Market sentiment has started the week much in the same vein as it ended the last, under pressure with safe haven plays benefitting. With Chinese economic data adding to the malaise, the safer haven plays are catching a sizeable bid amid concerns over the UK referendum and global growth prospects. Ahead of the crucial meeting of the Federal Reserve this week we are seeing Treasury yields now at multi-month lows, and the dollar strengthening. This is not a good market therefore for risk plays at the moment. Wall Street closed roundly lower on Friday and this mood has continued into today with broad based selling in Asia (Nikkei down 3.5% as the yen strengthens again ahead of the BoJ). The mood has also not been helped with the marginal miss on the China data with Industrial Production (+6.0% vs 6.1% exp), Fixed Asset Investment (+9.6% vs +10.5% exp) and Retail Sales +10.0% (+01.1% exp). European markets are also lower in early moves.
The forex markets shows the risk off vibe, with Sterling again under pressure and the big standout performer being the Japanese yen again. Gold is also stronger whilst oil, which is also a major indicator of sentiment also falling away.
There is no significant economic data now due today, but with the UK referendum approaching, watch out for any Brexit polls.
Chart of the Day – FTSE 100
Equity markets are under pressure as a sharp correction has set in. However, for now at least, the outlook has not changed for the medium term. This could come under pressure though in the coming days. The FTSE 100 has been a range play for the past few months as the support at 6036 (which is the March low) has been constantly under test. However the market continues to rebuff the bears and several tests over the past few months have failed. The latest sell-off comes with a concerning degree of bearish momentum though and the close below the June low at 6152 has re-opened the key low once more. I have spoken previously about the prospects of this support at 6036 becoming a huge neckline of a large top pattern and this is still the fear (a breach which would imply initially 5800 and possibly even 5645. Watch the RSI which has formed support in the mid to high 30s for the May lows, but a breach of this would suggest the bulls gaining the ascendency. Resistance now is between 6152/6200.
After a bearish engulfing candle/Bear key one day reversal it is good to have confirmation with further weakness. The appearance of a second consecutive negative candle is a concern now for the bulls as the momentum is now growing to the downside. The momentum indicators are now increasingly corrective with the Stochastics crossing lower to confirm a near term sell signal and the MACD lines turning lower. This now seems to be set to put bear pressure back on the pivot line around $1.1215 from the April lows and May initial resistance. The key support though remains in at $1.1100 which is the top of a long term pivot band. The hourly chart shows how the old near term support around $1.1320 is now a basis of resistance, whilst there is also minor resistance around $1.1280/$1.1290.
A huge sell-off on Friday has made a severe dent in the outlook for sterling. The failure of the support of the key May low at $1.4330 has completed a top pattern now which could imply around 400 pips of downside, or at least a test of the key April lows around $1.4000/$1.14050. The momentum indicators confirm the breakdown with the RSI at a 3 month low, MACD lines deteriorating and Stochastics also negatively configured. The move has also broken a three and a half month uptrend. The hourly chart shows that the near term momentum is overstretched and this could induce some sort of a technical rally today. Initial resistance is at $1.4265/$1.4280, with the old breakdown level at $1.4330 also key overhead supply. The next real support is not until $1.4088.
With the yen strength continuing overnight the drop back to test the key May low at 105.52 is on. Momentum indicators are negatively configured with MACD and Stochastics falling again, but also have further downside potential with the RSI only at 35. The concern is that if 105.52 is breached this would be another key multi-year low with 105.20 as support from October 2014, whilst subsequently there is little real support until 101. The hourly chart shows initial resistance is with old minor breakdown supports at 106.25/50 whilst 107.25 is Friday’s high. This could be a choppy few days with both central banks announcing monetary policy this week.
With markets in risk-off mode and traders preferring safe havens in recent days, the gold price has remained supported and has pushed higher. The question is how long and how far will the move go? The RSI is positively configured now, rising above 60 and MACD lines are also improving still. The price is now well into this resistance band that I have been looking at between $1260/$1288 in which I have been expecting the bulls to just run out of a bit of steam. The daily candles have been solid in their advance in the past few days, but now there is on final Fibonacci retracement as a barrier with the 76.4% retracement of $1303/$1199 in at $1279. A decisive pull clear of this resistance would suggest that there could be a full retracement back to $1303.60. However I continue to be interested in the hint of a bearish divergence on the momentum indicators of the hourly chart which could hint at waning upside momentum. There is now near term support at $1268.20 and $1272.30, with more considerable support at $1258.
After the high was posted on Thursday at $51.67, a second consecutive bearish candle has finally looked to unwind some of the overbought momentum. I still consider corrections as a chance to buy and subsequently I would be looking for a buy signal ideally around the support of the rising 21 day moving average (c. $49.00). The RSI has peaked at 73 and is currently in a healthy corrective move. This would change if the support of the bit uptrend today comes in at $47.60 were to be breached. This would also be a breach of the key reaction low at $47.75 so these levels are very important for oil. The hourly chart shows the trend support that links the lows over the past month comes in today around $49.00, has been breached so the bull argument s are begging to fail. Initial resistance is now between $49.10/$49.50 and then around $50.30.