The strength of the dollar has become the major factor in these markets. This is through a double whammy effect which is coming from the selling pressure on the euro and the move to price in a potential earlier rate hike by the Federal Reserve. The severity of the move on the dollar is spooking the markets, with Wall Street sharply lower yesterday on little fundamental news other than the dollar strength. The strong dollar has impacted across the forex markets but also commodities with pressure on precious metals and also oil yesterday. Wall Street closed strongly lower with the S&P 500 down 1.7%. Asian markets have been mixed today. Disappointing Chinese data in the form of lower than expected retail sales and lower than expected industrial production has not helped. The Nikkei closed 0.3% higher. European markets are bouncing slightly at the open.
Forex markets are interesting today a there is a slight mix of performance. The euro remains under pressure whilst the yen is also slightly weaker again. The signs of support for sterling continue to mount. The weaker Chinese data has though put pressure on the commodity currencies with both Aussie and Kiwi lower today. The Kiwi is also weak in front of the Reserve Bank of New Zealand which gives its monetary policy update today at 2000GMT. It is not expected to change rates from 3.5%.
In other data, this morning traders will be watching for UK Industrial Production which is at 0930GMT. The expectation is for an improvement from +0.5% to +1.3% for the year. There will also be the latest EIA crude oil inventories which are expected to drop from 10.3m to 4.5m barrels, which would be a 9th consecutive week in a row of adding to the inventories.
Chart of the Day – FTSE 100
The pressure of the FTSE 100 continually straining every sinew to push into all-time high ground has finally told and there has been a significant downside shift. They say you take the escalator higher but the lift back down and once again this is proving to be true. In 3 days the FTSE 100 has wiped out over 6 weeks of painful moves higher. A huge down day yesterday has now given the bulls a significant bruise and needs to be quickly dealt with. The Marabuzu line (half way up the body of a strong candle – in this instance a bearish one) is at 6790 and provides initial resistance, as does the old support at 6778. Momentum indicators have dropped away and the chart is now looking far more corrective. This could now mean a move back towards the 6640 old pivot level. The hourly chart shows the near term momentum is oversold and today’s early slight rebound reflects that but there is much to do to prevent this correction gathering strength.
The selling pressure on the euro continues and it is difficult to see exactly what will stop it in the near term. The momentum is just so bearish that even the slightest hint of a rebound is being seized upon as a technical rally. However, what I would say is that these situations cannot last forever. The daily RSI is now down at 18 and the sell-offs of September and January got to around 17 before a consolidation set in, so it may be that the sellers will begin to run out of steam. I am just clutching at straws here because almost everything about this chart screams further downside now. The next Fibonacci projection is at $1.0617 which is the 61.8% projection of $1.2569$1.1098 measured from $1.1532. If the euro starts to trade clear of that then the 100% projection comes into play and that is down at $1.0052. The intraday hourly chart shows a band of minor resistance $1.0720/$1.0790, with the first real resistance not seen until $1.0820.
There may be a bearish outlook to Cable now, but the outlook is nowhere near as negative as on the euro. In fact, the support band between $1.4950/$1.5000 is holding and has done for the past three days. Now this may be a consolidation before further downside pressure but in light of the strength of the dollar (and also how overstretched the dollar is becoming generally) I am inclined to take this more positively. The longer this support holds the bigger the chances of a technical rally on Cable. Looking at the hourly chart there is still not much to get excited about. The hourly RSI is bearishly configured (consistently falling over in the 60s before moving below 30) whilst the MACD lines continually fail to push above the neutral line). Also the downtrend measured since the 26th Feb is intact. The near term resistance at $1.5135 protects a small base pattern from forming now, whilst the key resistance remains around $1.5200. Of course any sniff of a recovery would be removed by a move back below $1.5000 and a test of $1.4950.
Whilst I see no real reason to be majorly concerned yet, the posting of a “doji” candlestick pattern yesterday (with the open and close towards the low of the day) not only is a warning signal (due to the indecision) but also suggests that the bulls may not be as strong as they have been recently. The fact that this candle was posted on a failed intraday move above the 121.82 resistance is also a concern. There now would need to be a move above yesterday’s high to avert any thoughts of a correction. There have also been 4 successive days of higher lows and so a move below 120.90 adds to the slight concern today (this would be highlighted further if there were to be a close below tonight). The support of a two week uptrend comes in at 120.50, around the key near term support at 120.60. Maybe I am making too much of one single candle, but we shall see. I suppose my cautious is being driven also by a move that has taken the dollar high into overbought territory against the major currencies. We shall wait and see.
The outlook remains under pressure as the bears are consolidating a position under the old key low at $1168.25. Theoretically, with the old support breached, this now opens the way towards a test of the next key low at $1142.90The momentum indicators remain in negative configuration and the outlook suggests that selling into strength is still a viable strategy. There is still no real sign of a recovery on the hourly chart, with MACD lines consistently below neutral and the hourly RSI consistently failing around 60. Perhaps though there are slight bullish divergences on both hourly RSI and MACD which could be an early sign. However, there are two minor levels of resistance to watch to see if the bulls are looking to stage a recovery. The first one is at yesterday’s high of $1170.60, whilst the more important move would be a breach of $1175.40. Until these levels are overcome it is difficult to see the gold price doing anything other than moving lower.
Are we about to get some direction? The sharp selling pressure throughout the day yesterday has dragged the price of WTI lower again and back within range of the trading band low at $47.36. The move has resulted in the daily momentum indicators deteriorating, but I am not going to get too bearish quite yet whilst the near term support around $48.50 remains intact. Ultimately there have been periods of downside pressure within the trading range and each time they have been supported without any serious pressure on the $47.36 low. The hourly RSI is back around 30 once more and this has tended to be seen as an opportunity to buy in recent weeks. This means that trading today could become important if the selling pressure continues. Resistance at $50.36 and $50.79.