Sentiment settles in for US Thanksgiving holiday

Market Overview

After weeks of dollar strength there have been slight signs of a near term retracement as the forex majors look to bounce back in the past day or so. However, this is still likely to prove merely short term and counter trend and could even give the dollar bulls a better entry. Sentiment is settling as attention of traders in the US turns more towards turkey and pumpkin pie in celebration of Thanksgiving for the next couple of days and this could leave markets with reduced volume but also increases the potential for spiky moves in markets. This was certainly not the case on Wall Street yesterday though as the traded ranges on the indices were incredibly tight with a reluctance to commit ahead of the holiday period. However Asian markets have been mildly positive overnight and European indices have followed a strong session yesterday with further drifting gains today. The growing tensions between Russia and Turkey do not seem to be dampening the mood too greatly, yet.

In forex trading, the major currencies looked to drag back some of their losses against the dollar yesterday but this move is already struggling for traction today, although the slight outperformace of the Japanese yen would suggest a marginal safe haven preference. The one main issue is the Kiwi which is remaining on the front foot as other majors have faltered. In the commodities space, gold remains supported and the oil price is also holding steady.

There is a lack of data due today with the US on public holiday, so traders will need to wait until late this evening for the Japan CPI data which year on year is expected to remain at -0.1%..

Chart of the Day – NZD/USD

The Aussie dollar may have been rebounding for the past couple of weeks leaving the Kiwi unable to match its run. However is the Kiwi on the brink of a key near term move now? The resistance band at $0.6605/$0.6614 formed the old support neckline of a top pattern back from October and this looms overhead as a reminder of the control that the US dollar bulls have. However momentum indicators are picking up with the Stochastics rising strongly and the RSI yesterday at a 3 week high. This suggests that pressure could be building for a test of the resistance. The daily chart shows support in place at $0.6490 which is Monday’s low and is becoming an important near term basis of support. If this can remain intact the bulls will gain in confidence. The hourly chart also shows that there is a near term pivot level support now in place at $0.6540 which will be eyed today as a line in the sand too. A rally (and ideally a close) above the $0.6615 resistance would re-open the late October resistance at $0.6790.

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The euro remains under significant downside pressure that has come with the key break of support at $1.0810, a move which made it increasingly likely that a test of the key March low at $1.0455 will be seen in the coming days/weeks. Over the past 6 weeks there has been a consistent run of lower highs and lower lows with rallies constantly being sold into at successively lower levels, the latest of which being last week’s high at $1.0762. Therefore with daily momentum indicators so weak and bearishly configured, this may well mean that yesterday’s high at $1.0690 could once more be another lower high that has been posted. The daily candlestick has left a negative slant on a 120 pip range and moving into what is likely to be a couple of days of thin volume (Thanksgiving in the US), the resistance at $1.0690 could be bolstered. The intraday hourly chart shows a minor pivot level around $1.0640 and I would favour a retest of the $1.0565 near term low.

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Since the August high at $1.5818 the near term rallies (lasting between one and two weeks) have consistently been sold into at lower levels and the pressure has resumed to the downside once more. The latest rally peaked out at $1.5335 and although it did not quite make it to the downtrend, the bears are certainly in control now. Momentum indicators are bearishly configured and reflect the outlook of selling into strength. A three day sequence of negative candles has been broken by yesterday’s rebound, but this is likely to prove to be another near term counter trend move that will be sold into. The intraday hourly chart shows resistance in at $1.5155 (around Tuesday’s high) with Monday’s high of $1.5190 further resistance. Expect further pressure in due course back towards a test of the recent low at $1.5050 and the November low at $1.5023.

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Could we be set for a correction as the momentum behind the yen begins to show signs of improvement once more. This is showing through as the technical studies on the Dollar/Yen chart start to fall away, with the RSI below 60, the MACD lines having crossed lower and the Stochastics in decline. Whilst I would still see this as a near term feature (within a medium term bullish outlook), the potential for a correction is growing. The support at 122.20 is becoming increasingly important as a breakdown would be a three week low and complete what shows up on the intraday hourly chart as a large double top pattern. This would open a retreat back into the support band 121.50/121.70 as an initial move. The intraday hourly chart shows initial resistance of yesterday’s high in at 122.93 which protects more important resistance at 123.25, above which the potential for the top pattern diminishes somewhat. Hourly momentum is broadly neutral.

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The strong bear trend on gold that has seen the price dragged lower to breach the 2015 lows could now be running out of steam. After around 3 weeks of consistent selling pressure which saw a stream of bearish candlesticks, the outlook is becoming a touch cloudy again. The past week or so has seen the candles become more mixed in their outlook. There has been a consolidation in the price which has tried to form a low at $1065. However that all said there is still much that needs to be done before we can think about a rally of any significance. The basis of resistance (which was the old floor of support around $1080) is holding back a recovery, whilst there is further resistance from last Friday’s reaction high at $1087.40. I would still see near term rallies as a chance to sell with the momentum indicators remaining bearishly configured. The key resistance medium term now comes in at $1098.

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The rebound from the low at $39.00 has now unwound all the way to the underside of the old key support between $42.60/$43.70. This is now the key near to medium term test and looks to be where a consolidation could begin to settle in. The momentum indicators are reflecting the recovery but the resistance is important to the outlook and it is unsurprising that with the RSI unwinding back towards neutral that this has resulted in a slightly positive/neutral looking candle (small body in the upper half of the daily range). For now this still just looks like it is a technical rally within the bear phase and the bulls need to maintain their recovery momentum otherwise the selling pressure could quickly resume. The resistance now in at Tuesday’s high of $43.50 needs to be overcome today. The bulls will be hoping to hold on to support now that has built in the range $41.50/$41.70 as a breakdown would re-open the key low at $39.00 once more.

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