Market Overview
As the Fed prepares for its two day meeting we see the dollar remaining under pressure. This comes despite Treasury yields having stabilised and beginning to tick higher again, with the dollar yet to appreciably respond. The politics surrounding Donald Trump Jr and Jared Kushner who are testifying this week on the Russian involvement in the US election remain a drag on the dollar.
Unless the Fed announces a start to its balance sheet rundown in tomorrow’s FOMC announcement, it will be difficult for the dollar to change course. A drastic Fed announcement in the absence of a Yellen press conference or economic projections remains an unlikely scenario, so selling the dollar into strength is likely to continue. Equity markets are in the midst of earnings season now, however European markets have been under pressure from the strength of their currencies. Once again, rallies still look to be a chance to sell. There is support though with the rebound in oil following suggestions that Nigeria may be willing to take part in production curbs.
Wall Street closed mixed to lower last night with the tech heavy Nasdaq 100 up again, whilst the Dow and S&P were weaker. The S&P 500 fell -0.1% to 2470. Asian markets were mixed to lower with the Nikkei -0.1% whilst European markets have bounced today with the FTSE 100 higher after strong losses yesterday.
In forex, the dollar is mildly weaker across the board, with the euro and the yen performing well again.
For commodities, this dollar weakness is helping to support gold higher by $2, whilst oil is 0.6% higher.
The main focus will be on the US Consumer Confidence but there is also some interesting German data. The German Ifo Business Climate at 09:00 BST is expected to dip very slightly to 114.9 back from last month’s record high of 115.1. There is a positive correlation with German growth, so the DAX, German Bunds and euro will be reactive.
The S&P Case Shiller House Price Index is at 14:00 BST which is expected to tick mildly higher to +5.8% (from last month’s +5.7%). The Richmond Manufacturing Index at 15:00 BST is expected to stay at 7 for a second month in a row, having beaten expectations last month in the rebound back to 7. However, the main event will be the US Conference Board’s Consumer Confidence which is at 15:00 BST and is expected to drop back to 116.5 after rolling over in recent months, down from 118.9 last month.
Chart of the Day – EUR/JPY
The strong rally of early July has been broadly consolidating for the past couple of weeks since topping out at 130.75. It was interesting to see that whilst the euro strengthened with the ECB last week, the subsequent candles have been corrective. This comes as an uptrend channel of the past few weeks is now being breached. Momentum indicators have rolled over with the MACD lines now tracking lower and the RSI is back to 60 which was a four week low. The key support to watch near term is at 128.50 which has been tested on several occasions in the past week or so and so far held firm. However a breach would then mean that the market have formed a lower high at 130.50 and arguably form a small top pattern which would imply 200 pips lower. For now, the medium term outlook remains positive but a near term corrective move cannot be ruled out. The hourly chart shows a ranging market, which will give the bulls hope of hanging on. There is also a band of resistance 129.30/129.75 which if breached would re-open 130.50, however if today’s mild bounce consistently fails in this resistance then it would increase pressure back on 128.50.
The euro may have just lost a bit of steam out of the strong bull run, but that has not ended the bull control. The market seems to still be fine with buying up at these multi-month highs, with the bulls again holding sway early today. The strength of the momentum indicators remains considerable and this reflects the strength of the trend that has formed. There is still a good opportunity to buy into any weakness as a test of the August 2015 high at $1.1711 remains likely in due course. The hourly chart shows $1.1615 initial support is holding and with hourly momentum having unwound this looks to be the bulls ready for the next push higher. If there were to be a breach of $1.1615 this would complete a small 70 pip top and would imply a retreat towards $1.1545 which would be another good chance to buy into support. Yesterday’s high at $1.1684 is resistance initially.
