Market Overview
Market sentiment has improved again as Wall Street reclaimed earlier losses into the close. This comes as Treasury yields have bounced and helped to support the dollar. However, the question is whether it can last. Is this move simply another blip in the selling phase as the US 2s/10s spread has resumed its downward slide once more?
The concerns over how quickly the Fed will be able to tighten amidst weak inflation, in addition to limited legislative potential from Donald Trump have renewed the dollar selling pressure in recent days. With a lack of significant tier one data to repaint the picture, this is likely to simply be a pause in the dollar selling pressure. Watch for support forming on gold, EUR/USD and resistance on dollar/yen being the main signals.
Wall Street closed around the flat line with the S&P 500 +0.1% at 2461, whilst Asian markets were supported with the Nikkei +0.2% and back over 20,000 again. European markets are also looking reasonably positive today, though watch performance of the euro and sterling to help generate performance on DAX and FTSE 100.
In forex, there is a mild dollar recovery today with the euro and the yen weaker, however it is interesting to see the Aussie and Kiwi still remaining strong in their bull runs higher. In commodities, gold is off its rebound highs, whilst oil is also mildly weaker after the API inventories showed increases.
It is a quiet morning of data during the European session, so traders will be looking towards the US housing data in the afternoon. Building Permits are at 13:30 BST which are expected to improve by 2.5% to 1.20m (from 1.17m last month), whilst Housing Starts are expected to also improve, by over 6% to 1.16m (from 1.09m last month). The EIA oil inventories at 15:30 BST always drive volatility in the oil price, with crude stocks expected to show another drawdown of -3.5m barrels (after -7.5m drawdown last week), whilst stocks of distillates are expected to rise by +1.3m barrels and gasoline stocks are expected to drop by -1.4m barrels.
Chart of the Day – GBP/JPY
Is the pair about to top out again? Sterling has come under pressure from the lower than expected UK inflation and the technicals are increasingly looking corrective. Having failed for a second time under the key May high of 148.10, last week’s reaction low at 145.25 is now under threat following yesterday’s bear candle. This would now complete a double top reversal pattern if breached on a closing basis and imply 285 pips of downside to 142.40. This is all coming under the backdrop of deteriorating momentum now, with the RSI already leading the market lower with a top and a three week low, whilst the Stochastics are also tracking lower and the MACD lines are on the brink of a bear cross sell signal.
The neckline at 145.25 has already been tested by yesterday’s low but the next support below 145.25 is not until 143.95 and 142.75. The hourly chart shows resistance now between 146.00/146.60 to use as a “sell zone” today.
The breakout above $1.1500 achieved yesterday continues the bull run that has been in process for the past few months. The three month uptrend continued to be flanked by rising moving averages, whilst the momentum indicators retain a strong configuration. The push above $1.1500 now means that there are two key resistance levels overhead that mark the peaks of the range of the past two and a half years. Resistance at $1.1614 (from May 2016) and $1.1711 (August 2015) stand in the way of a huge long term bullish breakout.
Near term corrective dips remain a chance to buy, with old breakout resistance now supportive. This means a “buy-zone” now between $1.1445/$1.1490. The early dip today could give that opportunity to buy and the bulls will remain in comfortable control whilst above the key reaction low at $1.1370.
An intraday sell-off on lower than expected UK inflation has started to form a corrective move on Cable. A bearish engulfing candlestick (also a bearish key one day reversal) has come from yesterday’s high at $1.3125 which closed back below Monday’s low and the previous breakout of $1.3030. The session stopped short of moving back below the $1.3000 support but there is a near term negative outlook forming. The Stochastics has crossed lower again and a third straight bear candle today would really begin to develop the negative momentum shift.
There are still question marks over a correction though. The hourly chart shows that if the buyers can continue to hold on to the $1.3000 support then the momentum indicators are all around levels where the bulls have previously resumed control. On a near term basis the $1.3050 old resistance is now a basis of support and needs to be taken out for the bulls to gain in confidence again, especially with a close above. A close below $1.3000 would open an old pivot around $1.2890/$1.2900.
The outlook for Dollar/Yen remains under near term downside pressure as another strong bear candle has been formed. This comes with momentum indicators increasingly corrective, as the RSI falls below 50, the MACD lines cross lower and the Stochastics fall ever further into negative configuration.
The big test for the pair will be the old key support around 111.60. This has previously been a key pivot in recent months but also the 38.2% Fibonacci retracement at 111.55 adds to the potential for this to be at least a consolidation area, if not potential turning point. There has already been a rebound from yesterday’s low at 111.65 and the market is now testing the recent six day downtrend on the hourly chart. However, rallies have continually been sold into and there is resistance initially at 112.40 and then at 112.90.
The rally is just having a pause for breath this morning as the rebound has turned lower from yesterday’s high of $1244.50. However, there have been some key overhead resistances taken out by another strong bull candle yesterday, with the underside of the old uptrend, 144 day moving average and resistance of $1240 all breached. This changes the outlook again and takes the market into more of a neutral configuration, back within the $20 range between $1240/$1260.
The early move lower today is unwinding some of the bull momentum, but needs to maintain support within the bull run to keep the recovery on track. The hourly chart shows a near term band of support today at $1229 and $1235 which need to hold. A breach of $1229 would suggest that the bears were regaining control again.
WTI Oil
The bulls remain in control as the prospect of a sustained test of the key medium term pivot resistance at $47.00 remains in play. Having been a key turning point on several occasions over the past few months, the resistance is once more acting as a barrier this week.
The traded highs of the last two sessions have been just under $47.00. However, yesterday’s candle was more positive whilst momentum indicators remains in recovery mode. Furthermore, the market is still holding on to the $45.80 support that has been in place for the past three sessions to maintain the recovery impetus. Another positive candle today would continue to increase the pressure. A failure of $45.80 would be disappointing for the bulls but it would need a loss of the support at $45.00 support for the sellers to be in control once more.
The bull rally has just rolled over again as the push into new high ground has run out of steam. A tight range doji candle has been followed by yesterday’s negative move which has ended the push higher, at least for now. There is still a bullish medium term configuration that continues on the Dow with the momentum indicators positively configured, such as the RSI which is still consistently above 50. However there is a risk if there is further negative daily candles that momentum could begin to turn more corrective, with the Stochastics especially reactive. However, there is a near term basis of support around 21,500 shown on the hourly chart which coupled with yesterday’s spike low of 21,470 means a support band is forming. The bulls remain in control whilst the support band around 21,200/21,300 remains intact.
The hourly chart shows positive configuration on hourly momentum with yesterday’s pullback into an area where the RSI and MACD lines have recently been supported. There is now resistance initially at 21,590 and the gap at 21,630.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.