The weakness in the oil price has been a concern for a while but perhaps only now is it beginning to bite on equities. As oil price fall to multi-year lows, the S&P 500 has had its biggest one day decline since October. With 13% of the index weighted in energy plays, a fall of 0.7% has brought the S&P down to 2061 and now close to a test of the first band of support between 2040/2050. This negative outlook has fed through to Asian trading too as markets have also suffered, with the Nikkei 0.7% lower also not helped as the yen has continued to strengthen overnight. Interestingly though the Chinese stock market continues to soar, helped by speculation that the People’s Bank of China are under pressure to ease monetary policy further (the likelihood is another cut to the reserve requirement ratio). European markets which suffered a bad day yesterday have continued to correct in the early trading today.
In forex trading the outlook is showing a slightly corrective move for the dollar today. However, the pullback should ultimately provide some opportunities to buy the dollar against currencies such as the euro, sterling and the yen. However, the Aussie dollar continues to slide, a move which has been exacerbated by the weak Chinese trade data yesterday.
Traders have a light calendar once again to work with, as only UK Manufacturing Production at 09:30GMT is of any great significance. The expectation is for a slight dip to +0.2% for the month from +0.4%. Sterling traders will be waiting.
Chart of the Day – USD/CAD
The dollar has once more broken out against the loonie. The move above 1.1466 is the highest level since July 2009 and the way is open for a test of the next resistance at 1.1724. Previous breakouts have tended to be fairly brief before a bout of consolidation sets in to drag the price back towards the support of the 55 day moving average once more and continue the trend channel higher. Looking at the RSI though there could be further upside momentum in the current move before the correction sets in. Previous peaks have come with the RSI closing around the 70 mark, so with the level currently at 62 there is room. Also the MACD and Stochastics have got further to run in their bull phase. There is a decent band of support now between 1.1336/1.1393 with which to capture any potential correction, whilst the 21 day moving average (currently 1.1341) has also consistently captured any near term corrections. Any weakness in the USD/CAD chart now looks to be a chance to buy.
Instances of euro strength tend to last just a matter of a few days before the bears come roaring back once again to push the rate ever further lower. The slight element of support that began yesterday has been maintained into today and with the outlooks remaining negative, this leaves me with thoughts of further short positions. It should just be a question of timing and when. The downtrend comes in at $1.2437 today which gives around 100 pips of room for this latest rebound to play out. On the intraday hourly chart the old key support at $1.2357 is the new basis of resistance whilst there is further resistance around $1.2390. The rebound has already allowed the intraday hourly momentum indicators to unwind and any sell signal should be seen as an opportunity now. The resistance at $1.2456 is key near term now as the lower reaction high.
The selling pressure on Cable has been fairly steady and orderly over the past 10 days. The sequence of lower highs on the daily chart have been tracking the 21 day moving average lower (which has been an excellent basis of resistance). With the daily momentum indicators showing no sign of a bullish recovery, it looks as though yesterday’s rebound has given another chance to sell once more. The intraday hourly chart shows in good detail the succession of lower highs over the past week, with $1.5695 and $1.5725 the latest levels, with $1.5763 the first key near term resistance. I would be on the lookout for a near term sell signal which could once more be the trigger for the latest reaction high and the continuation of the dollar strength that would pull Cable lower to retest the lows at $1.5539.
I said yesterday that the long term technical indicators remain strong but there could be a risk of a near term correction. The correction we have seen has been quite sharp for Dollar/Yen which has been almost exclusively been travelling higher in recent days/weeks. On an intraday basis the move has been over 200 pips in just over a day. The daily chart shows the momentum indicators slightly deteriorating on this move but this is surely understandable and at this stage there has been no significant impact. The intraday hourly chart shows a the support of a 5 week uptrend that comes in around 119.25, whilst the hourly momentum indicators have unwound. There is a basis of support between the breakout levels of 119 and 120 and this is an area that a buying opportunity should arise as there is little to suggest at this stage that the uptrend is coming to an end. I fully expect this correction to be bought into and to resume the push higher once more. Resistance comes in at 121 and 121.84.
The gold bulls fought back well yesterday to pull the price back above what I see as a near term psychological pivot level at $1200. However the move is yet to break through the new downtrend of the daily chart which comes in around $1210 today. There is still a bearish divergence on the Stochastics but the MACD and RSI indicators are still sitting fairly neutral and are yet to show much reaction. This points towards a continuation of the consolidation for now. The intraday hourly chart reflects that consolidation with hourly moving averages which are flat and a set of momentum indicators which reflect a near term neutral outlook. It is difficult therefore to call gold on a near term basis with any conviction, but bouncing from $1186.10 and with the price now above $1200 again, the outlook is picking up once more. The resistance at $1214.80 protects the key reaction high at $1221, which I still believe needs to be breached to validate the recent rally. So conflicting near and medium term views once more on gold, the wait for a confirmed breakout continues.
Yesterday we saw the oil price falling below the key reaction low at $63.72 to take WTI to a new low dating back to July 2009. The next low is a minor reaction low at $62.70, but in all honestly there is now very little to stop a retest of the July 2009 key reaction low at $58.32. The problem the WTI price has now is that the momentum indicators are accelerating to the downside, but also show further bearish potential, whilst the price continues to hug the lower Bollinger Band (today comes in around $61.80). The intraday hourly chart shows that there is a sequence of lower highs that have been left on the rebounds over the past week, meaning that there is resistance between $65/$66, also, interestingly the falling 21 hour moving average (currently $63.14) is acting as a good basis of resistance. The hourly RSI is towards oversold now and this could mean a near term technical rally which should be seen as a chance to sell. The resistance at $69.50 remains key to maintaining the near term bearish outlook.