The dollar bulls had a bit of a wobble yesterday and this has induces a bit of corrective pressure near term for the greenback. The dollar weakness was generated by some weaker than expected earnings releases (from IBM and United Technologies) that, on a quiet day for macro data, questioned the potential for a September rate hike. The outlook certainly will not have been helped by the disappointing outlook in the results of the corporate golden angel. Apple’s results overnight once again were stellar, however the expectations are now so extreme that it was felt that they did not beat enough, whilst the sales of iPhones were also a touch light giving analysts cause for concern over future sales.
The subsequent impact on equity markets will be felt today, with Wall Street already falling into the close. The S&P 500 was off 0.4% but Apple was down 7% after hours and this is taking a toll on market sentiment today. Asian markets were lower with the Nikkei down 1.2%, whilst European markets are also weaker. In forex markets, the US dollar has come under further pressure with the euro, yen and especially sterling all stronger today. The bears still seem to be in control on gold.
The pick-up in Cable has come ahead of the Bank of England meeting minutes which are released at 0930BST, with interest in how hawkish any hints might be in the wake of comments by Mark Carney last week. The dollar bulls will get a chance to regain control again today with the announcement of Existing Home Sales at 1500BST, with growth of 1.2% expected to 5.4m (from 5.35m last month). US crude oil inventories at 1530BST will also impact on the oil price with a reduction of 2.35m expected. The Reserve Bank of New Zealand gives its rates decision tonight, with analysts increasingly expecting them to follow the lead of the Bank of Canada last week and put through a rate cut from 3.25% to 3.00%. This would be despite the comments of the New Zealand prime minister this week who suggested the Kiwi had gone too far to the downside.
Chart of the Day – AUD/USD
The Aussie may not have been under the same selling pressure as the Kiwi in the past few months but the outlook is still negative, and one rebound candlestick has not changed that. Yesterday’s positive candle is just going to give another chance to sell. The move is just giving some slightly overstretched momentum indicators a chance to unwind to renew downside potential. In the past few weeks, every time the RSI unwinds back towards 50 the Aussie is being sold again. The daily chart shows key near term overhead resistance at $0.7490 so there is room for a rebound but I would still expect it to be sold into. The intraday hourly chart shows the sharp move higher yesterday in about two hours, before it started to drift back lower again, leaving resistance at $0.7450. The hourly momentum indicators have rolled over already and the bulls have failed to continue the move overnight. I expect the sellers to regain control fairly quickly, possibly even as soon as today, and to see a retest of the $0.7325 key low before further downside in due course.
The euro rallied strongly yesterday which was the first serious rebound for 7 sessions. There are a few issues this rally raises though, with the key support around $1.0820 never really being properly breached, the bulls will breathe a sigh of relief. However I do not see this as a sustainable move or the beginning of a recovery. There will be the occasional blips in this dollar strength but technically the move certainly looks to be counter trend and I expect the sellers to regain control to retest the key May low once more. The technical indicators are in negative configuration still and there needs to be a significant improvement to take place before I would change my outlook. The RSI would need to push and hold above 50, the MACD lines would need to push above neutral and Stochastics would need to sustainably rise above the mid-July rebound highs. The intraday chart shows the rally has just lost a bit of impetus around the resistance at $1.0965 and the hourly momentum indicators have rolled over. Whilst trading below the old pivot level at $1.1050 I still see a negative outlook on EUR/USD and rallies will be sold into.
The consolidation has turned into a slight bearish drift as the price action in the past five days certainly now suggests the bulls have lost control. A third doji candle in the past five days reflects the uncertainty in the near term outlook, something that is also reflected in the daily momentum indicators that have become almost entirely neutral. However there has been no decisive selling pressure able to take hold, with the intraday chart showing the price holding up around the 50% Fibonacci retracement of the $1.5188/$1.5928 rally at $1.5558. An early jump today has improved the near term outlook but the tendency has been to trade towards the bottom of the recent trading band and is why I have got the slightest negative outlook. However, even the hourly chart indicators are turning neutral. It is as though the market is waiting for the next catalyst. A break of yesterday’s low at $1.5527 would open the 61.8% Fib level at $1.5470. Resistance comes in at $1.5627 and around $1.5665.
Well just as it looked as though the dollar bulls were ready to grasp the impetus, the profit takers step in and a bearish key one day reversal has been seen. This pattern tends to be a powerful move, however I am still a little unsure of the certainty as the previous candle was only 42 pips wide, so it would not have taken much. Still though it is what it is and a bear key reversal is a negative candle that suggests the sellers are in control, at least near term. Today we see the price down again and a negative move today would confirm the change in sentiment. Also the momentum indicators have rolled over. The RSI has again failed to move above 60 (interesting that this has come just at the key resistance around 124.43), whilst the Stochastics are also in decline. The hourly chart shows the loss of the initial support band 123.70/123.90 being tested. A breach would re-open the 123.20 support of the 38.2% Fib level. Hourly momentum has also taken a turn for the worse. With the bulls having lost near term control there may be a retreat to the 38.2% Fib level which has consistently been a key near term level, however I would still see this as a near term aberration for the dollar bulls.
It has to be said, it does not look good for the gold bugs now. The sharp flash sell-off on Monday seems to have been validated as despite the positive trading day yesterday there was hardly any impact on the massive decline. Furthermore, the price was selling off into the close last night and has continued lower today taking it back below the low from yesterday. Technical indicators subsequently look bearish across the board and with the price back below the near term support at $1094.25 as shown on the hourly chart, the sellers are building for a test of the spike low at $1088.00 again. The intraday hourly chart also shows that the rallies in the past couple of days have been sold into at lower levels which has left resistance at $1102.90, yesterday’s high at $1109.50 and also the original rebound high at $1118.70. The outlook is terrible and pressure on $1188.00 will continue today. The key low from March 2010 comes in around $1085, whilst the real support is not until the 2010 low around $1044.
An intraday spike higher yesterday (amid a bout of US dollar weakness – providing further evidence of the negative correlation between the dollar and commodities) will simply prove to be another chance to sell. The recent close below the support at $50.58 suggested the bears are in control and momentum indicators suggest that rallies will be used by the bears to go short once more. The intraday hourly chart shows a good band of near term resistance between $50.80/$51.25 and this seems to have been too much for the rally. Look at the hourly RSI which once more unwound to almost bang on 70 before falling over (this is the third time this has happened in the past 2 weeks, the other two times proving to be great shorting opportunities). I expect a retest of the low once more at $49.77 before hitting the original downside target of $49.50. The next downside target beyond there is $47. The bears will remain in control of the outlook whilst the $52.17 resistance remains intact.