1325/$1330.
WTI Oil
The outlook remains on the right path as the market continues to trade solidly above the old downtrend. Holding on to the support above $46.50 will be key in the coming sessions should a corrective move set in. The daily momentum indicators continue to improve, but the RSI needs to push on above 60 and the Stochastics need to hold their strong configuration. There is a very slight concern in that the market took a look above the key August high at $48.75 yesterday only to pullback to it. That makes today’s candle important for the continuation of the push higher, with the early moves being slightly weaker. Another close above $48.75 would open the next key resistance at $50.00/$50.20. However a failure candle could start to suggest profit taking after a strong run. Despite this, the support is in place $46.50/$47.00 for a corrective move.
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