Sentiment picks up, but without a catalyst will it last?

Market Overview

Market sentiment has taken a bit of an upturn into the new trading day however this comes on little real catalyst, which begs the question of can it last? It is difficult to trust the move which on the face of it looks to be little more than a ”dead cat bounce”. Yields on safe have bonds such as the 10 year Treasury and Bund are on a downward trajectory and tend to be a good gauge for market fears of late. The S&P 500 failed to reclaim a close above the previous key support at 1903 so the outlook on Wall Street remains corrective. The S&P 500 closed 0.1% higher, however volatility remained high on Asian markets which bounced strongly after previous big losses. The Nikkei 225 was up 2.7% with green across the board. However, any bounce is likely to be short lived and traders are unlikely to take the prospect of the next round of crucial Chinese data (manufacturing PMIs) tomorrow morning lightly. European markets are positive at the open but for how long will this last for before the near term profit takers move in? This is a market devoid of any positive catalysts now.

Forex markets show a mixed outlook across the majors in early trading. The commodity currencies have shown a bit of resilience in early trading today with the Aussie and Kiwi bouncing. The dollar is trading slightly stronger against the yen to reflect the slight improvement in risk sentiment too. The gold price is slightly lower again whilst oil is also trading marginally lower.

Traders will be looking out for the final reading of UK GDP for Q2 at 0930BST which is forecast to be confirmed at +0.7% for the quarter. Also at that time as well is the UK current account reading for Q2 which is expected to show an improvement to -£22.2bn (-£26.5bn). At 1000BST the flash Eurozone CPI is released and is expected to show the region’s inflation has dipped back to zero. Then for the US the ADP Employment Report at 1315BST is expected to show a similar reading to last month with 194,000 (190,000 in August).

Chart of the Day – EUR/GBP

A near term breakout has been seen on a move above £0.7390, but can this now lead to a significant upside break and a move above £0.7480? At the moment, looking at the momentum indicators the outlook is rather mixed. The Stochastics are still rising (albeit at a slower pace which could be an early sign of a loss of impetus), whilst the RSI is barely above 60 and struggling. If this was an upside breakout from a range then you would want to see momentum bursting higher, which is not the case. The pair has just dipped back in early trading today and looking at the intraday hourly chart the momentum indicators again reflect a lack of drive by the bulls as the consolidation has kicked in. I would watch the uptrend that has developed since the 22nd September, whilst I feel that the hourly RSI and Stochastics are configured more for a range trade than a breakout. If the initial support at £0.7378 is broken then this may begin the next down move within the range to test the reaction low at £0.7300  Resistance is now with yesterday’s high at £0.7437 and the May high at £0.7480.

EURGBP   30092015


The euro is still holding up very well still and has now started to pull away from the $1.1100 pivot. Despite a fairly neutral candlestick pattern (a spinning top or perhaps even a doji, both of which would denote consolidation with a touch of uncertainty) the drift higher has continued and the near term resistance at $1.1295 is under pressure. I see this is the barrier that is now preventing the euro rallying back towards the high old range high at $1.1465 again. We find the daily momentum indicators still with a slight bullish bias in their configuration but without any real influence on proceedings at present. The intraday hourly chart is developing into a range now of around 200 pips and the hourly momentum indicators again reflect the slight bullish bias within a range in the same way that the daily chart is also configured. The slight higher lows in place at $1.1146 and $1.1192 now protect the $1.1100 pivot and pressure is towards the range high at $1.1295, but can the breakout be mustered? A breakout would be bullish though and reopen the move towards $1.1465 again. I expect the consolidation to continue today though.

EURUSD   30092015


When does a medium term range break get confirmation? The move and close below $1.5170 has been seen as Cable has closed lower now for 8 consecutive sessions. I am always of the opinion that major breaks of support or resistance need to have a two day close to confirm, so if there were to be a second close below $1.5170 tonight then the bears would be in decisive control. I am though still concerned by the slowing downside momentum, which leads me to wonder whether a false downside break could be in process. This slowing momentum is present in a minor way on the daily chart but is more prominent on the hourly chart with the broken downtrend and bullish divergence on the hourly RSI. This puts me in a difficult position as the price has been falling. This Cable chart is still undecided for me and running big short positions now are not without their risk. The near term resistance at $1.5240 is becoming a key near term level for the outlook now. Initial support at $1.5126.

GBPUSD   30092015


The neutral range continues but are their just the initial signs of bearish intent? The key near term support at 119.00 remains intact as the pair bounced again off 119.20, however there was a move to close at the lowest level since 8th September yesterday, whilst the daily Stochastics have started to pull lower. These are though just minor developments, worth mentioning but difficult to trust too much yet. The hourly chart continues to show the range play and that the hourly RSI can still be used to trade. Currently there is a consolidation in the range but there is a near term pivot level that is developing at 120.00 and a move above there would re-open moves towards the highs of the range. Selling the hourly RSI at 70 and buying around 30 remains a viable near term strategy. Key overhead resistance does not come in until the 121.23 high.

USDJPY   30092015


The gold price has rolled over without yet making the key break below support at $1121 that would re-open the big selling pressure. However daily momentum indicators are suggesting that this move is increasingly likely now with the RSI at a 2 week low and the Stochastics falling decisively now. The selling pressure has turned into more of a drift lower in the past couple of days. The intraday hourly chart shows this well with the resistance coming in a lower levels and a move towards a test of $1121. A breach would initially test $1115 but there is little real support until a move back to the key reaction low at $1098. The hourly momentum indicators suggest selling into the rebounds, with initial resistance around $1136 and $1140.

Gold   30092015


Once more we have seen another rebound within the range and if the recent trend of lower highs is to continue, we should now be on the lookout for the next lower high. The peak on Friday at $46.40 is a minor high but the key resistance level comes in at $47.15 needs to remain intact for the outlook of selling into strength is to continue. There is though a distinct lack of real direction on the daily chart and this means that trading needs to be carefully timed on an intraday level, because staying in trades for longer than a day seems to leave you open for another retracement. The hourly RSI remains a good indicator on a short term trade basis. Trading the range with moves towards 70 favoured as a selling opportunity. There is still a likelihood of further downside pressure on $43.20.

WTI   30092015