Fed speakers set to provide direction for consolidating markets

Market Overview

The financial markets have been reacting to the Chinese growth data and the perception is that it has uncertain implications. Subsequently we saw a fair bit of consolidation across forex markets and also equities. However one concern is in the oil markets which reacted decisively lower amid concerns over a lack of demand. The oil price decline is therefore weighing on sentiment slightly today in early trading, however the reaction is muted because commodity prices across the board have started to find a bit of support. Wall Street closed all but flat last night with Asian markets again very mixed. The mixed sentiment comes ahead of a number of Fed speakers who could be set to provide market direction.

In forex markets there is little direction being formed across the euro, sterling or the yen. However the commodity currencies are a touch more exciting with the Aussie dollar again higher by 0.4% as the Europeans take over. There is some support for gold after three days of declines, whilst the oil price is also marginally higher.

There are a raft of central bankers due to speak today from both the Bank of England and also more importantly the Fed. There will be speeches from Jerome Powell and more interestingly Bill Dudley (who has flip-flopped a touch on his views in the past week), we also have a speech from Janet Yellen which the market will obviously be looking at closely. From the Bank of England, Mark Carney and chief hawk on the committee Ian McCafferty. On the data front we are served up US Building Permits (1.16m expected) and Housing Starts (1.14m expected) both at 1500BST.

Chart of the Day – EUR/GBP

Euro/Sterling continues to trade in the broad range £0.7000/£0.7480 for the past 7 months. With another failure at the resistance the range looks set to continue and there is little reason to suggest that this will not continue. With sterling performing better in recent days whist the euro has corrected against the dollar, there has been a near term breakdown on Euro/Sterling. Yesterday the pair moved below near term support at £0.7330 which completed a minor breakdown and now opens up for a move back towards the mid-range pivot level around £0.7220. The daily technical indicators are pointing to continued correction after four consecutive days of sterling strength. The intraday hourly chart shows the corrective near term outlook and that there is a resistance at £0.7380 that would need to be overcome to defer the sellers now.

EURGBP   20102015 b


The euro has continued to drift lower within its corrective phase, with the near term indicators suggesting that this could continue. The RSI and Stochastics are both falling away, however I see this still as a correction that should be playing out as a counter trend move.  Whilst I see the near term outlook as corrective the next band of support is approaching. It starts around $1.1300 which was the old highs from late September ad can be taken down towards $1.1200 which was an old near term pivot level . However, already the move seems to be beginning to settle down as the losses over the past three days have been getting progressively lighter and the RSI is slowing its decline. The hourly chart is showing slightly negative configuration on the technical indicators still with yesterday’s low coming in at $1.1304. Initial resistance is $1.1380/$1.1395 which needs to be overcome to see the buying pressure resume.

EURUSD   20102015


The strength of sterling in the past few days has allowed Cable to build a consolidation whilst other majors have suffered against a minor dollar rally. The consolidation band $1.5413/$1.5508 continues and we must await the next catalyst for the breakout. Technical indicators on the daily chart are still showing a slight bullish bias which would lean towards an upside breakout, however I am still mindful of the failure of the RSI once again up around 60 (where it has previously failed in these rallies, whilst the Stochastics are also beginning to roll over. The hourly chart gives us little more of a clue of the direction of the breakout. Above $1.5508 re-opens the resistance around $1.5660, whilst below $1.5413 and Cable trades within the support band around $1.5300/$1.5385.

GBPUSD   20102015


The technical rebound from the low at 118.04 unwound gold back to the resistance around 119.60 where the recovery has just run out of steam again. With the more negative bigger picture technical signals this must come as a warning sign for the bulls. The bearish bias in the MACD lines, RSI and Stochastics suggest the rallies are increasingly being sold in to and that pressure bac on the old support band 118.30/118.50 and a retest of the 118.04 low is increasingly likely. Yesterday’s “doji” candle indicates uncertainty with the rebound and a failure to regain the initiative to push into the 120s is now likely to see the bears returning once more. The intraday hourly chart shows the price range having tightened over the past 24 hours into a band of around 40 pips from 119.20/119.60. A decisive break either way gives an implied initial target of 18.80 or 120.00 but would more importantly give the direction once more.

USDJPY   20102015


The corrective phase continues for gold and has now completed 3 consecutive down days following the peak at $1190.60. I still see the support band between $1156/$1170 as key and believe that this would be an idea range to look for the next higher low. However, for now a near term correction continues to play out and it is never wise to pre-empt support before it has actually formed. The main caveat from the daily chart is that the Stochastics have rolled over but whilst the RSI and MACD lines remain positively configured then the balance of the analysis suggests this is a bull correction still. Despite this though it is best to wait for the buy signal. The hourly chart suggests that there is still just a mild corrective outlook, but the longer this move goes on the more questions of the bull control there will be. The key support is at $1151. A decisive rebound back above $1177.20 would help to re-engage the bulls.

Gold   20102015


Yesterday’s sharp corrective candle tells us that there is still a strong selling force in the market that we need to be mindful of. The move on the RSI is once again beginning to concern me too with the support band around the key low of $43.20 being built on the RSI continually finding a level above 47. The dip over the past week or so means that the RSI is once more back around 49, but if this were to break back below 47 it would be a serious alarm bell for the sustainability of the key support. The hourly chart shows that there has been some support forming over the past 12 to 18 hours which should help to protect the reaction low at $45.23, however the bulls will now have to get back above $47.50 is order to prevent the increasingly corrective outlook from building once more.

WTI   20102015