Will the Fed’s favoured inflation data point to a rate hike?

Market Overview

Anything China orientated is getting extra attention by the market to be taken as a lead indicator on sentiment. The latest data shows Chinese Industrial Profits falling by 2.2% (which was way down from last month’s -2.9%. The year on year data saw a decline of 1.9%. This will add even more anticipation to what could be a crucial risk-defining release of China’s manufacturing PMI this week. This disappointing level of industrial profits in China added to a general mood of uncertainty and a lack of confidence of the bulls that drifted over from an uninspiring close on Wall Street on Friday and mixed trading in Asian markets today. The Japanese Nikkei was down 1.3% and there is a majority of red on the boards of the European markets on Monday morning as sentiment is again under pressure. Attention will turn to the Fed as its favoured measure of inflation is announced.

In forex markets there is something of a mixed bag as well, with the euro slipping back, but the yen also strengthening. Perhaps a touch surprising is that the commodity currencies are holding up fairly well so far despite the weak China data. In commodities, gold and silver are slightly lighter whilst the oil price is also around 1% lower.

On the economic calendar there is the not small matter of the FOMC’s favoured inflation figure today, with core Personal Consumption Expenditure at 1330BST. The expectation is that there will be no signs of a pick-up in inflation yet, with +0.1% for the month equating to the year on year data staying at a level of 1.2%. A reading such a that would not likely fuel too much argument for a rate hike. The Pending Home Sales are due at 1500BST and are expected to show growth of +0.4%.

Chart of the Day – NZD/USD

Over the course of the last few months there have been period of consolidation for the Kiwi which have abated the selling pressure but only for this to be taken as a period to renew downside potential for the next move. Once more with the old support around $0.6500 acting as the new basis of resistance, the rallies look to be little more than moves to unwind stretched downside momentum. In the past four weeks the bulls have never managed to sustain a move through the resistance band $0.6400/$0.6450 and once more the Kiwi is approaching this range. The RSI has unwound back to 50 (the August rally peaked at 55) and again we should be on the lookout for sell signals. There is little in this chart to believe this is anything more than a bear market rally. The hourly RSI is also hitting up against 70 and failing to make a real move that would suggest positive momentum was building. Initial support comes in at $0.6345 and then subsequently $0.6295.

NZDUSD   28092015


An incredible intraday rally on the euro was seen on Friday which has once more bolstered the support at $1.1100. The fact that this rally came on a day in which there was a strong run on the dollar should be even more impressive. It would appear that traders are not ready to break below the support at $1.1100 quite yet. The momentum indicators continue to suggest the market remains neutral, but the Stochastics crossing higher will add to the bull resolve. Moving averages are all basically neutral too and the euro is now trading within a near 200 pip band between $1.1100 and $1.1295. On the intraday hourly chart there is a further sense of the range play building as a lower high was left at $1.1210 on Friday. On the immediate term outlook we are waiting for a signal, but a move back below $1.1155 support again today would put pressure back on $1.1100 once more. Above $1.1210 opens $1.1295 and then $1.1330.

EURUSD   28092015


The tendency for Cable to trend within the medium term range has resulted in a serious test of the $1.5170 support and whilst this level was breached on an intraday basis on Friday there was a close at $1.5180 which suggests that this breach has yet to be confirmed. The question is now whether this trend is slowing or whether the bears can sustain a break. The daily chart still looks corrective, however the momentum indicators certainly do not have the configuration that would suggest the sellers have the strong impetus that would be ideal for a range break of such medium term importance. On the hourly intraday chart I spoke recently about the bullish divergence on the RSI and that although this suggests slowing momentum in the selling, it can take a while to kick in and really impact on the price. So we must still look at key levels, with Friday’s low at $1.5133 initially the support (a breach of which re-opens $1.5088). For the bulls though a move above $1.5260 is an initial test but of more significance on the near term outlook is $1.5285 which was Thursday’s high and the first key reaction high. This is a level that needs to be breached to suggest the selling pressure has really abated. Until that happens, the trend is your friend near term.

GBPUSD   28092015


Anyone who has read my Dollar/Yen comments in the past week or so should find it comes as no support that what looked like a developing rally failed on Friday and once more we are in a position back in the midst of the range. Despite a move above 121.00 the dollar bulls could not sustain the move which peaked at 121.25 just shy of the 121.30 resistance and the move has subsequently looked to reverse. Once more again on the hourly chart it was possible to play the range with a move on the hourly RSI to 70 seen as a chance for a short term sell within the range. Initial supports within the range come in at 120 and 119.60 however the next key support is not until 119.00/119.20. The catalyst that is needed to drive direction is still awaited as the outlook remains very much neutral now.

USDJPY   28092015


Gold remains on a knife edge on a medium term basis. The rally that has taken the price from $1098 hit $1156.30 before just tailing off at the end of last week. The question is whether this is the end of the run or not? The big long term downtrend is being tested but more needs to be done to suggest a long term change of outlook. I have spoken about the RSI failing around 60 previously and this is again a big issue. I thought that it was interesting that Friday’s correction came back to find support at the previous breakout around $1141.50 (Friday’s low bounced off $1140.50) an I still see this as a key near term level today that needs to hold. The bulls will certainly be eying the $1156.30 reaction high and a move above would open a test of the major near to medium term resistance at $1168.40. Hourly momentum indicators are still holding up OK but the bulls will need to take control again soon otherwise the profit takers will start to move in.

Gold   28092015


Even the relatively quiet days have still got some sort of impact on the outlook. After Thursday’s positive candle, the bulls appear to have lost their impetus once more within the range. However, on a day to day basis it is clear that the market remains difficult to call and whilst the support at $43.20 remains intact there will not be any decisive bear call. Although the RSI and MACD lines are almost entirely neutral, the nagging concern remains with the Stochastics which continue to fall away and suggest that there will be further pressure on support at $43.20. There is also the fact that in the past four weeks there is also a series of lower highs in place, the latest confirmed as $47.15, whist Friday’s high of $46.40 could be the next one in formation. Near term selling into strength is the strategy.

WTI   28092015