10/08/2015: After weak Chinese data hopes of stimulus hold up sentiment

Market Overview

There are mixed forces at work driving sentiment on Monday morning. The handover from Asia was a curious mix of disappointing data out of China (on exports and producer prices) which is unlikely to help anything with an exposure to the Chinese growth story. However there are also the usual calls for further stimulus from the People’s Bank of China. This talk has helped to stem losses and held up markets. Despite Wall Street coming under pressure into the close on Friday, Asian markets have been rather mixed in response. European sentiment is relatively upbeat too amid suggestions that the negotiations over the €86bn third Greek bailout could be concluded by Tuesday. European markets are slightly higher in early trading.

In forex markets there is a slight air of dollar support after weakness on Friday, with the currencies such as the Aussie, Kiwi and Canadian dollar under a little pressure after the Chinese data. Also commodity prices are a touch mixed today with the oil price still under pressure amidst further concerns over Chinese demand and Iranian supplies coming back online.

There is very little on the economic calendar to bother traders, however as we edge ever closer to a Fed rate hike the comments of FOMC member will be extra scrutinised. Today we hear from two voting members, Stanley Fischer and Dennis Lockhart (remember Lockhart has been fairly hawkish in his recent rhetoric).

Chart of the Day – Silver

Could the price action on silver give hope to the gold bugs after all? Well, the downtrend channel that silver has been consistently trading in since mid-May has now been broken. Be careful though, as a broken downtrend channel does not necessarily mean a rally will be seen. It could simply be a consolidation, however the bulls will certainly be encouraged. The key near term level to look for is a close above $15.00, as this is a level that on numerous occasions in the past three weeks has been a barrier for the bulls. I have also talked on several occasions about the resistance of the falling 21 day moving average (currently $14.79) and this is also under pressure again today. The momentum indicators have suddenly start to pick up sharply (especially the Stochastics). For now this is just an unwinding rally but if there is a close above $15.00 then it could be something more. There is big overhead resistance around $15.50 and it could just be an unwinding rally that pulls back to that old floor before further downside is seen. The hourly chart shows considerable improvement in the past week and this level could be one to watch (not least of all for an indication of a possible recovery on gold).

Silver   10082015


Despite the solid Non-farm Payrolls report, the euro ended last week on a positive note. However, there is still little to suggest that the bulls are in any sort of sustainably improving position. Momentum indicators have picked up again, but the rallies will continue to be viewed as a chance to sell within this sideways medium term range above the key lows at $1.0810/20. The momentum indicators confirm a corrective configuration. The intraday hourly chart has a fairly messy look to it over the past week, but there is considerable near term resistance built up between $1.1000 and $1.1100, and a range in which I will be looking for sell signals for further pressure back on the key range lows. A move above the key near term resistance at $1.1130 would abort the corrective outlook for now.

EURUSD   10082015


The pressure is building to the downside now and although the initial breach of $1.5465 could not be held, the momentum indicators are beginning to gain downside impetus now. The Stochastics are falling sharply away now and there are now signs that the RSI and MACD are starting to follow suit. However, until there is a close below the July reaction low at $1.5465 then it would be unwise to call an end to this ranging period for Cable. The intraday hourly chart shows that the Non-farm Payrolls reaction on Friday pushed below key supports and the rebound has failed to make up enough ground to abort the near term bear control. The resistance around $1.5530 is now important near term as if this cannot be reclaimed then the pressure will really take hold. There has been now decisive move yet but the bulls have really got to fight to hold on today. The Fibonacci retracements at $1.5558 and $1.5470 are still worth watching as potential consolidation/pivot levels.

GBPUSD   10082015


The correction that was seen on Friday in the wake of the payrolls report means that the bulls have got an important day to maintain the positive outlook. The breakout of early last week has now been corrected and now needs to hold on. I spoke previously about the potential for a slight unwind back to the old breakout resistance around 124.40 as being likely. The move has gone a little further than that but importantly the support at 124.00 has held and the reaction low at 123.50 also remains intact. The pair is also still trading above all the rising moving averages and momentum remains strong. Ultimately this looks to be a good opportunity to buy and the early reaction today has been positive. A close back above 124.40 again tonight and this would be a strong signal. Today is a day for confirmation and a close below 124.00 would now begin to question the breakout.

USDJPY   10082015


The gold price may have just rallied for two consecutive days (and is also into a third) but as yet this move has achieved very little. The immediate bear pressure may have been averted but in the context of a three week band of trading this is still just part of the consolidation. The resistance remains in place at $1105.60. There is a caveat though with the momentum indicators which have picked up in the past few days. Although they are still just unwinding overstretched bearish momentum, I am mindful of how they have improved. However there is much more that needs to be done for the bulls and ultimately I still see rallies as a chance to sell and this is a minor rally that should be quickly snuffed out. I will be on the lookout for sell signals once more as I feel that gold is likely to see further downside pressure on the $1077 low in due course.

Gold   10082015


It is becoming difficult to come up with new and interesting (are they ever?) comments on WTI. I will therefore say it again. WTI remains in a downtrend and intraday rallies are a chance to sell. The resistance band $44.85/$45.40 that I was talking about has contained the bulls and encouraged the seller back in once more to take the price once more to a lower low on Friday. The price edges ever closer to the test of the crucial March low at $42.03. Momentum remains bearish without being overstretched and as yet shows little sign of any recovery being on the horizon. The downtrend on the daily chart today comes in at $46.10.

WTI   10082015

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