Commodities again under pressure as sentiment further weakens

Market Overview

There has been little change over the weekend as markets begin Monday where they left off on Friday, with further selling pressure. With Wall Street losing 6% on the first trading week of the year, there has been little respite in the selling pressure in Asia, whilst the European trading day is just about as gloomy as the weather. Concerns remain over the slowdown in China and also the ability of the Chinese economies to be able to manage the market fallout. Furthermore, commodities are again under pressure, weakening market sentiment amid further questions of the ability of the world’s second largest economy to prop up global demand. The announcement of weaker than expected Chinese inflation data has exacerbated the concerns with CPI missing expectations at 1.6% (1.7% exp) and a continuation of the terrible slowdown in PPI to -5.9% (-5.8% exp). Asian markets have been weaker across the board with Chinese equities at one stage over 5% lower. The Japanese Nikkei closed around 0.4% lower and the European session seems to be following a similar trend.

Forex markets suggest that traders are not yet willing to take direction, however there is still a slight sense of a safe haven move as the yen continues to outperform. Gold is also trading higher in early moves, whilst the oil price is back under pressure again.

There are no significant pieces of economic data to take the focus off China today so it could be another difficult day for the bulls.

Chart of the Day – DAX Xetra

The DAX remains under big pressure as a rally from 9810 of around 3% to an intraday high of 10,122 on Friday dragged the bears back in and the selling pressure took the market to a close at the day low. The interesting technical fact about 10,122 is that this was to the tick the old support of the mid December sell-off, giving rise once more to the consistency of using old key levels as pivot points. The negative impact of Friday’s move will continue to resonate into the new week considering that Friday was set up to be a day of recovery this is an extremely concerning development for the bulls. Not only that, but the 61.8% Fibonacci retracement at 9897 has been breached on a closing basis, whilst the early moves today are showing a move back towards last Thursday’s low at 9810. There is now a very real risk for further weakness towards the crucial lows of 9325 from September which coincide with the 76.4% Fibonacci retracement (at 9308) will now be retested. The momentum indicators suggest that there is further downside potential with the RSI still above 30 whilst the MACD and Stochastics lines are also accelerating lower again. The hourly chart shows negatively configured momentum with any move on the hourly RSI to unwind back towards 50 is a chance to sell.

DAX   11012016


The sharp volatility in the wake of Friday’s payrolls data has left a very curious position on the chart. A very strong bullish candle has been followed up by an almost “Dragonfly doji” candle (open and close around the high of the day with a long lower tail. This suggests that the bears were have been in control but lost it. I also see today’s early candle (which currently resembles a shooting star although it is far too early to be taking too much significance from) all means that there is an uncertainty from recent trading in a volatile market. The 4 week downtrend channel has been tested but in all truth remains intact until a close above $1.0950 resistance. The near term outlook as shown on the hourly chart is mildly positive and trading above the old pivot band $1.0810 gives the bulls confidence. The early intraday high is at $1.0968 as resistance.

EURUSD   11012016


The downtrend that has been in place for the past 4 weeks remains firmly intact as another strong bearish candle on Friday has pulled Cable to close at its lowest since mid-2010. The next real support is now not until $1.4230. Momentum remains deeply negative and rallies have to continue to be treated as a chance to sell. The downtrend comes in at $1.4665 today. The intraday hourly chart shows a series of examples of old support becoming the basis of new resistance, with the latest rally high at $1.4640 another case in point under previous examples at $1.4725 and $1.4800. There could also be one lower down at $1.4560 as momentum unwinds early today. Whilst momentum may be oversold there is little reason to change the recent outlook, so using the rallies as a chance to sell remains the best strategy for now.

GBPUSD   11012016


The bearish pressure and momentum continues to drag Dollar/Yen lower as the flight to safety remains in force. The intraday swings on the pair are again in evidence today as a low at 116.70 has already been left prior to a 50 pip  rebound. I would continue to look at rallies as a chance to sell as it remains likely that pressure will continue to mount on the August spike low at 116.46. I am though increasingly aware of the stretched level of the RSI. During a strong trend the RSI can reach extreme levels and the current move is more stretched than at any time since 2006. This would suggest that downside potential must be becoming limited and the potential for a sharp snap-back rally will be growing. For this reason, staying close with stop-losses tends to be prudent. The intraday hourly chart also does not show too much brewing for a recovery either yet. There is a resistance band near term at 117.50 and then 118.20 however the main line of resistance is at 118.75.

USDJPY   11012016


Now that the base pattern has completed on gold, the corrections will be seen as a chance to buy. The neckline around $1089 becomes supportive and Friday’s candle reflects the support that the market has for now. There could have been a position where profit taking set in, but the bulls again supported gold as the price dipped into the support around $1098. This maintains the strong momentum and I expect that once this consolidation resolves it will be a continuation of the move higher. Momentum indicators retain their positive configuration whilst on the hourly chart the momentum also remains strong. There is support at $1093.50 which would now ideally hold up for a push above the resistance at $1112 and then towards the implied base pattern target around $1030.

Gold   11012016


The attempted rally did not last long as the selling pressure has resumed once more. Looking at the momentum indicators it shows the dour state of the market which continues to fall with further downside potential. This is shown through the Stochastics in consistent decline but not yet oversold whilst the configuration of the RSI and MACD lines falling away also suggest any rallies will be sold into. The old support around $34.00 is the basis of resistance with a band on the intraday chart showing around 1% of overhead supply between $34.00/$34.35. It would seem that a retest of the multi-year low at $32.10 (around 11 years) is likely to be retested and the bears will be eying a move towards the psychological $30.

WTI   11012016