Market sentiment continues to rebound as oil recovers

Market Overview

The timing of an oil workers’ strike in Kuwait could not have been better timed in order to support the oil price which threatened to go into sharp reverse in the wake of the disappointment of no agreement in Doha. This intraday recovery on oil has helped to drive an improvement in general market sentiment. The big question though is whether it can last? After a decent close on Wall Street (S&P 500 up +0.7%), Asian markets also saw a rebound (Nikkei up 3.7%), whilst riskier trading plays also bounced (commodity currencies) and safe havens (US Treasuries, yen and gold) unwound earlier gains from yesterday. The forex markets also show the moves from yesterday are still making gains, with sterling again higher (certainly bucking its recent trend) whilst the Aussie and Kiwi are also stronger. The Aussie is stronger despite the minutes from the latest RBA meeting showing that the bank was concerned over the strength of the currency, and that low inflation could mean that there was room for a rate cut. The US dollar is therefore under pressure and this pressure is showing through commodities that are rebounding again, with oil and gold both higher. Bond yields are also managing to continue their rebound, so for now market sentiment is still benefitting. European equities are mixed to slightly higher today, with the DAX seemingly leading the way again (usually a good sign for risk).

Traders will be looking out for German ZEW Economic Sentiment this morning at 1000BST which is expected to continue to pick up to 8.0 (from last month’s 4.3). There is also US Building Permits at 1330BT which are expected to improve slightly to 1.20m (from 1.17m) in addition to housing starts expected to be 1.18m (up from 1.17m). Also pencilled in the diary are some speeches from central banks governors of the Bank of England (Carney), Reserve Bank of Australia (Stevens) and Bank of Canada (Poloz) this afternoon.


Chart of the Day – DAX Xetra

What a one day turnaround! The opening sell-off (almost at the low of the day) quickly left a low of the day around 130 points down, only to embark upon a rally that lasted for almost the whole session to form a huge bullish outside day and a flip in the outlook. The move also resulted in an intraday move above the resistance at 10,122 and a move to a new three month high, although the closing level could not quite sustain the break. Still though, the interesting technical indicator here is the RSI which has found the 60 level consistently difficult to breach in March (very similar to the FTSE 100 previously before its own breakout), but yesterday’s positive close took the RSI to above 60 and the highest since December last year. The MACD and Stochastics are also looking positive. Perhaps one caveat is that the volume has been notably low on the breakout and this could mean a lack of conviction in the move, however the way is now open towards the next Fibonacci retracement of 8355/12,390 with the 50% level at 10,373. The next price resistance is at 10,485 before a return to 10,850. The intraday hourly chart now shows that there is a basis of support between 10,015/11,000 with positive near term momentum on hourly indicators, whilst 10,025 is a marabuzu line support.

DAX 19042016


The slow drift rally of the past couple of days continues, but with the small bodies of the candles it is clear that the market is still unsure over the move. The breakdown from early last week which formed a small top pattern means that there is now a basis of resistance at the old floor around $1.1325/35 and this is a resistance which is now being tested. The hourly momentum indicators are all fairly neutral and also not reflecting a particularly strong momentum with the latest rebound. I would now view $1.1330 as a near term barometer as if the bulls are to regain control for a retest of the long term range highs, there needs to be a decisive push back above, however the hourly chart is more neutrally configured. I am still favouring downside towards $1.1200 from the original top breakdown, but my outlook is being tested by this rally. There is now support at $1.1275 and $1.1230.

EURUSD 19042016


The sterling bulls are fighting back. After having spent the majority of the year being at the bottom of the performance league of the major currencies, and technically very weak, there may be something of a resurgence brewing. The strong bull candle yesterday which was an outside day has flipped the outlook to be more of an improving one in the near term. This now means that the mid April resistance at $1.4345 could now be under threat today. This could question the sequence of lower highs and although not being a key reaction lower high it would be a signal of positive intent. The underside of the old downtrend channel which has been the basis of resistance currently comes in around $1.4430. The momentum indicators are also looking to improve slightly, although there is still much to be done here to confirm a more positive outlook. The hourly chart shows the old pivot at $1.4320 is being tested. There is now a near term band of support $1.4190/$1.4240. This is certainly a test to see how strong the bears are.

GBPUSD 19042016


A strong intraday turnaround yesterday has left what could be another key higher low at 107.80, with a move that has bullishly closed the opening gap lower and there is a potential improvement underway again. The continued gains today leaves us with the prospect that this could now even build into base pattern if the buyer continue to support. The resistance at 109.75 from Friday’s high is now the barrier that needs to be overcome. The momentum indicators still need to improve more and currently just reflect a market that is unwinding an oversold position. This may still very well be the case and it is my base scenario that rallies are still a chance to sell and that a rebound into 110/111 would be the ideal medium term selling opportunity again. The hourly chart again reflects the unwinding but there is resistance between 109.10/109.75. For now this needs to be treated as a near term range, with support at 107.60/80.

USDJPY 19042016


Gold looks to be breaking out from a near term consolidation range as the European buyers have come in this morning and burst the price through the pivot at $1243. If there can now be a confirmation of the breakout with a close above then the bulls will be looking back higher once more within the medium term range. We need confirmation as this was a similar situation yesterday only for the bulls to lose traction through the session. Daily momentum indicators are looking to pick up now although there is still a sense of a rather neutral medium term configuration. The breakout above the $1243 pivot lines signals around $18 of implied target (taken as a consolidation range breakout) which means a move towards the $1260/$1282 medium term range resistance. Near term support is now $1235/$1243.

Gold 19042016


The opening sell-off on Monday in the wake of the failed Doha meeting has left a gap open at $40.40 (from Friday’s closing price) which theoretically still needs to be filled, however it was interesting to see that after the initial reaction lower, the price has formed support to stabilise higher. Also  looking on the daily chart there has already been an admirable rally that has all but completed the recovery. This now means that the resistance band from $40.00/$40.85 is now being tested. If the bulls can break through this it would be a real signal of intent. However failure in this band and this move could simply be seen as an unwinding move to give another chance to sell. That makes today’s trading very important. This is because, looking on the daily chart there is now a confirmed sell signal on the Stochastics, the bulls will need to battle hard to prevent a correction. The spike low in the wake of Doha at $37.60 becomes the near term support. I have a feeling that it will take a few days for the market to settle once more and to get the true reflection of the opinion from the failed Doha meeting. From a medium term basis the key support remains $35.25 which could form a big top pattern (not dissimilar to the double bottom from February). For now though this is a way off formation.

WTI 19042016

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