US dollar strength begins to retrace with one eye on the FOMC

Market Overview

The surprise rate cut from the People’s Bank of China on Friday added confidence to the risk appetite of the market and pushed equities strongly higher. This may have helped to see a strong close on Friday but the momentum behind this move has already lost some impetus in Monday’s trading. The US dollar which had gained strongly on Friday is beginning to unwind some of its gains, coming as traders begin to cast an eye towards this week’s meeting of the FOMC. Asian markets are mixed which China stocks unwinding earlier gains. The Nikkei was up around 0.6%. European markets are mixed to slightly lower n the early moves.

Forex market show the dollar is unwinding some of Friday’s gains versus the major currencies today. The dollar has given up ground across the board with notable gainers being the Aussie and Kiwi. Key commodities are broadly flat today.

Traders will be looking out for the German Ifo Business Climate at 0900GMT which is expected to dip slightly to 107.8 (from 108.5) which would be a four month low. Then into the afternoon the US New Home Sales at 1400GMT which are expected to dip slightly by 0.4% to 0.55m.

Chart of the Day – Silver

The slide on Silver is not being seen on the price as much as it has been on gold recently, however are the technical indicators telling us something that is about to be seen? The price may have been ranging sideways broadly between the old key pivot at $15.50 and a high at $16.18. However the momentum indicators are beginning to deteriorate now, with the MACD lines crossing over (a sell signal) and the RSI on the slide. The Stochastics are confirming a crossover sell signal on Thursday last week and continue to fall away despite the 3 week consolidation in the price.  This would all point towards pressure on the $15.50 support in the coming days. Friday’s doji candle suggests an uncertainty within the range and the failure of the bulls to push back towards the range highs is a concern. This now leaves resistance at $16.07 and $16.19. The hourly intraday momentum indicators continues to reflect ranging conditions with the hourly RSI fluctuating between 30/70. Support at $15.68 protects the key medium term pivot level around $15.50.

Silver   26102015


There has been incredible selling pressure on the euro in the past couple of completed sessions in the wake of the ECB meeting. The support of the pivot at $1.1100 had been initially holding but was subsequently breached again spectacularly on Friday as the PBoC announced a surprise rate cut. This move has move seen the euro close below the $1.1050/$1.1100 band that I have spoken about for so long. This now denotes a medium term breakdown and now opens the prospect of a retreat back towards the $1.0810 range low. The RSI confirms the broken positive outlook, whilst nearer term, the Stochastics are maintaining their bearish momentum and suggest that rallies are a chance to sell. What we have today though is a slight unwinding of the selling pressure, however the old pivot band $1.1050/$1.1100 will now become a basis of resistance with the intraday hourly chart showing a minor reaction high from Friday at $1.1140. Initial support comes with $1.0987, with minor support from August coming in at $1.0960 an $1.0925.

EURUSD   26102015


The outlook has turned corrective one more as Friday’s selling pressure began to accelerate the move lower and has now completed a fourth consecutive bearish session. The daily chart now shows the support at $1.5200 as being key as this is the latest key reaction low within the recovery. If this level is breached to the downside then a test of the crucial September low at $1.5105 would be likely. So far this could just be another near term correction and we must watch the momentum indicators for signals. The Stochastics are certainly now in a corrective configuration and the MACD lines are also beginning to cross over. Looking at the intraday hourly chart the initial reaction higher today looks to be unwinding the bearish momentum but will be an opportunity to sell. There is a minor resistance band $1.5360/$1.5370 before the important resistance of the old support around $1.5415 comes in.

GBPUSD   26102015


Taking a step back, I may have previously been negative on Dollar/Yen within the range (a strategy which I have subsequently needed to change) but ultimately the range is still the overriding factor here. With the rally over the past week and a half, the move is simply back towards the top of the range again, which means that traders will be on the lookout for the next corrective signal in order to continue to play the range. The range high comes in at 121.70, with last Friday’s peak around 121.50 currently the near term resistance as today’s trading has just rolled off the top. The overhead resistance preventing a decisive breakout is quite large now with a series of moving averages and the 61.8% Fib level (at 121.90) preventing the move. The daily momentum indicators are just beginning to slow too, with the MACD lines still below the neutral line and RSI turning lower at 60. I would be concerned about chasing the pair too much higher if I was a bull. The intraday hourly chart shows support around 121.00 with the more important support coming in between 120.00/120.20.

USDJPY   26102015


Friday was a fairly remarkable day in the correction as it looked for all the while that the bulls were re-engaging and were ready to take the next step higher. However the intraday reversal (as the dollar strengthened in the wake of the PBoC rate cut) has left a rather weak looking candle that has added to the resistance around $1179/$1180. However I see that the selling pressure through the daily closes in the past few days has begun to slow a touch and perhaps the sellers are losing their impetus. Also the RSI and MACD lines are not especially negative (although the Stochastics continue to fall). I have been talking about the support band $1156/$1170 recently and this remains intact. Whilst this remains the case then this will still look to be a bull correction for which we are waiting for another medium term buy signal to form. Below $1151 support would neutralise to a certain extent, whilst below $1136.50 puts the bears back in control.

Gold   26102015


The consolidation candlestick pattern on Thursday seems to have done little more than be a minor nuisance for the sellers who returned strongly again on Friday to push WTI ever lower and a test of the key $43.20 support is looming ever larger o the horizon. The problem is that a successful and confirmed breach of $43.20 would re-open the critical August low at $37.75 once again. The concern for me is that the Stochastics continue to deteriorate and the RSI is also falling at an 8 week low to really suggest the pressure is mounting on the key support. The intraday hourly chart continues to show lower highs and lower lows over the past week and any intraday rallies are being seen as a chance to sell. The latest rally high came in at $45.75 which was below the $46.50 and also the $47.50 key near term reaction high.

WTI   26102015