Market Overview
After a number of corrective signals failed to put the skids on the dollar rally in the past week or so, the most significant signals so far are beginning to suggest that profit-taking on the dollar will be taken more seriously this time. The driver of the recovery had been the sharp rally on Treasury yields in recent weeks, but this move is threatening retrace, with the two year and ten year yields lower today. This move is showing through on the US trade weighted dollar index which after a couple of days of consolidation is beginning to pull lower today. A close below last week’s low at 100.65 would confirm the near term correction.
Markets will also be focusing on the key OPEC meeting’s this week with the main meeting on Wednesday. However the fringe meeting of members and non-OPEC members (ie. basically Russia) will take place today and there are suggestions that Saudi Arabia (one of the major voiced in OPEC) will not take part, which would reduce the impact of this meeting and will make traders even more nervous. The oil price will be very volatile in the coming days and this could impact on market sentiment. It will also be interesting to see how the US returns from the Thanksgiving holiday.
In a shortened and thinly traded session, Wall Street was mildly higher (S&P 500 was +0.4% at 2213) whilst Asian markets were mixed today although the Nikkei was -0.1% with the yen strength. European markets are lower amid caution in early moves. Forex markets show the dollar is weaker across the board with yen and euro strength especially being seen.
The economic calendar is very light today with the Dallas Fed Business survey at 1530GMT which has been negative since January 2015 and would be an interesting development if it improved to above zero from last month’s -1.5. Additionally just before that, Mario Draghi speaks before the European Parliament’s economic committee at 1500GMT.
Chart of the Day – EUR/JPY
Euro/Yen has been improving consistently in the past few weeks as the move has been breaking through a series of key resistance levels to now of old lower key reaction highs. The price has also recent reached the highest level since the day of Brexit and the initial spike at 121.98. This was almost to the pip at the massive old key floor around 122.00 which had held throughout much of the first few months of 2016.
From a technical perspective though, something far more interesting has occurred in the past couple of sessions. There has been a primary downtrend that has been used as the basis of key resistance for the major highs over the past two years.
This is now being seriously tested and a close above 120.00 would constitute a major break. This will be a huge level of overhead supply in the coming day’s/weeks but a technical correction could be seen first. The early weakness today means a first negative candle in 6 sessions threatens as the market shies away from 120.00. The hourly chart is still threatening to lose upward momentum so the bulls will be watching initial support between 118.45/119.00, whilst the hourly RSI below 40 is a corrective signal too.
I would be looking to back the bulls for this medium term recovery to continue and add further pressure on the long term downtrend. Holding above 118.45 support would keep the bulls in control of this improving chart for further pressure on 122.00. Key near term support is at 117.45.
For the past week the market has been building for a technical rally. The selling pressure has been showing signs of dissipating and the technical momentum indicators on the daily chart have been looking to improve. Friday’s positive candle came to help bolster the support at $1.0515 and the bulls have continued today. The next aim will be to put together two consecutive positive candles, something that has not been achieved since 4th November. The momentum indicators are beginning to pick up with the RSI crossing back above 30 for the first time in two weeks.
The hourly chart shows the importance of the recovery breaking higher above $1.0663 which has been a key pivot and again has been acting as a resistance overnight. The reaction in the European session to this resistance this morning will be key as will holding on to another pivot at $1.0580 which is now supportive. A close above $1.0663 would suggest the technical rally was on.
Cable continues to build from support around $1.2330 and is putting a run of positive candles together. This improvement is seen across the technical indicators with the Stochastics turning higher and the RSI back above 50. The rising 21 day moving average is also still the basis of support around $1.2430.
The hourly chart shows the improvement too, trading above all the moving averages and the far more positive configuration of the hourly momentum. The early move today through the near term resistance at $1.2515 will be the key to today’s trading as if the market can hold this break to the close then the bulls will gain in confidence and build for a test of $1.2557 and possibly back towards the key high again at $1.2673. Friday’s low at $1.2413 will now be seen as the key support.
The market has been threatening a correction for several days now without the price ever falling away. However, having posted a high at 113.89, Friday’s fall of just 23 pips was the largest decline since 3rd November and the move is looking to accelerate lower today. A bear candle is forming early in the session and the market has fallen over 100 pips in the Asian session. The daily momentum indicators are reacting with the RSI falling back and the Stochastics beginning to pull lower, however this is still very early days in a potential corrective move and there has been no confirmation yet.
One of the features of this bull run higher has been to amount of occasions where old breakouts have become supportive. Again overnight the old breakout above 111.35 has been supportive to the initial decline overnight. This is now a key support and a close below this level would be confirmation that a correction is building. There is initial resistance 112.55/113.20.
Rallies on gold are still being seen as a chance to sell. Having broken the key support at $1200 this level becomes an area of key overhead supply. However the momentum indicators remain negatively configured and there is little to suggest that a recovery will be any more than another opportunity to sell. There is subsequently strong overhead resistance in the band $1200/$1221.
The hourly chart reflects this, with the negative configuration on the hourly indicators. I do not believe that this recovery will last long before the sellers become more active again.
WTI Oil
The big bear candle on Friday shows how the market is very volatile and reactive. The market had been fairly well supported above $47.17, but once this support was broken the sell-off quickly accelerated lower into the close, losing around 4.5% on the day. This puts more of a corrective perspective onto the outlook and the momentum indicators have taken a turn for the worse again. The Stochastics crossing lower and RSI turning down from under 60 is a disappointment for the bulls.
The support at $45.95 will be key today and a close below would be a negative development and open the $44.55 key support. The early weakness today has been unwound and the outlook is now in the balance. The truth is though that the closer we get to the OPEC meeting the more nervous traders will be getting for positioning. This means that volatility will be high and news-driven trading will take over. The resistance is $47.17 today.
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