The rout on global stock markets continues. The market has been spooked by yesterday’s incredibly poor ISM Manufacturing data out of the US. If Non-farm Payrolls on Friday were not important enough, this will now put even more emphasis on them. Indices and forex pairs that had been holding on to some key levels prior to the release saw some decisive breakdowns which could see this bear correction turn into something far more considerable. The S&P fell 2.3% last night which spilled over into Asian trading, where with the strength of the yen amidst the flight to safety, the Nikkei was over 4% lower. Investors are switching their investments away from any risk assets and into US Treasuries (yield on the 10 year is at a 3 month low), the Japanese yen and gold. In other news, the Reserve Bank of Australia kept rates flat at 2.5% and notably toned down the dovish outlook in its monetary policy statement. Today is the one relatively quiet day of the week. Sterling traders will be looking at the UK Construction PMI at 09:30GMT, while the only US data comes in the shape of the December Factory Orders at 15:00GMT.
Chart of the Day – S&P 500
The world’s primary stock market had a dreadful session last night – if you are a bull. Having formed support above 1770 for several sessions, the key level broke down yesterday. This then precipitated the failure of several key technical levels on the way to a 14 week low. Having immediately broken the 15 month uptrend, the index has now broken below the key November reaction low at 1746. In doing so, it has also breached the 120 day moving average which had supported the previous 3 corrections within the uptrend. Daily momentum indicators remain corrective, with the next band of support 1700/1730. Intraday, the RSI is oversold and this could induce a technical rally, however there is significant overhead supply now around 1770 where all those who bought the corrections within the uptrend lie in wait.
After the sell off seen in the past few days, EUR/USD has formed some support at $1.3475. The announcement of the disappointing US manufacturing data yesterday afternoon allowed for a spike higher. However, there is now significant overhead supply in the band $1.3506/$1.3580 which should act as a barrier to any recovery. Intraday momentum indicators are already rolling over as the retracement runs out of steam and it looks as though any strength into the band $1.3542/$1.3568 should be a chance to sell.
Having breached the support of the uptrend in place since July, the sharp downside shift yesterday broke the key January low at $1.6308. This has now completed a top pattern which would certainly be confirmed should there be a breach of the key December low at $1.6219. On the intraday chart, the selling pressure shows little sign of ending as a series of lower highs continues. The falling 21 hour moving average (currently $1.6306) looks to be a basis of resistance. A move back above the resistance band $1.6308/$1.6316 would be needed to improve the chart, but with momentum indicators in bearish configuration, rallies look to be opportunities to be sold into now.
Having traded in a range for several days there has been a major break lower on dollar/yen with several key supports being breached. The move below 101.77 yesterday broke the range and now implies a return to 100 yen. The 200 day moving average (currently 100.07) was supportive during October and November and could easily be where the rate will now retreat towards. Daily momentum indicators remain corrective, while intraday the momentum indicators on the hourly chart are also not overly stretched and there could be further downside potential. Intraday support has formed at 100.74 and a move above 101.37 could result in a technical rally back towards the old support now turned into resistance around 101.80.
The sharp rally in gold yesterday in the wake of the disappointing ISM number could now breach the resistance at $1269.66 which was a mini lower high in place over the last few days since the recovery peaked at $1278.01. A break of this lower high would be the first signal to suggest the recovery was continuing. Without it then the gold price still looks susceptible to renewed downside. The intraday hourly chart shows how the price has backed away and left a high in place at $1266.10. Momentum indicators on the intraday chart are inconclusive, but there is support around $1255 now which has temporarily held up the price.