As we move towards the minutes from the latest FOMC meeting, traders are becoming more cautious. Add into the mix, uncertainty over how to be positioned for the upcoming earnings season and the impact of ebola and geopolitics with Russia, the reason to be bullish are being overshadowed. Wall Street closed with slight losses last night, whilst Asian markets were also mixed to slightly lower. European markets have also opened slightly lower.
The Reserve Bank of Australia has kept interests rates on hold at 2.5% as expected. However the surprise came with the fact that it continued to say in its outlook that the Aussie dollar was still too highly valued, despite a fall of around 7% in the AUD/USD rate in the past month. The Bank of Japan has also kept its monetary policy unchanged, however it has cut its outlook for industrial output. The speculation is growing that the BoJ will need to extend its monetary easing programme in the coming months to address an stuttering in the recovery, not least due to the introduction of the sales tax hike.
After a considerable wobble at the top of its perch yesterday, the dollar will look to regain its poise once more today. The early indicators are that today’s forex trading will be more on the mixed side. Traders will be now watching out for UK Manufacturing Production at 09:30BST which is expected to improve to 3.4% (from 2.2%). There are also a couple of Federal Reserve heads speaking today with Kocherlakota (dove) and Dudley (dove) both due to speak.
Chart of the Day – DAX Xetra
Considering it missed out on Friday’s Non-farm Payrolls related rally in global equity markets due to it being on public holiday, the DAX had a bad day yesterday. A second sharply negative candlestick in a row shows the bears are in control. With momentum indicators firmly in negative configuration perhaps this is understandable. The pressure is being put on the pivot level around 9200 now and the early morning dip in the DAX suggests this support is giving way. With the DAX now at its lowest level since 15th August the prospect of a full retracement to 8903 is growing, whilst the next support is at 9068. The intraday chart shows that the near to medium term resistance at 9370 is growing in strength now and the bulls could struggle to gain upside traction before the selling pressure resumes on more.
The 175 pip rally in the last couple of sessions has been the biggest move to the upside since June, but so far has made little real impact on the outlook of the chart. The move has arguably just unwound Friday’s Non-farm Payrolls related sell-off and there would need to be a push above the minor reaction high at $1.2700 from last Thursday, which is also the resistance from an old support. The daily momentum indicators have picked up but still have a configuration that suggests selling into the rebound is the best strategy. Until there is a sustained and significant improvement in the euro I retain my outlook of selling into strength. I view this as another chance to sell for a likely retest of the low at $1.2500.
The sharp rebound seen yesterday has injected some life into the bulls, but there is much that needs to be done to prevent this from being just another opportunity to sell. The intraday hourly chart shows an accelerated downtrend that has been in place since mid-September that is capping the gains around $1.6125, whilst hourly moving averages are in decline and also suggesting that this is just a near term bear rally. Rebounding above the initial resistance at $1.6050 was a small first step, however, for the bulls to be considered as though a recovery is a real prospect there would need to be a push above the resistance of the old support at $1.6160. Hourly momentum indicators have a less bearish configuration but again need to do much more. For now I still believe this to be a rebound that should be sold into and I expect the bear forces in the chart to resume control in due course for a retest of the low at $1.5941.
For the past few days I have been focusing on the formation of this consolidation pattern that continues to build and as the pattern progresses I become increasingly concerned for long positions. As the failure to break back above 110.08 is still there, the momentum indicators continue to pull lower and yesterday’s sharp fall away has been backed up by further weakness today. I am not calling this as a top pattern yet, more that I see the bulls as losing control to a more neutral outlook in the near to medium term. I am still of the opinion that Dollar/Yen is a medium to long term buy into weakness (I have said about looking for buy signals around 107.00 for a while now), but I see a consolidation is now underway. The next support is at 108.50, with the key support coming in at 108.00. It would need a close above 110.08 to reinvigorate the bulls.
In keeping with the forex charts that have been showing a correction for the dollar, we have also seen a rebound in the gold price. The move has taken the price above the initial resistance at $1204.40, but also perhaps more importantly left a low in place at $1283.46. The momentum indicators have naturally picked up but there is still no indication yet of a serious recovery. There would need to be a breach of the bottom of the old downtrend channel which is currently a barrier at $1224, whilst the bears would remain in control until a push above the key near/medium term resistance at $1240.60. There may be a near term rebound, but with significant overhead supply in pace starting at $1221.64 (and then at $1223.50, $1230 and $1234.80) I am not expecting this rebound to go too far before the sellers regain control and drag the price lower again for a retest of $1183.46.
Looking over the past 10 weeks since August, the chart shows a sequence of lower highs and lower lows that roughly forms a downtrend channel. This channel shows little sign of ending any time soon. The sharp sell-offs over the last five days has also been characterised by a sequence of lower highs, with the latest forming yesterday at $90.41. This resistance is also significant in that that $90.43 previously marked a key support low, which has subsequently turned into the basis of resistance. WTI is shaping up for a retest of the recent low at $88.18. Furthermore, the bottom of the trend channel suggests that a move towards $88.60 could be seen in the next couple of days. Use any rallies as a chance to sell, with resistance also at $91.79. Expect further weakness in due course.