Market Overview
Moving into the final week before the UK election, traders also have to take into account the impact of yet another terrorist related incident in the UK in the past three months and the second attack of the election campaign. Initially it seems as though markets have been minimally impacted, with sterling barely more than a dozen ticks lower, whilst the FTSE 100 is higher (the negative correlation trade seems to be still working). So perhaps this is a sign of the calm before the storm of the election. There is a mild dollar positive reaction today with the US 2 year yield recovering from a decline in the wake of a disappointing Non-farm Payrolls report on Friday. However, with the 10 year yield in decline this suggests that the market is questioning just how quickly the Fed will tighten further down the road, whilst also questioning growth and inflation potential.
Wall Street closed positively on Friday with the S&P 500 +0.4% at 2439, whilst Asian markets have been mixed to slightly weaker today (Nikkei -0.1%). European markets are relatively solid today despite the terrorist attack in London as markets seemingly become ever more desensitised to the frequency of these events.
In Forex there is a very slight dollar positive bias, with marginal euro and sterling weakness with even the yen slightly weaker. In commodities, even gold is also a touch lower.
Oil has opened positively today by around +1.0% but with technicals o a deteriorating path, can this last?
The services PMIs are in focus today for traders. Although Germany and France are on public holiday today, the final Eurozone Composite PMI is first up at 09:00 BST which is expected to be revised slightly down to 56.8 (from 57.0). The UK services PMI is at 09:30 BST and is expected to drop back to 54.4 (from 55.8 last month). The US ISM Non-Manufacturing is at 15:00 BST and is expected to drop back to 57.1 (from 57.5). US Factory Orders are also at 15:00 BST and are expected to drop by -0.2% for the month having grown by +0.5% last month.
Chart of the Day – FTSE 100
As the election approaches the bullish control of the chart is being questioned. Quite how the market also now copes with the London terrorist attack will be interesting too. The market is marginally higher in early moves, however twice now in the past three sessions, strong intraday gains have been sold into and the market has ended the day close to the low of the session. Arguably these are shooting star candles which are corrective signals.
The sellers are threatening. Despite Friday’s move to an all-time high at 7599, this comes as a six week uptrend is being increasingly pressured. The momentum indicators retain a positive configuration but are beginning to look a bit tired. The Stochastics are threatening a profit-taking signal whilst the MACD lines are flattening off. This could just be the market consolidating in front of the election but the threat of a correction is growing now. The initial support to watch is at 7497 and a breach would open a correction back into an old bank of support 7389/7447.
In the wake of the disappointing Non-farm Payrolls report, the euro broke out to a close at a new high dating back to 9th November. The third bull candle in four sessions has now moved through the previous resistance at $1.1267. The corrections continue to be bought into at higher levels and the bulls remain in control. Last week’s key low at $1.1108 makes the long term pivot at $1.1100 even more robust, whilst there is also support now at $1.1200 which has supported the last two completed sessions.
Momentum indicators remain solidly strong with RSI in the high 60s an and Stochastics consistently above 80. The MACD lines have started to plateau so this leaves a slight degree of caution. However there is little reason to think that today’s early drop will be anything more than another chance to buy. The hourly chart shows support initially around $1.1250.
In the last few days before the election, traders may begin to get a little nervous about taking a decisive view. Add in the impact of the London terrorist attack and this makes Cable even more unpredictable. There has been an initial opening move lower today, perhaps understandable given events of Saturday night in London, however there is little significant impact as yet. The support around $1.2775 remains key as the breakout support and there is a mild corrective bias to momentum that would favour a drift back towards the support.
This would also be backed by the usual anti-sterling reaction that would tend to occur in the wake of a UK terrorism event. There is resistance building up at $1.2920, above which would improve the outlook, whilst the hourly chart reflects more of a consolidation play. This could become a feature of the next few days of trading. There is support at $1.2830 initially.
A strong bearish outside day on Friday has flipped the outlook round negative once more. With momentum indicators correctively configured, this puts the pressure back on towards a downside bias. The support of the May low at 110.20 has survived an initial test this morning, however the resolve of the positive early response today will now be under scrutiny. Can the dollar bulls hang on to an unwinding recovery. Friday’s sell-off is still fresh in the memory and the move looks to be unwinding oversold momentum on the hourly chart.
There is initial resistance in the 110.85/111.20 area that will now be watched. A failure around here would put the pressure back on the downside once more. There will often be a positive near term reaction to a strong bear candle. However can the bulls prevent the sellers from regaining control once the initial knee jerk bounce has settled down again. Below 110.20 opens 109.57.
After a series of constrained candles, gold has burst higher again in the wake of the disappointing Non-farm Payrolls report. Adding $18 with Friday’s strongly bullish candle the way is now open towards a test of the April high at $1295 again.
Momentum is suddenly looking very strong with SI, MACD and Stochastics lines all positively configured and suggesting that corrections remain a chance to buy. The market broke out above $1273.75 and this now becomes an area of initial support for intraday corrections now. The hourly chart shows momentum just showing initial signs of a corrective move today, however the bulls are likely to be watching with interest. The hourly chart shows a breakout band of support $1265/$1273.75. There is now key support at $1258.75.
WTI Oil
With the selling pressure now confirming the head and shoulders top pattern the bears are now in control and the market looks corrective for further downside. A closing breach of $48.00 has completed the top pattern that now implies $4 of downside to $44.00. Momentum indicators are increasingly corrective and with the RSI and Stochastics already in decline a bear cross on the MACD lines confirms the negative outlook. Any pullbacks towards the neckline resistance will be seen as a chance to sell.
The bear pressure will remain whilst the resistance of Thursday’s high at $49.15 remains intact. That means that reaction to today’s rally into the resistance band $48/$49.15 will be key to the near term outlook. The hourly chart shows negative momentum configuration and unwinding moves on the RSI towards 60 and MACD lines unwinding to neutral are being seen as the opportunity to sell. Friday’s low at $46.75 is the initial support but there is little real support now until $45.55. There is near term support at $47.45.
The bulls remain in control on Wall Street despite the disappointing payrolls report. This bull control has allowed the Dow to hold on to the new all-time high ground on both a closing basis and now also an intraday basis too.
The momentum within the run higher is strong now with the RSI in the mid-60s, the MACD lines tracking higher again and the Stochastics strongly configured. Corrections are a chance to buy, even on an intraday basis now. The key support has been left at 20,943 but the bulls will look to use the initial support band between 21,033 and 21,112 now as an area to buy into for further gains in due course.
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