Market Overview
It would seem that several major markets have now reached something of an inflection point as oil reaches some key levels. The rally on oil that we saw yesterday came despite the suggestions from Iran that whilst it welcomed the production limits taken by other oil producing nations, it stopped short of joining in the limits. This is the obvious play to make from Iran, paying lip service to the agreement in Doha between Saudi Arabia, Qatar, Venezuela and Russia. However it is no game changer and perhaps after a day of looking past this fact the market may begin to realise this. The interesting feature is that the price is WTI has now reached its key 3 month downtrend, as have highly correlated markets such as the FTSE 100. Safe haven trades have taken a pause for breath for the time being and moving into today, markets are generally far more circumspect than they have been in recent weeks. This would suggest they are waiting for the next catalyst perhaps, with developments over OPEC still seemingly able to drive sentiment.
Wall Street closed sharply higher again as the oil price rally helped risk appetite, with the S&P 500 up another 1.7% and back above 1900. The Fed meeting minutes showed that the committee was concerned by the tightening global conditions impacting on the US economy and perhaps even considered changing their planned path of hikes in 2016. This helped to support equities. Asian markets have also jumped overnight with the Nikkei up 2.3% despite weak trade data. The China inflation data has not really made too much of an impact despite a slight miss on the CPI at 1.8% but an improvement better than expected on PPI to -5.3% may have balanced out the impact. The European markets are mixed to slightly positive in a pensive open to trading. Forex markets show rather mixed trading early today, with the one notable mover being the weakness in the Aussie dollar in the wake of worse than expected unemployment data. Gold is marginally weaker today and oil is stronger again.
Traders will be looking out for the Weekly jobless claims at 1330GMT with an expectation of 275,000, whilst the Philly Fed Business Index will get the attention at the same time with an expectation of another negative number with -3. The EIA oil inventories report at 1600GMT is expected to show a 4m bpd build.
Chart of the Day – Silver
Silver has been trading with a very similar outlook as gold has been for several weeks now. Even the use of the Fibonacci retracements over the past few days have been the consolidation points as they have been for gold. However, on silver there is a much better defined support at $15.06 which was left as a support during the rally and came within a few cents of being the support on Tuesday. Furthermore, the 38.2% Fibonacci retracement of the $13.71/$15.95 rally coming in at $15.09 adds to the support. However for now, a consolidation has set in (as it has with gold) but the bulls will be aware though that if the 23.6% Fib level around $15.42 continues to act as a basis of resistance the market will begin to look towards the formation of a head and shoulders top. For now though the momentum remains positive with the RSI still trending higher with the bull market, whilst the Stochastics are also calming their corrective slide. As the consolidation has set in over the past few days, as shown by the neutral configuration on the hourly momentum indicators, silver is a very interesting chart now on a technical basis, one which is waiting the next catalyst.
There is a relative sense of calm that looks to have taken over the euro. After the significant volatility and daily swings that we have seen in the past few weeks the past few days have been far less hectic, with less than 80 pip daily ranges. This is coming as the euro is settling to form support once more around the breakout of the long term pivot band at $1.1100. I continue to see this as what is likely to be a medium term buying opportunity as the recent breakout above $1.1100 along with medium term positively configured momentum indicators suggests that there is a bullish bias now. The RSI is settling around the mid-50s, whilst my main corrective concern which was the Stochastics also looks to be settling positively too. I talked yesterday about the hourly chart having some slight bullish divergence for the momentum indicators and they have turned far more neutral in line with the recent consolidation now. It seems that the selling pressure is abating and this means the bulls can begin to look higher again. A move above $1.1193 (Tuesday’s high) would regain the upside initiative and re-open $1.1260. The support at $1.1084 is still key for the bullish outlook.
The break below $1.4350 changed the outlook to negative and despite the doji candle from yesterday (which denotes uncertainty) there is little on the daily chart that would suggest the outlook is going to improve immediately. The momentum indicators remain bearishly configured with the Stochastics falling sharply, the RSI falling back below 40 and the MACD lines turning over under the neutral line. The fact that cable is also making a two day close back under the 23.6% Fibonacci retracement of $1.5238/$1.4079 is also a concern. This all points to cable tracking lower and to test the downside supports. The hourly chart shows how choppy yesterday’s trading was as the old $1.4350 support became the basis of resistance. Interestingly also, the initial support which is an old pivot line around $1.4235 is holding, but I expect this to come under further pressure and a likely downside break towards $1.4147 and possibly even a full retracement to $1.4079. I continue to see anything into $1.4350/$1.4400 as a good selling opportunity, whilst it would take a move back above $1.4450 to turn more bullish again.
Yesterday’s session was all rather choppy and this has shown through on the daily chart with a doji candlestick which reflects the uncertainty. I am still inclined to look at the Fibonacci retracements of the 121.68/110.98 sell-off as being key for the outlook now. The 23.6% Fib level at 113.50 is supportive (yesterday’s brief spike and subsequent rebound from 113.35 has strengthened the support around here), whilst he 38.2% Fib level overhead at 115.07 is the resistance. The momentum indicators have settled in the past couple of days as the momentum in the recovery has tailed off. The hourly chart has turned far more neutrally configured with the momentum indicators all rather benign and moving averages all basically flat. Having formed a high at 114.85 there is now a basis for tighter resistance at 114.50. The hourly chart shows the support at 113.15 is important and a breach would confirm the move to a negative outlook. For now though we await the next catalyst.
Gold
Another chart that has turned all rather benign is gold. The sharp correction of earlier in the week which ultimately saw a retracement of $70 from the high has now started to form support. I noted yesterday that this is coming almost bang on the old October 2015 breakout high at $1190. Also in the proximity of this is the support of the 38.2% Fibonacci retracement of $1071/$1261 at $1188. Along with dollar/yen, this gold chart has been a big safe haven indicator and as with dollar/yen the chart is now consolidating within the 23.6% Fib (as resistance at $1216) and the 38.2% Fib (as support at $1188). I find it interesting that this support is building as the RSI has unwound back to an uptrend and even the Stochastics are flattening off a previously corrective move. I see this as gold just hanging on to its positive outlook still and whilst the 38.2% Fib level remains intact this will be the case. A push back above $1216 would re-open $1230, however for now the consolidation suggests the market is looking for the next catalyst. Perhaps look at the hourly RSI pushing above 60 as an early trigger sign. The bears would have certainly regained control on a move below $1181 which is a reaction low support from last week.
WTI Oil
Rumours surrounding the OPEC agreement with Russia to freeze oil production at January levels continues to drive massive volatility on oil. Positive comments from the Iranian oil minister yesterday helped to drive a rally of over 5% on WTI and back strongly above the $30 psychological level. Until there is a definitive agreement in place, the volatility is likely to continue on a daily basis. Technically, the oil price has been in a downtrend since early November and this downtrend comes in at $31.55 today and is now under increasing pressure, meaning that the bearish argument is being tested. Interestingly also, the 21 day moving average has turned up for the first time since October which is heartening for the bulls. Look at the daily RSI which is again up at 50, a level at which the last four major recoveries going back to November have failed. This all suggests that WTI is at a technical crossroads. The first real price resistance is not now until $33.60, but if this rally continues we will have to start talking about a base pattern above $34.80. Let’s not get too far ahead of ourselves though. For now $28.70 is supportive and the roller coaster continues.
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