06/01/2015: Focus is again on the falling oil price which is driving safe haven flows

Market Overview

Over the past couple of months, a falling oil price has driven a flight into safe haven assets. This comes as volatility spikes and traders prefer the protection given by Treasuries, gold and currencies such as the yen. The past two days has seen the oil price falling precipitously once again and a familiar pattern of trading has set in with equities in sharp decline. Wall Street confirmed the sell-off in Europe yesterday and this has continued in Asia as the markets played catch-up today. So once more European traders will be watching the oil price today and an initial dip back below $50 does not bode well. An intraday dip on the WTI below $50 spooked traders yesterday and if this is repeated again today there could be further selling pressure on equities. European indices are trading fairly flat so far but are likely to take direction once more from the oil price.

After such a strong move to the US dollar began to correct late yesterday, the dollar is again under corrective pressure again today. The euro and sterling are looking to build support, whilst the big gainer is the yen which continues to claw back lost ground. Even the Aussie and Kiwi dollar have managed to rebound. Some of this may be due to a slightly improved Chinese HSBC services PMI and Aussie trade balance, however selling pressure on the US dollar is more likely to be the reason.

Traders will be looking out for the services PMIs for the Eurozone countries in the early morning, whilst the UK services PMI is announced at 09:30GMT and is expected to improve slightly to 58.9 (from 58.6). Then into the afternoon, the US ISM Non-manufacturing PMI is at 15:00GMT and is expected to dip slightly but remain at a strong 58.2 (down from 59.3).

Chart of the Day – DAX Xetra

Yesterday was another incredibly volatile day for the DAX. Equity investors continue to ride the roller coaster with little real trend in place. Technically, the chart of the DAX is very untidy and difficult to ascertain. In times where markets exhibit no real trend you play the classic overbought/oversold momentum indicators and right now the indicators are falling away with some room before becoming oversold. The next key floor in the price is at 9150 which was a series of key lows from November. The intraday hourly chart shows a top pattern which derives a downside target of 9400 and despite the very early trading today showing a basis of support, further downside should not be ruled out. There is a neckline resistance also now  around 9690. The bears look to be running with this one for the time being, however if price action in December teaches us anything it is that the outlook can turn on its head extremely quickly.

DAX   06012015

EUR/USD

The outlook for the euro is weak once again, but that does not mean it is a one way bet, at least not in the near term anyway. There has been an element of support that has come in in the past 18 hours which has seen the euro add around 80 pips. This is a rebound that is fairly standard within the selling pressure that has resulted in a decline of almost 600 pips since mid-December. The question is whether this is merely another minor rebound within the sell-off or something greater. Technically the RSI is still below 30 and the lowest since early October, so the prospect of a technical rally should not be a surprise if one takes hold. There is minor resistance at $1.1976 but I still view $1.2000 as a psychological resistance and if it breaches this then there could be more of a rally back towards $1.2070/$1.2100 resistance area. I still though view any rallies as counter-trend and am looking for near/medium term selling opportunities.

EURUSD   06012015

GBP/USD

Despite a slight degree of support coming in overnight, the feeling is that the bears are fully in control of Cable now. Technically, the daily chart is in a very well-defined bearish trend with moving averages consistently in decline (the falling 21 day moving average at $1.5565 is now a good basis of resistance) and all momentum indicators in negative configuration. This would suggest any rallies will be seen as a chance to sell. However, the downtrend is almost 300 pips above which gives rather a large window for a technical rally to take hold. So we look to the intraday hourly chart for signals. The resistance at $1.5317 is the only real barrier until the old low at $1.5485. However, there seems to be little real appetite for a recovery as the hourly momentum indicators are unwinding quickly with little real gains seen in the price. This does not suggest there will be much of a rally before the bears resume control.

GBPUSD   06012015

USD/JPY

The fly in the ointment for the dollar bulls is a drive into safer haven assets. This is beginning to show through in the chart of Dollar/Yen again as the big safe haven currency (the yen) is starting to appeal once again. The trading range that has been building over the past couple of weeks, which has been holding the dollar bulls at bay, is beginning to break to the downside. A move below 118.82 support has been seen. The concern for the bulls is that this is happening as the Stochastics have turned lower, the last time this happened was during early December when there was a 7 day correction. Ultimately I would view any correction as a near term correction within a medium/longer term bull run and could give a much better entry point for long positions. The next band of support comes in between 118.00/118.20.

USDJPY   06012015

Gold

This is another chart that is benefitting from a preference of safer haven plays. The gold price is now into its third day of gains which is something that it has not managed to achieve since early October. As trading has been incredibly choppy in recent weeks, the chances are that there will be another corrective move within what has become a particularly directionless phase of trading. There is also multiple levels of overhead resistance to hold back an advance, with $1212.80 a three week high, the resistance of the huge downtrend that dates back to October 2012 (which comes in at $1216), and also the falling 89 day moving average is also a basis of resistance at $1208. Momentum indicators have picked up slightly with the Stochastics turning more positive, but the RSI and MACD lines are all fairly neutral still and do not suggest an imminent upside break. I would still expect the choppy trading to continue. Key support is building at $1168.25.

Gold   06122014

WTI Oil

Any prospect of support through December was decisively blown away yesterday. This has been an incredible couple of days for WTI that have resulted in a huge sell-off at the beginning of the year and a dip to below $50. This is clearly a psychological level and a support area from early 2009. However, in all honesty there is little reason to suggest this will hold up the price which is clearly at the mercy of the sellers once more. The next support from 2009 is at $43.85 but there is actually little real support until $33, which is an incredible prospect. Momentum is once more turning bearish across the board as the prospect of a previously improving MACD turning lower is a disappointment for the bulls. All they can hope for at this stage is a snap technical rally but with the incredibly bearish technical outlook in place, this would likely just be used as another chance to sell. The first resistance comes in at $52.14 and then around $54.00.

WTI   06012015

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