Market Overview
The increasingly tedious game of 'will he, won’t he' continued over the weekend, as Reuters reported that Donald Trump was close to formalising the $200bn of Chinese imports, to be tariffed apparently at a level of 10%. After more than a week after the consultation period ended, could today be the day they are implemented? Whether it is or not, sentiment is cautious and financial markets are on the back foot as they brace themselves.
Asian markets have had the destruction of Typhoon Mangkhut to contend with and there is a degree of risk aversion, but these are markets that trade with the handbrake on. Traders appear unwilling to take a view at the moment. The announcement of the tariffs would at least bring a sense of clarity to the situation, if nothing else.
The dollar got some clawback on Friday as the 10-Year Treasury yield hit 3% again, but this move has slipped a touch this morning. The dollar has been under increasing corrective pressure in recent sessions and it will be interesting to see the reaction if the 10 year is able to pull sustainably back above 3% again. This move may also take a hit near term should Trump impose the tariffs too.
Wall Street closed with a very circumspect gain with the S&P 500 +1 tick at 2905 whilst Asian markets have been mixed this morning, with Asian markets broadly weaker (Shanghai B -0.8% and Japan on holiday). European markets are cautiously lower in early moves.
In forex there is a mild slip back once more on the US dollar as yields have come back again. Sterling has got though another weekend of Brexit headlines, still in favour.
In commodities the slip on the dollar is helping support for gold whilst oil is also supported today.
It is a fairly quiet start to the week for trader on the economic calendar, with the final reading of August Eurozone inflation at 10:00 BST which is expected to confirm the flash readings of headline +2.0% and core +1.0%.
The New York Fed’s Empire State Manufacturing is at 13:30 BST which is expected to slip a touch to a still very strong +23.0 (from +25.6 last month).
Chart of the Day – EUR/AUD
If this is a risk recovery with legs in it, then the Aussie can be expected to perform better. Already there have been positive signals for it traded against the yen and the dollar, but also now against the euro. The technical development of a corrective move has reached a key moment now on EUR/AUD. With the market reversing from a high of 1.6355 a broken uptrend has come with a deterioration in momentum indicators. In the wake of Thursday’s rebound move there seems to be little follow through on momentum and with Friday’s doji candle denoting uncertainty, a lower high under 1.6355 resistance could be the signal to take profits. If the RSI begins to trade consistently below 70 again, and if the Stochastics and MACD lines confirm their bear crosses then the corrective momentum would mount. Support at 1.6135 is now key as it is an old breakout level but also Thursday’s low. A breach would really add to the selling pressure, initially opening 1.6040 but a retreat towards 1.5900 could be seen if the negative momentum grows. This is a move that needs to be watched now.
The bulls looked to be finally making some progress in the wake of the ECB decision on Thursday but Friday’s corrective candle has put a halt to the test of overhead resistance once more. Losing 40 pips on the session, and closing towards the session lows has stopped a run of four positive candles and put the market back into the belly of the consolidation once more. The momentum indicators are feeling the disappointment with Stochastics and MACD lines tailing off, whilst RSI has dropped back towards 50 again. The bulls need a reaction today otherwise the momentum of the pull higher will have been completely neutralised. The support at $1.1505/$1.1530 is still a key floor, whilst $1.1735/$1.1745 is still a ceiling and the hourly chart shows a ranging configuration taking shape once more. Initial support just above $1.1605.
The bulls would have gone into the weekend a touch disappointed in the wake of the negative candle on Friday. However, corrections are increasingly seen on able as a chance to buy again. The recent breaking of the four month downtrend, and momentum indicators remaining on their improving configuration all points to a growing positive sentiment on Cable. This is reflected on the hourly chart where a trend higher continues along with a run of higher lows. There is a band of support $1.2965/$1.3045 now. The market turned back from $1.3140 on Friday and this is initial resistance but there is little reason to not expect a test of the lower highs at $1.3170/$1.3215 in due course.
The tilt of a more positive risk appetite in recent sessions has driven an underperformance of the yen, pulling USD/JPY to test the key near term overhead resistance band 111.80/112.15. The moves over the past week suggest a slight move away from the consolidation configuration that has been a feature of trading this pair in the past couple of months, and a subtly more positive position is forming. This is coming from the momentum indicators which are gradually now positioning more strongly. The Stochastics and MACD lines are edging towards a calling for a breakout, but still need something more, as does the RSI which needs to position decisively above 60. This all suggests that it is going to be a gradual development in this move. A close above 112.15 would be important, and would open 113.15. How the bulls deal with a setback will also be key. If the band of breakout support 111.65/111.85 can be held then the bulls would be increasingly confident. This is now a market on the cusp but not quite there yet.
Gold
Just when it looked as though the bulls were positioning for a decisive move, they see two decisive negative candles that completely reins them back in again. As the market has developed a consolidation range between $1187/$1214 in the past three weeks, the importance of the support has grown. The selling pressure within the decline may have subsided, however there is still considerable concern that comes with the momentum indicators which are struggling to take on a positive position. Being dragged back again in the past couple of sessions brings the $1187 support right back into focus once more and bolsters $1214/$1217 as resistance. There is an element of a pivot to the $1200 level now and this is a near term gauge within the consolidation now.
WTI Oil
The small candlestick body with long upper and lower shadows of Friday’s session shows the near term uncertainty of the oil price right now. The hurricane factor is a significant driver of near term price moves. The choppy near term outlook therefore needs to settle down but if the support of the $67.00 pivot can remain intact then the medium term ranging outlook will remain firm. Friday’s low of $67.95 is initially supportive, whilst resistance remains strong up between $70.45/$71.40 whilst the hourly chart shows initial resistance at $69.15. In tis choppy positioning, momentum indicators are giving little decisive steer.
A push out to multi month highs has opened the all-time high from January up at 26,616, however that is now two sessions where the market has been unable yet to close above 26,167 and fully release the shackles for a run at the highs again. However there is still a sense that this pause for breath is ready to go once more, with a run of four sessions of gains and renewed strong momentum. The Stochastics have posted a recent bull cross, with the MACD lines also showing another swing higher and RSI rising in the mid-60s. The closing breakout above 26,167 implies around 360 ticks higher (towards 26,525) on a projection basis, whilst also leaving behind the support at 25,764 as another key higher low and adding to the basis of support around the 76.4% Fib level at 25,845. A full 100% retracement is now on the cards as weakness is a chance to buy. The hourly chart shows 26,070 as initial support.
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