Traders appear to be stepping back from the recent bull run on the dollar, choosing to take a more cautious outlook ahead of US inflation data and a series of key events later in the week. Comments from the vice Fed chair, Stanley Fischer, have not helped to clarify the market view, in saying that low rates could threaten economic stability but caveated that it was “not that simple” with regards to a Fed hike. The Dollar Index has pulled back from its highs and several key markets such as EUR/USD and USD/JPY have just taken the foot off the gas of the dollar rally. However the US CPI data today could put the foot back on the accelerator today if the traction in upside inflation continues (although core CPI is expected flat at 2.3%). Sterling will be in focus this morning again as the impact of Brexit will again be shown in the UK inflation data. The CPI is expected to tick higher to 0.9% on headline and 1.4% on the core, however it is a less obvious data point, the Producer Prices Index year on year input prices which could also be crucial following last month’s surprise jump to 7.6% showing the pressure that producers are facing following the significant decline of the pound. It could be a volatile session for Cable.
Wall Street quietly trickled mildly lower yesterday (S&P 500 -0.3%) but Asian markets have been supported overnight with the Nikkei +0.4% and the European markets also higher. In forex markets the dollar has undergone a minor correction overnight with an improvement in risk appetite. Subsequently the euro is higher and the yen is lower, however the big early mover is a rebound in sterling which is showing signs of support coming through ahead of the key inflation data. The improved risk sentiment is also pulling the Aussie and Kiwi higher. The dollar correction is also helping commodities with gold and silver higher (with silver outperforming) and oil also forming some support trading over half a percent higher.
The UK CPI is at 0930BST with headline expected to rise to 0.9% from 0.6% last month and the core expected to improve to 1.4% from 1.3%. Also watch the PPI input prices which is expected to be 7.4% YoY (7.6% YoY last). US CPI is at 1330BST with the headline expected to improve to 1.5% (from 1.1% YoY) with core staying flat at 2.3%. The NAHB Housing Market Index is at 1500BST and is expected to dip slightly to 64 (from 65).
Lucky 8 – FX Trader of the Year 2016 competition update
I am now moving on to look at a new set of Lucky 8 instruments for Week 3 of our competition that we are running throughout October. I will be giving daily updates on how the Lucky 8 instruments of the week are performing.
- EUR/USD – I am looking to use this near term bounce as a chance to sell. The hourly momentum indicators are already showing signs of rolling over and this near term bounce has left resistance initially at $1.1025. I expect the dollar to regain strength and retest $1.0950 in due course. Key resistance is $1.1050/60. (See below for more detail).
- USD/CAD – The near term deterioration in the outlook suggests that rallies are being seen as a chance to sell. Yesterday’s third bear candle in a row found resistance around the old uptrend and leaves resistance at 1.3180 before continuing lower today. Now eying 1.3000.
- EUR/JPY – The near term pick up from the key support around 114 is coming back towards the recent downtrend, which I would see a chance to start looking for selling opportunities again. The caveat is that the market has been ranging between 114/115.15 for the past week and there is little real sign of any imminent breakdown.
- CAD/JPY – Old resistance become new support at 78.90 and the bulls are looking to use this as a springboard for further gains towards the September high at 80.28. Use dips as a chance to buy.
- USD/TRY – I still have a nagging doubt over the strength of this uptrend with three rather neutral looking small bodied candles followed by a failure at 3.1130 resistance yesterday. I still prefer longs but would certainly be cautious. Yesterday’s low at 3.0865 is supportive but could be an early signal if decisively breached. Support at 3.0685 is key.
- DAX – With hourly momentum indicators rolling over again the concern is that another lower high has been posted at 10,615. A failure to breach 10,560 which is a near term lower peak would add to that concern today. Reaction to the early gains will be interesting. Support at 10,490 and 10,440 with 10,350 key.
- Gold – Can gold break this near term range? The move higher is looking to test $1261.70 but the resistance at $1265 is key near term. Hourly momentum is already showing signs of rolling over and this looks to be another move within the near term range that is likely to fail. (See below for more detail).
- Wheat (WZ6 or W#_Z16) – The breakout above 412 and improvement in momentum indicators suggests corrections will be bought into. The hourly chart shows a band of near term support 416/420 with momentum indicators increasingly positively configured. Expect a retest of 428 before further gains.
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The euro remains under pressure on a near to medium term basis despite the posting of a mildly positive candle yesterday. Breaking below the long term pivot at $1.1050 last week means that the overhead supply of $1.1050/$1.1100 will now cap the gains and mean that the bulls will struggle for any real traction in a recovery. The momentum indicators continue to show a bearish configuration with the RSI in the mid-30s, MACD lines falling and Stochastics are settled below 20 with little real sign of any recovery. The hourly chart shows a band of near term resistance between $1.1000 and $1.1060 and I expect this early rebound to find sellers that will push the pair back down towards the test of $1.0950 again and perhaps even a test of the post-Brexit low at $1.0910.
As key inflation data for both the UK and US approach today, on a technical basis, the market is beginning to look far more settled than it has done for a couple of weeks, even though the medium term bearish bias remains in place. The two mildly positive candles during the middle of last week have helped to form support and yesterday’s doji candle of just 67 pips is another reflection of how settled the market is becoming. I have spoken a couple of times now about the downtrend on the hourly chart however, the initial support at $1.2130 held firm yesterday and the recovery late into yesterday has continued today to breach the downtrend. The bulls need to break through $1.2270 resistance to further improve the outlook, however already an attempt has failed overnight. This is turning into a near term range play, with resistance at $1.2330 increasingly key.
For a fourth consecutive session the bulls have been unable to achieve a closing breakout above the resistance at 104.30. The market is now into a ninth day of alternate bull then bear candles and with yesterday’s slightly bear candle this could mean that the bulls are back in play once more. The momentum indicators are still positively configured with the RSI around 60, MACD lines rising above neutral and Stochastics positive above 80. It is just that the bulls have the shackles on right now and cannot break free. The hourly chart shows the sequence of higher lows is still intact with 103.65 posted overnight potentially another above the 103.35 pivot. The hourly momentum has just swung positive again to help today’s probable bull session. A close above 104.30 is bullish and an intraday move above 104.62 would also be positive.
The near term range play continues, however the bulls have just taken a bit more of a positive start to the session and it will be interesting to see how they react to the near term resistance at $1261.70 and more importantly at $1265. Interestingly the daily RSI is now crossing back above 30, but unless the other momentum indicators multiple confirm, I would not be too quick in pushing for a bull move quite yet. The MACD lines and Stochastics could be preparing to tick higher but it is important not to see base patterns until they confirm. For now this is a range play and the hourly momentum indicators suggest holding on to that thought. A close above $1265 would certainly improve the outlook and open $1277 near term. Support around $1249/$1251 is growing near term and for now I am cautious.
Having failed to achieve the breakout above the key June high at $51.67, the oil price continues to consolidate above the key support band $48.75/$49.15. There may be a series of slightly lower highs that have formed in the past week, with the latest being Friday’s high at $51.15, however there are also a series of mildly higher lows too from yesterday’s low at $49.47 making the outlook all rather neutral. This is reflected on the hourly chart by converged and flat moving averages and hourly momentum which is showing ranging characteristics. The bulls will be looking towards yesterday’s high at $50.58 as a marker to breach, however the market is all rather balanced currently.