Market Overview
Financial market sentiment continues with an uncertain outlook as forex and equities struggle for decisive direction and even the key breakouts on the safe haven assets are consolidating. The dollar rebound yesterday was helped by the political uncertainty surrounding the French presidential election, whilst it seems also that Greece is beginning to re-emerge as a risk factor too. This has taken the trade weighted dollar index back above 100 once more, however with Treasury yields around two week lows, it is difficult to see much real traction in a strong dollar move right now. More likely is that this is a consolidation within the move to safe havens, with the yen and gold just consolidating recent breaks.
Wall Street closed marginally higher overnight with the S&P 500+0.1% at 2293. The Asian markets have been mildly higher overnight with the Nikkei +0.5%, whilst European markets are showing very mild gains in early moves. Forex markets are showing very little direction today so far, whilst gold and silver are marginally weaker after yesterday’s consolidation. After falling sharply last night on a significant inventory build in the API oil stocks, the oil price is lower again today.
Once more there is very little on the economic calendar to impact ton markets. The oil traders will certainly be watching out for the EIA oil inventories at 1530GMT with an inventory build expected again. The crude oil stocks are expected to increase by +2.4m barrels (last week (+6.5m) with the distillates up by +0.5m barrels (last week +1.6m) and the gasoline stocks up by +1.0m barrels (last week +3.9m). The other key factor to watch is much later in the session with the Reserve Bank of New Zealand monetary policy at 2000GMT which is expected to hold rates at 1.75%, however, as with the RBA earlier in the week it will be more about the future guidance that impacts on the Kiwi.
Chart of the Day – USD/CHF
The dollar has been under pressure throughout January as the market trended lower in a move that broke below the key band of support between 0.9950 and parity of 1.0000. However a large bull candle posted yesterday has broken the downtrend, and with momentum indicators beginning to tick higher, is this the beginning of a recovery? It is quite common for a downtrend to be broken during a consolidation phase only for the market to be unable to find the bull traction to generate a recovery. On the positive side, there is a key low in place at 0.9857, with a higher low posted over the past three sessions at 0.9896. Also there has been a move above 0.9985 which has been a one week high. However the market needs a close back above parity to really confirm a positive break, furthermore a reaction high within the sell-off has yet to be broken and that means 1.0044 (which is also an old pivot) needs to be breached. There is an improvement in the momentum with the Stochastics rising back above 20 (a buy signal). The hourly chart shows an improvement but now the bulls need to use 0.9950/1.0000 as a support band for the next move higher. Signs of improvement certainly on the pair, but nothing has been confirmed yet.
The sell signals are coming through now for the euro as the market formed a strong bear candle yesterday in a confirmed break of the five week uptrend. The question is whether this is now simply a trend break that turns into a consolidation, or whether it is something more bearish. The support band $1.0577/$1.0617 is now key as a breach would confirm bear control. The momentum indicators are certainly now deteriorating. In yesterday’s videos I discussed the small bear divergence in the Stochastics sell signal, whilst the MACD lines have also given a cross sell signal and the RSI is beginning to drop away. The hourly chart is interesting with a negative bias and rallies being sold into. The old pivot around $1.0710 is now becoming a basis of resistance, whilst hourly momentum indicators are increasingly corrective in their configuration. The hourly RSI is failing around 50 and going back below 30, whilst the MACD lines are consistently below neutral. The initial support is from yesterday’s low at $1.0653 and that now protects $1.0617 and $1.0577. Resistance is now $1.0755, $1.0800 with the high at $1.0828 increasingly becoming key on a medium term basis.
An incredible late afternoon rally on Cable (amidst further volatility) has resulted in a strong bull candle which is arguably a bull hammer in a move that has flipped the near term outlook on its head once more. The move has left a reaction low at $1.2344 and in also being a bullish engulfing candle (bullish key one day reversal) the control has switched swiftly back to the buyers. The question is whether to trust a candle such as this. It is becoming increasingly apparent that moves on Cable tend to be short term in nature and certainly a candle such as this needs to at least have confirmation in the following session. That means today’s reaction needs to be higher otherwise there will be a lack of conviction. The market made a clear breach of the support at $1.2410/30 yesterday, but this is once more back in play and will be a level the bulls are watching. The momentum indicators are being pulled around and are in a mixed configuration on the daily chart. However the hourly chart hardly helps to give a clearer picture either. Yesterday’s peak at $1.2545 is initial resistance and once the market settles down we can get more of an idea on direction. $1.2475 is initial support with $1.2430 again a key barometer.
For now, yesterday’s dollar rally simply looks to be an unwinding move that helps to renew downside potential. The old key support around 112.50 remains a near term barrier to the recovery, marking the beginning of an area of significant overhead supply now. The momentum indicators remain corrective with the MACD lines and Stochastics negatively configured. The bull candle repeatedly bumped up against 112.50 yesterday and even though a near term downtrend has been breached, this looks to be more of a consolidation than the beginnings of a recovery. There would need to be a sustained rally through at least 113.45 initially to suggest a serious rally was underway. The hourly momentum has simply unwound back to levels where the hourly RSI and hourly MACD lines have failed in the past. Initial support is at 112.00 this morning with 111.78 and 111.57 subsequent levels.
Gold
The upside break above $1220 completed a consolidation range breakout and implies around $40 of additional upside for at least a test of the $1241/$1250 resistance band. Yesterday’s move was more of a consolidation candle on the daily chart and it could be that we are in for something similar again today. There is an uptrend in place over the past eight sessions with the support coming in around $1220 which coincides with the breakout support now. Momentum indicators are positively configured but the only caveat is that the RSI has tended to struggle around 70 in the past twelve months. This may now pull in a consolidation phase. The hourly chart shows a series of higher lows that have correctly moves of $15/$20 before the buyers support once more, with the hourly RSI continually bottoming around 40/50. This looks to be a move that is a pause for breath. Support is at $1225 (near term breakout), $1220 (range breakout) and $1215. Above the $1235.70 resistance opens the upside once more.
WTI Oil
Once more the market has moved to be corrective within the 10 week trading band. Monday’s negative candle was followed by another strong bear candlestick yesterday and the move breached the initial support at $52.25. This has cone with a deterioration in the daily momentum indicators, with the Stochastics falling away and the MACD lines ticking lower. On the hourly chart an indication of a corrective move is even more prominent, with the move below the $52.00 pivot. The hourly RSI went decisively below 30 for the first time since early January and suggests that the sellers are beginning to gain some momentum. The breach of the old mid-range pivot at $52.00 re-opens the key support band $50.70/$51.20 and there will be increasing pressure now for rallies to be sold into within the rally. Any unwinding move would need to break back above the $52.80/$53.20 near term resistance to improve the outlook now. The EIA oil inventories are likely to create volatility this afternoon.
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