Market Overview
There is a sense of traders building themselves up for what could be a crucial event at Jackson Hole on Friday. Janet Yellen’s key speech could set out how the Federal Reserve may be about to move on monetary policy, and traders continue to jostle for position with markets in consolidation mode.
The stronger dollar seen in the past couple of days has come with expectation/hope/fear (delete as required) that Yellen may follow some of her allies on the FOMC and shift to a more hawkish stance. This has impacted across major markets, with EUR/USD and gold both dropping and equities also beginning to correct after a huge run higher.
However, this is effectively merely pre-match posturing and there is unlikely to be any real views taken ahead of a speech of which the content is still highly uncertain.
Wall Street closed mildly lower last night with the S&P 500 -0.5%, whilst Asian markets were also mixed to slightly lower (Nikkei -0.3%), and European markets are also on this mildly corrective path early in the session.
Forex markets interestingly show the dollar just giving back some of yesterday’s gains and although there is no real standout performer, there is a suggestion of slight sterling underperformance after the recent run higher is beginning to bump up against resistance.
Gold and silver are also playing off the slight correction on the dollar and are trading marginally higher as the European session takes over. Oil has settled after yesterday’s decline on the back of dollar strength and the EIA inventory build.
There is a bit more data for traders to be interested in today, with the German Ifo Business Climate at 0900BST, although not much action is expected with the forecast sticking around last month’s 108.30 with 108.50 on consensus. US Durable Goods could be a driver this afternoon at 1330BST, expected to improve by +0.5% for the month for the adjusted ex-transport data.
Chart of the Day – German DAX
The market has been sliding back in the past week, but signs of support forming again have lifted the bulls once more. The market seems now to have formed an uptrend channel over the past seven weeks and the recent move has dipped back to form the support of the channel and this could be another chance to buy.
Yesterday’s bull candle was a second consecutive positive session but also showed the market unwinding some significant losses earlier in the session to show that the bulls are ready to support once more. The bulls will now be looking to push back above Monday’s high at 10,656 to put an end to the corrective move.
The support of Monday’s low has importantly also come in the middle of the medium term support band between 10,365/10,474 at 10,443, again around the support of the rising 21 day moving average which was a good basis of support for the early August correction. The trend support comes in today at 10,525, and this needs to hold as today’s early move seems to be lower.
Despite this though, the momentum indicators have unwound nicely and are now looking to pick up again, with the slide in the RSI bottoming once more around the mid-50s (as it did in early August), whilst the Stochastics are also looking to turn up again.
The hourly chart shows an interesting near term range is forming now between 10,443/10,656 however hourly momentum is more positively configured and with a bullish bias medium term now.
EUR/USD
The dollar has been strengthening mildly as we move closer to Janet Yellen’s key speech at Jackson Hole. This has been a drag on the euro which has now been pulled back towards the support of latest breakout level at $1.1233. There is a confluence of support around here with the uptrend from the recent four week uptrend coming in today at $1.1235 to add to the near term buffer that is preventing a continued slide.
Subsequently the euro has reacted mildly higher today. Daily momentum indicators suggest a drift correction rather than anything more precipitous with the RSI unwinding back towards 50, and although the Stochastics have crossed lower, for now the correction looks rather benign.
The hourly chart shows the importance of the support at $1.1233 and with hourly momentum ticking higher the selling pressure has just dissipated slightly. There is a minor near term pivot at $1.1310 with the main resistance now $1.1365.
The sterling rally of the past week has so far been just over 400 pips to yesterday’s high of $1.3272 and has now reached the resistance of a shallow downtrend that has been in place since 27th June and currently is a barrier around $1.3280. This comes as the momentum indicators have unwound to their strongest levels since Brexit. Will this be where the sterling rally starts to run out of steam again for the next sell off?
The 23.6% Fibonacci retracement of the Brexit sell off also comes in at $1.3320 and adds an extra layer of resistance today. It would be good timing with this coming just a day before Yellen at Jackson Hole, which could usher in a new leg of dollar strength (to pull cable lower) on a hawkish move.
Today’s candle is currently shaping up for a consolidation day, so it will be interesting to see if the European traders are willing to continue to chase higher. The hourly chart shows an uptrend channel coming in around $1.3150 currently, with price support initially around $1.3160.
Even though volumes are not drastically low, the lack of movement and conviction on the daily suggest it is almost as though dollar/yen traders have decided to go to sleep in front of Jackson Hole. The past four sessions have all closed within a small 23 pip range just above the psychological support of 100.
There is little real sign of any price action changing this and it looks as though traders are unwilling to take a view ahead of Yellen’s speech on Friday. The market has been rangebound between 99.53 and resistance around 101.00 for several days now with tighter support at 99.90.
Hourly indicators suggest this range will continue with plateauing moving averages and consolidation on the momentum indicators. And so we wait for the catalyst.
Gold
With the dollar just strengthening a touch ahead of Jackson Hole, this has weighed on the precious metals, with gold breaking down from its recent consolidation. The support around $1330 had held for over two weeks, but a strong bear candle which closed at the low of the day yesterday has confirmed a near term breakdown. This now re-opens the key medium term range lows around $1310.
The momentum indicators confirm the near term move, with the Stochastics into negative configuration and the RSI the lowest since early June. However I still do not see this as a key break, more of a near term blip for the bulls that is actually going to generate a buying opportunity around the key long term breakout at 1306.
The mild reaction higher today hints at questioning the move already, however the bulls will need to recover back above what is now a near term resistance $1330/$1333.
The EIA oil inventories report remains a big driver of volatility on a weekly basis, and a surprise inventory build for both crude stocks and gasoline stocks has put some selling pressure back on once more. This backs the near term corrective outlook that has formed in the past few days, with the $48.75 high being followed by a second lower high at $48.32.
Looking at the Fibonacci retracements of the June/July sell off from $51.67/$39.20, a key support is now being tested. The 61.8% Fib level is at $46.90 but this is also around where an old key pivot comes in at $46.80. Although breached on an intraday basis yesterday, the market will be looking out for a close below these supports and Tuesday’s support at $46.60. This would then open for further correction back towards the 50% Fib retracement at $45.43.
Momentum is becoming increasingly corrective with the daily RSI now dropping back below 60 and the Stochastics beginning to accelerate following their cross lower and close to confirming a near term sell signal. The support around $44.00 (a pivot and around the 38.2% Fib retracement) is key to the continuation of a positive medium to longer term outlook. There is now near term resistance at $47.70.
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