Markets continue to be pulled around by economic data and by the rhetoric from FOMC speakers. There have subsequently been conflicting signals in recent days (ISM manufacturing and comments from Jerome Powell were dovish, whilst ISM Non-manufacturing and comments from Dennis Lockhart were hawkish). This has pulled markets around, but with Treasury yields higher than they were a few days ago the inference is a slight positive. This has driven a bounce on Wall Street. However the bounce has been tempered by the continued concerns over the decline in the oil price which remains on track to retest its March lows. After the S&P 500 snapped a three day losing streak with a 0.3% gain, Asian markets have been choppy overnight. European markets are slightly corrective early on as eyes turn to the Bank of England’s “Super Thursday”.
Today the Bank of England will make a trio of crucial announcements as it releases its monetary policy meeting announcement, the minutes of the meeting and also its Quarterly Inflation Report all at once at 1200BST. This is the first time this has been seen and it comes with the added interest in that it could also be a meeting where we see the return of the dissenters again. The consensus expects there to be two dissenting voters as the BoE is expected to hold rates steady. The hawks on the committee, Martin Weale and Ian McCafferty are the prime suspects. Not only that the bank will release its expectations for inflation and growth. This raft of information could create some significant volatility for sterling trades today.
In forex trading the dollar is under a little corrective pressure today (aside from against the Aussie dollar which is suffering in the wake of worse than expected Australian unemployment data showed a surprise jump in joblessness to 6.3% from 6.1%). Sterling is showing mild strength in front of Super Thursday. The minor dollar weakness is generating some support for commodities as gold, silver and oil all trade slightly higher.
Aside from the BoE, there is also UK industrial production at 0930BST which is expected to improve slightly on the year on year basis to 2.2% from 2.1%. Also the weekly jobless claims at 1330BST are expected to increase slightly to 273,000 from 267,000.
Chart of the Day – DAX Xetra
It is interesting that yesterday the French CAC 40 broke out to a 3 month high and although the DAX is lagging slightly on the technical breakout it is also improving strongly again. The key test today becomes the 23.6% Fibonacci retracement of the 9216/12389 rally at 11,640 which has acted consistently over the past few months as a key turning point. The closing level last night at 11,636 and the slight pullback early morning today means that this is a test that could continue throughout today. The momentum indicators are looking positive again near to medium term, with the RSI again pushing higher towards 60, the Stochastics having turned positive again, whilst the market is also again trading above all the moving averages. The key resistance comes in a test of the July high at 11,802 and then the May high at 11,920. If these levels can be taken out (as they have just been done on the CAC 40) then the outlook will turn once more towards a retest of the all-time high again at 12,389. The intraday hourly chart shows strong momentum and that corrections are being seen as a chance to buy.
I continue to see rallies as a chance to sell on the euro. Since yesterday’s near term low at $1.0847 there has been another minor rebound, however with the configuration of the momentum indicators (Stochastics and RSI falling away) and the succession of lower highs on the daily chart, I am looking upon this as another chance to sell. The hourly chart shows corrective configuration on the hourly RSI and that as the momentum unwinds it helps to renew downside potential. The rally from yesterday is now ready to test the resistance band $1.0930/$1.0990 and this is likely to be enough to prevent too much further recovery. In instances such as these it can be best to wait or the sell signal though. I expect a retest of $10808 in due course.
The range continues. Despite beginning to show signs of a corrective dip the outlook took a sharp turnaround yesterday and the outlook remains very much rangebound for now. The daily signals have remained neutral and we still await some direction. The hourly chart also reflects this mode of consolidation, as we see once more the 38.2% Fibonacci retracement level at $1.5646 again providing a barrier for upside. There could well be a catalyst for some direction today as the Bank of England gives a trio of announcements for “Super Thursday”, however in front of that news, Cable remains very much stuck within its range $1.5450/$1.5690. Initial support is once more with the 50% Fibonacci retracement level at $1.5558 and then yesterday’s low at $1.5524.
Although the dollar has been unable to generate any significant traction against the euro or sterling, against the yen it is a different matter. With two strong completed bullish candles there has been a confirmed breakout of the key resistance that has been holding the dollar back for the past 7 weeks. Tuesday saw a 2 month closing high and this has been followed by a second close above all the intraday peaks (the latest one being 124.58). Not only that but I have been waiting for the RSI to push above 60 to confirm the move (again a near two month high) on strengthening momentum. This should now open the way towards a test of the 125.85 key multi-year high resistance. The initial overnight drift lower, as shown on the hourly chart, is just unwinding some of the overbought near term momentum, but now look for the support to form around the breakout which is now supportive between 124.40/124.60. There is further support lower down but it would now take a breach of the reaction low at 123.50 to suggest that the bulls have lost control.
The consolidation may be continuing but there certainly seems to be a corrective drift still playing out over the past few days. For the past four days the gold price has started to trade clearly below $1100. The momentum indicators appear to have stopped unwinding and this is not a great sign for the bulls as this suggests that near term stretched momentum could now have unwound and the consolidation that has prevented further weakness below $1077 would be about to go again. There are though no explicit sell signals yet and the hourly momentum is actually relatively neutral. However the hourly chart does also show a series of lower highs in the past 4 days (latest being $1091.75 and Tuesday’s high at $1094.60. I would expect further drifting of the price back towards a test of the $1079.50 and then $1077 lows. A clean break again re-opens the 2010 low at $1043.
I spoke yesterday about the fact that rallies continue to act as opportunities to sell within the 6 week downtrend, whilst the initial resistance at $46.70 is the lower bound of an ideal selling window. This worked to the pip as yesterday’s rebound high in WTI hit $46.70 before selling back lower again. The move to a new multi month low has once more re-opened the test of the March low at $42.03 once more and there is little reason looking at the momentum indicators to suggest that the price will not see a full retracement to the nadir of the big bear run. The intraday hourly chart shows a bearish engulfing candle flipped the sentiment sharply negative again and the momentum indicators have further downside potential again. The selling window is still there today and comes in around $46.70/$47.10 today.