23/07/2015: Commodities under increasing pressure as forex majors look for direction

Market Overview

The sell-off on commodity prices has started to impact across equity markets. With base and precious metals falling sharply in recent days, the oil price also joined in yesterday with WTI falling back below $50. Add in the disappointment of earnings releases from US corporate giants Apple and Microsoft and these moves are beginning to become cause for concern. Wall Street closed slightly lower again with the S&P 500 off by 0.2%, however the Asian market have formed some support and the Nikkei was up around 0.4%. Yesterday we saw the Greek Parliament comfortably pass a vote which agrees to the bailout which means that discussions over a third bailout for the heavily indebted country can now begin. European markets are higher in early trading today.

The big news in forex markets overnight was that the Reserve Bank of New Zealand has put through a rate cut of 25 basis points which was in line with the market expectation. However the Kiwi has jumped over 1% on the news with the RBNZ not quite as dovish as in previous meetings, scaling back its rhetoric from “significant downside adjustment” to “further depreciation is necessary” whilst also not committing to a further rate cut in September. Aside from the Kiwi, forex majors are showing little real movement from the Asian session. Gold continues to look for a stable level and has bounced back by $5 in early moves.

Traders will be looking out for the UK retail sales at 0930BST which are expected to show +0.3% for the month and the year on year growth at +4.9%. Weekly jobless claims for the US are at 1330BST and are expected to stay broadly flat on the week at 280,000.

Chart of the Day – Silver

It is interesting that silver has not come under the same sharp selling pressure that gold has done so this week. However there is still a downtrend channel that remains intact and there is little to cheer for the bulls. Looking at the daily chart, perhaps the breakdown has already been seen a few weeks ago. The breach of the support at $15.50 resulted in a closing low that dated back to 2009. A subsequent rebound found resistance around the top of the downtrend channel and has sold off again. A move to a further new multi-year low at $14.50 has been met by an element of support in the past few days, but even if there were to be another bounce I would see it as another chance to sell. The daily RSI is very much negatively configured, with rebounds failing in the mid-40s in the past 6 weeks. The MACD lines are also negatively configured. I have previously talked of the falling 21 day moving average (currently $15.32) which has capped the upside consistently in the past 5 weeks and is now shadowing the downtrend channel. So rallies are a chance to sell. The hourly chart shows the consolidation of the past few days is testing a near term resistance at $14.90 and a small base pattern would form if there were to be a two hour close above this level, which would imply around $0.30 of upside (which would coincide with the 21 day ma too and the trend channel. I expect further pressure on the recent multi-year lows in due course.

Silver   23072015


I remain a seller into strength on the euro. Tuesday’s rally has not changed this, it has just given a chance to sell the euro at a higher level. Yesterdays “doji” candlestick implies uncertainty and a lack of conviction with the rebound. The momentum indicators have retained a bearish configuration and look to be suggesting that rallies are still a chance to sell. I do not see the Stochastics turning higher and crossing back above 20 as being a bullish signal, there is far more that needs to be done to suggest that to be the case (such as moving above the mid-July rebound high. Whilst the euro trades below $1.1050, the medium term pivot level, I will remain on a negative outlook. The intraday hourly chart shows that the rebound fell over at $1.0969 yesterday and a second rebound appears to be rolling over under that again today, with the momentum indicators again turning lower. I expect pressure back on yesterday’s low at $1.0869 today but even if there is a push into the resistance around $1.1000 again this is a chance to sell.

EURUSD   23072015


A positive green candle and a bounce of over 50 pips has broken the sequence of rather underwhelming trading days on Cable. The move has though merely reinforced the near term range of $1.5527/$1.5670. The only really discernible change to the daily momentum indicators has been an uptick in the Stochastics. This in isolation is not enough to start being bullish, but if the RSI were to start pushing into the 60s then I might have to begin to look at a possible bull move. For now though, the intraday hourly chart shows the continuation of the overhead resistance with the combination of the 38.2% Fibonacci retracement at $1.5646 and the old resistance barrier around $1.5665. These levels are holding back the buyers for now and we await a breakout and confirmation of the move before becoming positive. For now therefore I remain neutral and mindful of the changeable near term indicators that come with a range play. Support comes in at $1.5577 and around the 50% Fib level at $1.5558.

GBPUSD   23072015


Unfortunately, yesterday’s rebound and positive close leaves more questions than gives answers. The bear key one day reversal is still intact and is like a cloud hanging over the bulls now. This will be the case until a breach of the high at 124.48. However the corrective forces are still being held at bay as the pair has bounced off 123.54 again. The momentum indicators may have stuttered in the past few days but there is still a prospect of improvement once more. I continue to see a move on the RSI above 60 as a bullish sign if it were to happen, whilst the MACD and Stochastics are still hanging on to a positive configuration. The hourly chart looks to be more of a consolidation play now with hourly momentum indicators and moving averages all fairly neutral. Overhead we must again be watching the resistance band 124.20 (23.6% Fibonacci retracement) and of course 124.48. The support band comes in now between 123.54/123.70.

USDJPY   23072015


There has certainly been a confirmation of the breakdown below $1131.85 with the market apparently accepting the new price level. Yesterday we saw another bear move which actually very briefly breached the spike low of $1088 from Monday. Although there has been an early rebound today I do not see this as being much more than another opportunity to sell. The daily momentum indicators retain a very negative configuration and despite being oversold there has been little attempt to engage any sort of rally, which has to be a concern. The intraday hourly chart shows a couple of lower highs in the past few days which are resistance, with $1109.50 and $1118.70. However, maybe this rally needs to be watched as the hourly RSI is now at levels that have been consistently used as a selling zone, whilst the hourly MACD is also back at neutral. If these indicators continue to improve then it could be a sign of a near term recovery. I would still look at the overhead resistance in place, whilst in effect there would still need to be a rally at least back above the old crucial support at $1131.85 to be considered to be anything more than another chance to sell.

Gold   23072015


The downside pressure remains on for WTI with a 5th bearish trading session out of the past six. However, it now looks increasingly as though the bears are grasping control. A close back below $50 has been seen to confirm the breakdown of the mini range below $50.58 and imply a move back towards $47.30 whilst the support around $47.00 is the next key level to the downside. Daily momentum indicators retain a very bearish configuration and suggest that intraday rallies are a chance to sell. The immediate resistance now comes in at $49.80, whilst the resistance band $51.00/$51.25 will look to hold back any serious recoveries and with all technical momentum studies on the hourly chart in bearish configuration to back up the daily view. Resistance at $52.17 remains key near term.

WTI   23072015

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