The new week has begun with market sentiment starting slightly on the back foot today. The HSBC Chinese manufacturing PMI came in a touch below expectation at 49.7 (49.8 had been forecast) which coming on the back of a slight miss in the official government PMI for China over the weekend and a slightly disappointing first read of US Q4 GDP, markets are in a slightly negative mind-set today.
Over the weekend, the heads of the new Greek government have been meeting with counterparts within the Eurozone in an attempt to garner support for its attempts to renegotiate its bailout terms. With the anti-austerity movement spreading through Europe, the French have been reasonable in their reaction, quite whether Mrs Merkel reacts in the same way is yet to be seen. However, this is an issue which will continue to rumble on in the background for markets and is yet to cause any significant impact outside of Greece.
After Wall Street closed over a percent lower on Friday, Asian markets were also weak today, with the Nikkei 225 lower as the yen traded below 117 for the first time in two weeks. European markets are trading slightly lower in early trading.
In forex trading, markets seem to be fairly mixed with the euro gaining and sterling slightly weaker as we begin what could be a hectic week which is heavy with economic data. There is no real sign of any significant impact on major pairs from the slight disappointment of Chinese manufacturing PMI this morning. Dollar/Yen has bounced back from early weakness, whilst the Aussie which tends to be closely linked to Chinese economic performance, is shrugging off the bad news to trade slightly higher.
Traders will be watching for the PMIs across the Eurozone which drip through during the early part of European trading, whilst the UK PMI is at 0930GMT and is expected to show a slight pick-up to 52.9 (from 52.5). The main number for the day is the ISM Manufacturing PMI which will give a forward looking view of the US economy and is expected to drift slightly back to 54.9 (from 55.5).
Chart of the Day – USD/CHF
After the clearly massive shock of the actions of the Swiss National Bank which resulted in a daily high/low swing of over 3600 pips, the dollar bulls are gradually getting control back. There is a theme of dollar buying once more, which when viewed on the intraday hourly chart, shows up as consistent upside pressure in a sequence of higher lows and positive momentum configuration. As part of a stepped advance, the recent break back above 0.9160 has become the basis of support now as upside pressure is growing as the next breakout above 0.9290 has been seen which re-opens the resistance of the old October low at 0.9360 and then the December low of 0.9550. A break back below 0.9160 would now be disappointing, but the recovery bulls would remain in control whilst the 27th January low at 0.8933 remains intact.
As we enter the new week we are still in a position of consolidation on the euro. The rate continues to trade sideways as the six week downtrend plays catch up (now down to c. $1.1400), although very little ground is being made up by the bulls. This is all resulting in the RSI flattening around the 30 mark (suggesting negative momentum still), the MACD lines also beginning to plateau slightly and most interesting of all the stochastics at a 1 month high. The problem is that the bulls just cannot gain any traction. Hourly intraday indicators look to be even more benign over the past week with moving averages flat and hourly momentum indicator neutral. The euro is waiting for a catalyst (I had thought it might be the FOMC meeting last Wednesday, but this proved not to be the case) which could come from today’s forward looking PMIs, or perhaps news of progress in the talks between Greece and its creditors.
The daily chart of Cable continues to show the sellers in control as the bearish indicators drag on the rate lower. The falling 21 day moving average remains a basis of resistance at $1.5125, the RSI is in negative configuration and even the Stochastics which had improved for a few days have once again decisively turned lower. The intraday hourly chart shows the bulls now struggling to break back higher above the near term resistance band $1.5100/$1.5120, whilst hourly technical indicators are in a more negative configuration. The immediate outlook suggests continues pressure on the support band around $1.5030 which was the old neckline of a small base pattern. A breach of the $1.4988 low from Friday would re-open the key low at $1.4948.
Are we seeing the consolidation break to the downside? After once again drifting back towards the key near term support at 117.20, as trading re-opened in Asian hours today after the weekend break there was a gap below the key support. This saw Dollar/Yen trading at a two week low and despite the instant reaction to buy the dollar the concern must now be that the sellers will be encouraged by the move. The next test of 117.20 now becomes incredibly important near term, because if it is disregarded as support then the outlook will become more negative near to medium term. Already the minor pivot band around 118.00 has held back the rally and the hourly momentum has rolled over once more. Near term resistance comes in at 118.50.
After Thursday’s sell-off, Friday’s rally was significant and looks to have reinforced the medium term support band $1252/$1255. However on a near term perspective, although a sharp move to the downside has been retraced there is still a sequence of lower highs on the gold price which needs to be overcome for the bulls to be in control again. With resistance forming at $1284.50, the high at $1297.50 remains intact and for now the rebound is consolidating. The move today could therefore define for the near term who is in control. If the reaction is to take profit on Friday’s move then it would suggest the medium term buyer may not have taken part in the rally. The support around $1272 will be a interesting line in the sand now.
There was an interesting reaction on Friday on WTI. Previously during this big sell-off, once support has been breached the bears have tended to pounce to pull the price sharply lower. However, despite the intraday breach of support $44.20 there has yet to be seen a closing break. With the bears unable to grasp control, the oil price shot higher through lots of intraday resistance. Interestingly on the daily chart, this move has taken WTI above the resistance of the old downtrend and also has broken the 21 day moving average (c. $47.30) as price rose strongly. This is the first positive sign on WTI for some while and it will be interesting to see how the bulls react now. The RSI is at a 4 month high and the MACD lines continue to recover. There is still much to do for the bulls however looking across at Brent Crude shows there is no significant selling pressure there and this could be the early part of a basing process. Holding above $46 support on the intraday chart would be a good start.