Market Overview
There seems to have been a significant shift in the outlook for the dollar. The Fed apparently remains “data dependent”, but the data is not pointing to any imminent rate hike and if anything is deteriorating from the position of the September meeting. The US dollar has significantly weakened on the back of disappointing retail sales and the chances of a rate hike in 2015 seem to be diminishing with the release of every piece of tier one data now. Treasury yields fell sharply yesterday and the charts of major dollar pairs are showing some real strain for the greenback now. It is the turn of CPI inflation data today however perhaps the really telling steer will come from the regional Fed surveys in the form of the Empire State manufacturing and the Philly Fed. These must be watched also as continued deterioration will put further pressure on the dollar.
Wall Street closed lower last night on the back of concerning earnings reports from Wall Mart and Boeing (N:BA). The S&P 500 closed 0.5% lower and is back below 2000 again. However, Asian markets closed strongly higher on the hope that the US will not be able to raise interest rates soon, with the Nikkei up 1.2%. European markets have opened higher too.
The forex markets continue to show the dollar under pressure with the Aussie and Kiwi both making the strongest gains. The Aussie has gained despite the employment data showing a drop in employment and participation rate, although there was a drop in unemployment to 6.2%. The gold price remains supported after its strong gains from yesterday.
The economic data to watch today includes the US CPI at 1330BST which is expected to show core CPI at 1.8%. Weekly Jobless claims are also at 1330BST and is expected to be at 270,000. The New York Fed manufacturing index is also at 1330BST and is expected to improve slightly to -8.0 (from -14.5 last month). The Philly Fed at 1500BST is also expected to pick up slightly to -1 (from -6).
Chart of the Day – AUD/USD
Despite the mixed Aussie unemployment data released this morning, the bulls are fighting hard. The technical breakout above $0.7275 last week remains intact despite a dip earlier this week. I have spoken previously about the resistance band $0.7200/$0.7260 and is seems as though this is now being used as a supportive aspect for this chart. This now needs to be the springboard for a test of the big near term resistance at $0.7440 which is the August high. We have already seen the Kiwi dollar breaking through its equivalent reaction high and could this be the turn of the Aussie now? The momentum indicators certainly look up for the challenge with the RSI in strong configuration, MACD confirming and the Stochastics also positive. Clearly now Monday’s high at $0.7380 is the initial test of resistance but if that can be overcome then the bulls will grow in confidence. The support of yesterday’s low at $0.7195 comes in as key now too.
The weakness of the dollar in the past week has once more resulted in the euro drifting back towards the top of the historic resistance band around $1.1465. Will this be an occasion that the euro bulls can sustain the move higher? This time it may well be the case. There was an intraday break to $1.1489 and a close above the resistance too, however the fact that this also came on a strong bull candle should also bolster confidence. Technically, the momentum indicators are looking stronger than they have for months. The RSI when previously for so long floundering as it approached 60 is now in the mid-60s and has further upside potential. The MACD lines are mildly bullish whilst the Stochastics also look strong. I would find confirmation coming in a second daily close above $1.1465 and this would then suggest the potential for a full move towards the $1.1710 August spike high. The hourly chart also looks technically strong and minor dips are being seen as a chance to buy. There is support around $1.1400, with $1.1350 now key near term. There is minor resistance at $1.1560 from August and $1.1620 but realistically $1.1710 is now the next key level on the upside.
Sterling has been flung around somewhat in the past few days as first of all key UK economic data and subsequently US data has given a mix of signals. The slide of UK CPI back into deflationary territory was an initial drag on sterling to generate a big bearish candle; however sentiment has once more been completely reversed yesterday by a huge bullish candle. This came on the stronger UK employment data which showed that earnings growth remaining robust and then compounded by weaker than expected US retail sales. This rather messy near term outlook subsequently has given a positive signal, as the bulls continue to recover. However, this is still essentially part of the medium term range and the near term signals just add to the volatility within the range. There is still some upside potential in the momentum and a move towards $1.5660 cannot be ruled out, but it will be interesting to see how Cable reacts around $1.5475 which has previously acted as a pivot level over the past six months. There is more data today (US CPI) to add to the volatility so certainly keep an eye on the release at 1330BST).
I am not one for gambling, but if I had to bet on the one currency pair that would have barely moved in the past week, then I would have plumped for Dollar/Yen. Until yesterday I would have been right too, but now (on the disappointing US retail sales data) there seems to have been a change of sentiment. A slight drift lower turned into more of a sharp move and the small bodied candles with long shadows have been changed for a srong bearish candle which takes Dollar/Yen to its lowest close in 5 weeks and the move confirmed on the deteriorating momentum indicators. The rangebound credentials of the pair are now being seriously tested, with the September low at 118.65 now under scrutiny. This marks the low of the range 118.50/121.30 and makes today’s session extremely important. Unless there is a degree of support and recovery that comes in then the strategy has that has been to continue to play the range will need to be changed. Looking at the intraday hourly chart will be important as the momentum indicators are negatively configured but also there is resistance in the band 119.00/119.20 (which was formerly supportive). A failure to reclaim ground above this level would be a bearish signal.
Gold
Gold had improved dramatically in the past week and no with such a strong break yesterday I am going to have to change my strategy. I was previously a seller into rallies but there seems to have been a significant change to this recently. The big level that has changed my view has been the breaking above $1170. This has previously been a big floor in the price which has then turned into new resistance, however the break back above $1170 on such a strong bull candle confirms the improvement. The important factor now is to hold on to $1170.The RSI is almost up at 70 and this will be an important moment for the medium term outlook. Strong momentum would be reflected in the RSI holding up at these levels, but an instant failure would begin to question the strength of the bulls again. The June high at $1205.50 is now the next upside test for the bulls with the intraday hourly outlook increasingly positive and minor dips being bought into. Initial support is at $1175.40 and around $1170, whilst the hourly chart shows $1151.10 now also a key level.
WTI Oil
Whilst it has been almost two weeks since WTI was putting pressure on the key support at $43.20 there is still a sense that the bulls cannot be considered to be in control. The rally up to $50.92 has been almost entirely retraced and it is almost as though they need to start again. However, the candles in the past few days have started to become less corrective following on from Monday’s sharp bear candle. The daily momentum indicators are more positively configured now, even though the RSI has unwound back to 50 again. With rather a benign candle leaving initial support at $45.94 this is almost $2 above the first key support at $43.97. Watch out for initial resistance at $46.96 which is yesterday’s high and a breach would signal another improvement in sentiment and then open a test of $48.43. I have a slight bullish bias currently but as ever with WTI this can change very quickly.
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