Market Overview
UK Prime Minister Theresa May has survived a leadership challenge from her own MPs, but it is a hollow victory in many senses. Her victory of 200 to 117 means that more than a third of her Conservative MPs did not back her leadership and would suggest that unless she can secure substantial changes to the Irish Backstop in the Withdrawal Agreement, her deal will still meet a significant defeat when put to a vote in the House of Commons.
Essentially, very little has changed and her dogged, if uninspiring, premiership continues to look doomed for failure. Sterling in many ways is now a proxy for this journey. Sharp falls earlier in the week, were met by an intraday rally as the dead cat bounced. However the bounce will be short lived.
Away from Westminster, and to the European Central Bank which is set to announce a momentous (albeit well signalled) end to its quantitative easing today. The asset purchase programme will stop its purchases, that much the market knows. However, communication of the next step forward will be the key today. Looking at growth and inflation forecasts which are updated today, Mario Draghi is likely to play his usual straight bat to questions. Broadly this morning, there is a sense of mild risk positive as markets look to take the positives out of more constructive signals on the US/China trade dispute.
Wall Street close higher although well off session highs, with the S&P 500 +0.5% but with futures pointing to further gains today (around +0.5%) we see Asian markets positive (Nikkei +1.0%, Shanghai Composite +1.2%). However, European markets are taking into account the US slip into the close and are looking mixed to mildly positive initially today.
In forex, there is a mild risk positive look with the commodity currencies all trading higher against the dollar, whilst the euro is consolidating ahead of the ECB. Sterling is steady for now, but the next bout of Brexit related volatility is surely not far away.
In commodities, there is consolidation for gold and silver this morning, whilst oil is settled after a disappointing close yesterday.
There is a key focus for the economic calendar today coming from central banks in Europe. First up is the Swiss National Bank monetary policy which is revealed at 08:30 GMT which is expected to be held as per usual at -0.75%. The Swiss franc could also see further volatility during the SNB press conference at 09:00 GMT.
The European Central Bank monetary policy announcement is then at 12:45 GMT where the widely guided announcement of the end of the Asset Purchase Programme is expected. There will be no change to the rates corridor, with the deposit rate at -0.40% and the main refinancing rate at 0.0%. Also keep an eye on the ECB President Mario Draghi’s press conference at 13:30 GMT with the updated staff forecasts on growth and inflation.
US Weekly Jobless Claims are at 13:30 GMT which are expected to drop back slightly to 226,000 (from 231,000 last week).
Chart of the Day – AUD/NZD
For the past couple of months, the Kiwi has been an impressive outperformer amongst the majors. The move lower on Aussie/Kiwi has formed a downtrend channel in the last six weeks. During that time there have been repeated breakdowns and subsequent technical rallies that have failed as levels of old support which have become resistance. The market formed a strong rally yesterday which has left support at 1.0430, however this move is likely to again become an opportunity to sell. The recent breakdown below old support at 1.0585 is latest basis of resistance to watch. This comes as momentum indicators are once more unwinding from oversold but within a negative medium term configuration and this rebound is likely to struggle. With the falling 21 day moving average (today around 1.0595) having provided key resistance since mid-October, there is a potential opportunity for the bears to come with this rally. Wait for a sell signal around the confluence of resistance.
As the ECB monetary policy meeting approaches the outlook on EUR/USD has become increasingly neutral. Very little traction for either direction has shown in the past couple of weeks as the market has formed a consolidation between $1.1265 and $1.1470. Technical indicators have become increasingly benign whilst the flattened nature of the 21 day moving average also reflects the consolidation in the market. Yesterday’s positive candle has simply helped to neutralise the effect of the two previous negative candles, whilst the market is almost flat today with traders unwilling to take a view ahead of the ECB. Support at $1.1300 and resistance at $1.1445 initially as we wait for direction.
Cable jumped (through sterling strength) as UK Prime Minister May faced and subsequently won a vote of confidence from her own party MPs yesterday. However this is not going to be the start of any big sterling rally as it changes very little. Technically it was very interesting to see that the rally unwound to the resistance of the previous key breakdown at $1.2660 around which it began to dissipate once more. This old key floor is now a near term barrier for the bulls and continues today. It is very difficult to see rallies as anything more than another chance to sell on sterling right now as the uncertainty surrounding Brexit continues (there is simply a stalemate in the UK Parliament for anything to be agreed). There is support at $1.2475 in place but unless Mr May achieves something dramatic at the EU Summit (highly unlikely) then sterling will once more slip back. The hourly chart shows $1.2590 is initial support.
The dollar rebound slipped a shade yesterday as the momentum in the recovery began to lose traction yesterday. There is an early reaction higher today, and the near term recovery does still leave a marginal positive bias to the market, but close to the overhead resistance and the bulls are looking tentative. This is still all playing out within what is an increasingly neutral medium term outlook as the converging trendlines of the six month uptrend and nine week downtrend mean that the rally could now struggle. How the market responds to finding resistance at 113.50 yesterday. Another tentative close under 113.50 would see the resistance between 113.85/114.00 growing. Momentum indicators are also once more looking increasingly to lose their impetus and the medium term consolidation looks set to continue. Initial support at 113.15.
Gold
The near term uptrend channel of the past two weeks continues to track higher and yesterday’s marginally positive candlestick has helped to maintain the integrity of the channel. However, the near term channel support is at $1243 today and the bulls have just taken a step back in the past few sessions. Medium term technical configuration still points towards a positive market but this outlook needs to find a boost once more to wake the bulls out of this near term slumber. Support formed in the band of old highs between $1230/$1243 remains important, and should help to build confidence for the bulls for the next move higher. Momentum indicators remain positively configured and continue to suggest intraday corrections will provide a chance to buy. The recent resistance at $1250 is standing in the way of a move towards $1266 which is not only the July high but also the four month trend channel upper limit this week.
WTI Oil
Having looked so strong for much of yesterday’s session, the bulls will have been disappointed that once more they could not close with a break of the nine week downtrend. There does still seem to be an improvement in momentum as the RSI, MACD and Stochastics all show a capacity for a recovery, however the bulls just cannot get going so far. There are intraday moves higher the continue to fail, with the falling 21 day moving average a basis of resistance (currently $52.79). Support is holding above $49.40 (the key November low) and around $50.00/$50.50, however a run of lower highs also continues. Resistance continues in the range $52.75/$54.75, with yesterday’s high at $52.90 an initial barrier.
Yet another session where the Dow spluttered and chugged as the recovery has again failed to find traction. The daily chart shows an incredible run of candlesticks in the past week or so, littered with hope but also bull failures. Yesterday’s candle was no different as initial positivity dissipated into the close to end the session almost as it opened. Taking decisive signals off the Dow is a tough ask right now, but with the momentum indicators seemingly bottoming again, there is a positive bias which is forming. It is not though a market for the feint hearted as an Average True Range of 487 ticks suggests. There is a higher low at 24,221 above the 23,881 key low now. Resistance at 24,829 from yesterday’s high.
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