A second, more solid bull candle has re-affirmed a four week uptrend, with the latest low at $1.2930 taking on increased importance. The technicals on the daily chart reflect this uptrend with the RSI and Stochastics again picking up above 50, whilst the MACD lines remain positively configured. The bulls are in control again but need to make the decisive breakout above $1.3050 (which is an old key resistance but also a near term pivot on the hourly chart) to really suggest that another test of the recent high at $1.3125 will be seen. An initial look at $1.3050 was rebuffed yesterday but there is another opportunity today with support again seemingly forming at higher levels. Corrective moves remain a chance to buy, with the recent four week uptrend today coming in at $1.2965. The hourly chart reflects more of a cautious outlook on momentum, however there is a tighter three day uptrend lending support at $1.3010 and holding above the psychological $1.3000 level will increase confidence in a breakout to the upside again.
The candlestick analysis has been very interesting on USD/JPY in the past couple of weeks as the market has dropped away. Strong bear candles followed by consolidation candles which are then sold into again. This has been an ongoing theme and once more we have seen Friday’s sharp bearish candle followed by a small bodied, almost long-legged doji candle. Once more the bears are coming back in today This comes as a downtrend has formed and momentum has turned increasingly negative. The RSI is now below 40, Stochastics bearish configuration and the MACD lines are accelerating close to below neutral. Rallies are a chance to sell with old support becoming new resistance. The 38.2% Fib retracement at 111.55 had been supportive, but is now a basis of resistance (also interestingly the two week downtrend comes in around 111.65 today). The hourly chart shows traditional downtrend trading with the hourly RSI failing continually around 60, MACD lines failing at neutral. Resistance is 111.30/111.55 but expect further pressure on yesterday’s low at 110.60 with the way open for a retreat towards the 50% Fib at 109.35 and a test of the June lows.
The chart is in a medium term range broadly between $1200/$1300 (give or take a few bucks) and within that range there are two pivots that have been consolidation points rather than decisive turning points. The pivots are at $1240 and $1260. Yesterday saw the rally having an initial look at $1260 and pulling back. However whilst this is a basis of near term resistance that could be a consolidation, I expect corrections back from $1260 will be bought into to ultimately drive above $1260 and towards the top of the medium term range again. Within the medium term range the RSI has oscillated between 30 and 70. With the RSI currently around 60 and with the MACD lines advancing well and the Stochastics positive this means there is further upside potential in this run. This is all reflected on the hourly chart with the classic uptrend trading with old resistance now supportive and hourly RSI finding support between 40/50 and pushing towards 70, whilst the MACD lines turn up around neutral. $1251 is initially supportive with corrections a chance to buy.
WTI Oil
The market is moving around on the suggestions out of an OPEC/Non-OPEC meeting that gives hope of a curb to Nigerian and Libyan production. This has turned the oil price higher to leave WTI support at $45.40 and interestingly a near term four week uptrend has formed. This has also dragged the price back above the 38.2% Fib level at $45.85 and improves the outlook again. Whilst this uptrend is intact (today c. $45.30) the prospect of a recovery back above $47.00 will grow. The mixed run of candles is making the momentum indicators more neutrally configured with the RSI holding above 50 and the MACD lines flattening. However, there is now a defined uptrend and resistance around $47.00 which will be converging over the coming sessions and need to be watched.
A third negative candle in a row is the first time this has been seen since mid-June and suggests that the market is at risk of a continuing near term corrective move. The key support to watch is last week’s low at 21,471 with a closing breach completing a small top pattern and would imply a move back of 210 ticks towards 21,260. The medium term configuration of the momentum may still be positive, but that may not prevent a near term dip as they unwind to renew upside potential. However, ultimately, as long as the market holds on to the support band 21,070/21,197 then the bulls will be eying this move as a medium term buying opportunity. This would also unwind the market back to the support of a seven month uptrend. However, before getting ahead of ourselves, there is near term support around 21,430/21,440 and the hourly chart looks simply just to have unwound overbought momentum. If the neckline at 21,471 holds then the bulls will still be in control.
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