It is a fairly sedate open to trading for the new week. Ahead of key growth figures later in the week for the UK (to give more clues on the impact of Brexit) and the US (to see if the Fed will still be able to hike in December), it seems that traders are looking to keep their powder dry with market sentiment looking rather neutral. Today we also get the flash reading of the forward-looking PMIs which will give an insight as to how the Eurozone and US economies are performing. There is though still a strong look to the dollar as more FOMC members (John Williams this time) add their weight to the idea of a hawkish move by the end of 2016. Treasury yields are settled, whilst equity markets are starting reasonably positively as the dollar has retraced earlier gains. There has been a suggestion from Iraq over the weekend that they will be pushing to not be included in the OPEC production cuts and this is having a mild negative on oil prices.
After Wall Street closed almost entirely flat on Friday, Asian markets have been able to generate much direction although the Nikkei is mildly positive. Forex trading shows the dollar is mildly positive with sterling again under pressure for a fourth consecutive day. The Aussie is an interesting outperformer. Gold and silver are mixed, whilst oil is around half a percent lower.
The flash Eurozone Manufacturing and Services PMIs are today with the Eurozone wide data at 0900BST, with manufacturing expected to show the mildest of improvements to 52.7 and services very slightly higher to 52.4. The US flash manufacturing PMI is at 1445BST and is also expected to tick slightly higher to 51.6. Two central bank governors also speak today with the SNB’s Jordan and the BoC’s Poloz both later this afternoon which could clearly impact on the Swissy and Canadian loonie.
Chart of the Day – AUD/USD
The big bearish engulfing candle has put the sellers back in control once more. The move has strengthened the resistance at $0.7735/$0.7755 and suggests that once more to play this as a medium term consolidation. The momentum indicators reflect this to, with the RSI again turning lower around 60/65 (as it has done on each rally in the past three months) and the Stochastics again crossing lower for a ranging sell signal. Friday’s price action confirmed the bearish deterioration in the near term outlook and even though there has been a mild early retracement today, there is now the potential for a decline back towards a test of the October low at $0.7505 if the bears really get hold of it in the coming days. Interestingly, the old resistance at $0.7650 came back in on Friday to cap the upside and adds to the overhead supply. The hourly chart shows this resistance in greater detail and that hourly momentum is negatively configured. There is a near term band of support $0.7550/$0.7580.
Having sold off in the wake of the ECB last week, the euro continues to drop back towards the next key band of support around $1.0800. The strength of the two bear candles to end the week on Friday and the early losses today suggests that the sellers still have the impetus for the test. The momentum indicators are firmly negatively configured but the question of downside potential is beginning to arise again. The RSI is below 30 which is incredibly rare and I think that given the strength of the support around $1.0800 this is likely to be a limit to the move. Rallies continue to be seen as a chance to sell for now and the hourly chart shows a series of resistance levels that reflect this. Initial resistance is between $1.0890/$1.0910 with the main resistance around the old key support at $1.0950.
The market has been drifting lower for the past few days as a prospective recovery has been denied. However the selling pressure has hardly been precipitous and plays into the suggestion that Cable is a range play now. The key support at $1.2086 and the higher low at $1.2130 could come under threat however the momentum indicators on the daily chart seem to be more benign now. The hourly chart shows that a downtrend has formed in the past few days and has a similar look to the downtrend of early October, which was subsequently broken with the support at $1.2130 intact. However the downtrend is being broken now. Friday’s low at $1.2170 will be seen as a key near term support today and if this can stay intact then the bulls may begin to look for another rally within the range. Watch for moves on the hourly RSI above 50, whilst the hourly Stochastics have just turned up again. Resistance is now initially at $1.2240 with $1.2270 more important and $1.2330 still key.
Dollar/Yen remains in consolidation mode and the ranging market that has developed between the key support of 102.80 and resistance at 104.60 continues to tighten the levels. The support at 103.15 held throughout last week and increasingly the rallies are failing around 104.20. Hourly indicators are oscillating between the classic range levels and for now the pair needs to be played as a trading range, looking for buy signals around support, and sell signals around resistance. The hourly moving averages are almost entirely flat whilst hourly momentum is also very neutral. It would appear that the market is waiting for a catalyst now and until 103.15 support or 104.20 resistance is broken there is little real direction to speak of even within the consolidation.
The base and potential recovery have stalled in the past few days. The move above $1265 resistance seemed to be finding traction with the confirmation of the momentum improvement (RSI back above 30, Stochastics buy signal and MACD lines beginning to cross higher). However a couple of rather disappointing candles to end the week have seem the recovery questioned. On the hourly chart though, I still believe that if the bulls can continue to build above $1260/$1265 which is a supportive band, then the prospect of a recovery is not completely lost. The support at $1256 is key near term and a breach would abort the potential base for now. A move back above Friday’s high at $1268 would improve the prospects, with resistance at $1273.80.
Can the bulls pick up the baton again and make another run at the resistance of the June high at $51.67? The corrective candle on Thursday more than retraced the move on Wednesday that pushed an intraday jump through the June high, however the bulls are still hanging on. The main concern from a technical perspective has to be the deterioration in the Stochastics which are now beginning to accelerate downwards, whilst the RSI is now beginning to drop consistently below 60. This suggests that the bulls are running out of steam in this move and the potential for a corrective move is growing. The initial resistance is now forming around $51.00 but the bulls continue to have a barrier around $51.67 which was the old June high. The hourly momentum indicators point to a more ranging market. The support is around $50.20 initially, however the bulls will certainly look towards the continued sequence of higher lows and is more of a consolidation within the rally. This could be one to see how the market develops to help for more certainty. Support at $49.15 remains key.