Markets looking more cautious as volatility begins to subside

Market Overview

A slight air of caution is beginning to take hold now, with markets still trying to figure out the impact of a Trump presidency, and there are signs that volatility is beginning to subside now. After the initial wobbles, Wall Street had given Trump the thumbs up and pushed strongly higher. The prospect of tax cuts and potentially $1 trillion of fiscal stimulus would do that, whilst the changes to banking regulation is also deemed to be strong for the banks sector. The dollar has been on a tear since the middle of Wednesday morning, however there are a few early signs of this rally beginning to slow. The rally on Treasury yields though continues apace yesterday and if this begins to drop off then there could be some cause for some near term profit taking on these long dollar positions. The safe havens have been hit in the past couple of days but can the early moves today be anything more than a bear rally that delays further selling pressure?

cautious traders

Wall Street closed strongly again last night with an all-time closing high on the Dow Jones Industrial Average, the S&P 500 was +0.2% at 2167. Asian markets were mixed with the Nikkei +0.2% and European markets are looking a bit more cautious too with mild early gains. In forex markets there is a very mild correction on the dollar early on, with the euro, sterling and yen all slightly stronger. Gold and silver have managed to stabilise after yesterday’s losses, whilst the oil price is back into negative drift mode once more.

The US is on holiday for Veterans Day today but traders will still be looking for the University of Michigan Sentiment indicator at 1500GMT which is expected to be 87.5, marginally better than the downward revision to 87.2 last month.

 

Chart of the Day – DAX Xetra

Again we saw another remarkable turnaround on equities as it would appear that the volatility is yet to settle. However, notably, the key range resistance remains intact as yesterday’s intraday corrective move saw a sell-off back from 10,794. The move also closed the early morning gap higher (at 10647) which is a negative signal now near term and a bearish one day candle has been posted. The outlook for the DAX  is trading with incredibly uncertainty still and today’s early pop to the upside only adds to that. There is no clear trend to play in the near term  and with volatility remaining high the propensity for wild swings is high. Daily momentum indicators are neutral whilst the pullback from the range highs whilst yesterday’s negative candle gives the chart a near term cautious feel. Support is initially at yesterday’s low of 10,576 but the hourly chart shows that there has been a key pivot level at 10,450 within the 10,175/10,827 range and the market could now start to retrace back here again as a bit of a mean reversion play. The hourly chart shows resistance at 10,738 and then the range highs between 10,794/10,827. A breach of 10,450 opens 10,300 again.

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EUR/USD

The dollar bulls continued to drag the pair lower yesterday, with another bearish candle formation. However the intraday moves show that there is still a degree of uncertainty. The initial move higher to $1.0954 was sold into and there is another initial move higher again today. The fact that the bears failed in their initial test of the key October low at $1.0850 could also be interesting. The resistance overhead at $1.0950 which was an old key floor will now be eyed as the key near term level that needs to be breached if there is going to be a recovery. The hourly hart shows how there has been a settling of the selling pressure and a minor higher low is in place at $1.0870. I remain a seller into strength on the euro for a test of $1.0850 and then $1.0800 but the potential for a near term rebound first is growing. There is further resistance at $1.0990.

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GBP/USD

Sterling bulls have been remarkably resilient in the face of significant dollar strength that has hit across other major forex pairs. After Wednesday’s marginally positive candle, the bulls on Cable can out in force to form a strong bull candle with 150 pips gained on the day and break back above the resistance at $1.2557. This is significant as this is above the peak reached during the initial volatility on the announcement of Donald Trump’s move towards the presidency. The bulls have supported overnight and now the next move would be to confirm the breakout of the range. The daily momentum indicators remain configured for the recovery and if the breakout back above $1.2557 can be seen to confirm on a closing basis, then there is little significant overhead resistance until $1.2800. Yesterday’s high at $1.2584 is initial resistance. the hourly chart shows that the bulls still need to put some work in and the support at $1.2500/$1.2520 needs to hold to prevent a deeper correction back into the range.

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USD/JPY

Can the incredible run higher on Dollar/Yen that has seen a rebound from 101.15 during the early hours of Wednesday morning, up over 650 pips, continue to test the key July resistance at 107.47? There have now been 4 strong bull candles (although Wednesday was clearly a bit hairy), however today’s move has just started to drop back a touch from yesterday’s peak of 106.94. The market has just pulled the reins slightly on the dollar bulls. As the volatility begins to settle down the technicals will become more of a factor, and the daily RSI hit a heady 70 yesterday, nearing profit-taking territory. For now this is just a minor consolidation but the hourly chart shows that support between the near term breakout at 105.95 and the overnight lows at 106.20 need to hold to prevent a correction from gathering momentum.

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Gold

The gold bulls have lost their grip on the medium term outlook again. With the sharp volatility of the Trump win still a factor, yesterday’s early rebound was sold into and another negative candle was posted. The market has subsequently broken the 5 week uptrend but also more interestingly, has broken below the support of the old base neckline at $1265 and closed below $1260. This is a whole series of negative factors that have impacted the chart. The dollar is finding a little early selling pressure today on markets and the gold price has managed to rebound slightly, but this is the sort of move seen early yesterday and much more would need to be done to convince that it is the beginnings of a rally. The old support at $1265 will now be a basis of resistance and the hourly chart also shows that $1270 is an area of overhead supply. Hourly momentum also shows bearish configuration and that rallies are now a chance to sell. A move back below today’s low at $1250.70 re-opens supports at $1247 and $1241.

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WTI Oil

The rebound in the oil price seen in the last few days took a step backwards yesterday with a negative candlestick and 1.3% decline on the day. It means that the importance of the resistance of Thursday’s high at $45.95 continues to grow. Daily momentum indicators are looking to form a sustainable turnaround but yesterday’s price action has been a disappointment for the bulls. However, the hourly chart shows that this is still a period of consolidation, more than a recovery yet. The resistance around $45.90 needs to be broken to suggest a decisive recovery is underway. The momentum indicators are neutrally configured with the RSI suggesting a range-play. The support at $44.30 which held yesterday needs to maintain the support for the prospect of a recovery, however the hourly chart shows a bearish drift is beginning to take hold once more. The bears would regain control on a breach of $43.07. Initial resistance is $45.17 and $45.65 today.

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