Market outlook continues to take on a generally outlook of consolidation as a quiet week builds towards what could be another key ECB meeting on Thursday. Equity markets, forex and commodities have all bee unable to find much direction in the past could of days. There is a split of opinion over whether the ECB will be ready to announce further easing measures tomorrow, an issue further muddied by news that there has been s light improvement in bank lending in the Eurozone recently.
Wall Street failed to muster any real direction with the S&P 500 -0.1% last night and another mixed performance in Asian markets. Disappointing Japanese trade data will raise the speculation of further easing measures although I still see this as unlikely at this stage. European markets are also mixed at the open.
In forex markets the euro is stable, whilst the dollar is stronger against sterling and the yen. The yen remains under pressure today after the unexpected Japanese trade deficit that was announced overnight. The dollar is also performing well against the commodity currencies with oil coming under pressure again amid higher supplies.
There is not too much on the economic calendar today. The UK public debt is announced at 0930BST which is expected to come in at -£10.1bn. The Bank of Canada is expected to give off a dovish tone in its monetary policy today although no rate cut from 0.50%is expected at 1500BST. The weekly oil inventories for the US is at 1530BST and is expected to again be a build of a further 3.3.8bn.
Chart of the Day – NZD/USD
Is the rally on the Kiwi a busted flush? The sharp gains over the past few weeks are now under increasing pressure as the bearish correction signals are now mounting. Since the Kiwi posted a multi-month high at $0.6897 towards the end of last week, there has been a series of 3 consecutive bearish candles, the latest of which was a bearish outside day candlestick, and if the early trading today is anything to go by then there could be a fourth consecutive negative candle. The concern elevates with a look at the Stochastics which have given a crossover sell signal recently but are also is now close to confirming that signal. The RSI is also falling away which is reflecting the downside momentum. The intraday hourly chart shows renewed downside momentum today as technical indicators move into a far more negative near term configuration. This would suggest that intraday rallies should be seen as a chance to sell. The downside pressure looks to now be building and the bears will be eying the next key support at $0.6615. There is now near term resistance in the band $0.6760/$0.6780.
The move on the euro yesterday was interesting as the bulls tried hard to wrestle control but lost the impetus as the day wore on. This means we have been left with a mildly positive candle but one which leaves more questions than gives answers. I am still looking at the support band $1.1200/$1.1300 as an area where the next higher low will be formed, but see that there has been no confirmation that a low has been posted yet despite the rebound off $1.1304. The daily momentum indicators have improved with the positive candle which shows how temporary the selling phase has been. It is just now whether the bulls can gain the initiative and build the buying pressure. Yesterday’s reaction high at $1.1385 becomes a key near term level as a move and close above would be a bullish move. The intraday hourly chart shows the initial resistance band of $1.1380/$1.1395 which were the highs from Friday/Monday capped the rebound yesterday, and this adds to the near term resistance. Above there opens $1.1420 but also the medium term range resistance around $1.1465/$1.1495. Initial support at $1.1330 protects $1.1300.
The consolidation continues. In isolation, yesterday’s candle is actually quite a negative and if it had come at the end of an uptrend you would have called it a shooting star. However in a range the candle needs to have confirmation of today’s following candle to give it serious meaning. The consolidation between $1.5413/$1.5508 is still coming as the momentum indicators flatten off and lose the bull impetus that had been present through last week. The initial move today, as a quiet Asian session hands over to European trading, is neutral once more and we continue to wait for the break. My expectation of a positive breakout is being reduced by the day now and I am still concerned over the RSI failing again around 60. A move below $1.5413 opens the $1.5300/$1.5385 support band, whereas a decisive bull move above $1.5508 opens the resistance at $1.5660.
I am now close to having to change my opinion once more on Dollar/Yen. I had previously moved from being medium term neutral to favouring a downside bias. However there has now been a rally over the past few days that has unwound much of the selling pressure to 118.04 and is now breaking through the resistance that would be an ideal selling area if the bears were in control. The move has gone decisively above 119.60 and through the 38.2% Fibonacci retracement of 125.28/116.46 around 119.83 , whilst momentum indicators such as the Stochastics and the RSI have also picked up. This all now means that the resistance at 120.30 is ready to come under pressure. This is the key near term resistance that would confirm the bulls have recovered. The old support/resistance at 119.60 is now becoming supportive again before further support at 119.10.
As gold was rallying yesterday afternoon I was getting excited. A close above the previous reaction high at $1177.80 would have completed a bullish outside day and been a strong positive signal. However gold drifted lower into the close and just failed to complete the pattern. I find this interesting as I am still not yet convinced that the gold price will be pushing strongly higher. Others may be putting large upside targets on but I stand by my assertion that a broken primary downtrend does not necessarily mean the price will be soaring higher, it may just build a sideways phase. The support that is building at $1166 is certainly encouraging and I have been looking for the validation of the broken downtrend in a new higher low in the $1156/$1170 range. It could just be that the bulls need to find their feet on solid ground before making the advance, and that is great, as long as confirmation is seen, which I do not believe we have had yet. A move and ideally close above yesterday’s high at $1180.30 would be a positive move today. The intraday hourly chart shows the support building at $1164.30/$1166.80. Above $1180.30 re-opens the rally high at $1190.60.
The medium term sideways trading and rangebound conditions on WTI oil is reflected in the fact that the Bollinger Bands on WTI have completely flattened and currently span $43.36/$49.37. However, the downside pressure is growing. The slide of the past couple of days is seeing the bulls under pressure to hold on to the support of last week’s low at $45.23. In fact , this level was tested to the tick yesterday and held, but the pressure still remains. I spoke yesterday about the need to monitor the level of the RSI which has not fallen below 47 through the past 7 weeks and is also under increasing threat. Furthermore, the Stochastics are falling away again to a 7 week low and the MACD lines are also turning lower. A breach of $45.23 re-opens the lows at $43.20 again. The intraday chart shows that there is now resistance at $46.50 to add to the resistance left at $47.50.