There was an element of support back into Wall Street yesterday as tech giant Apple rebounded to help the S&P 500 regain some lost ground, although it remains below 2000. The slight air of positivity filtered through to the Asian session which was broadly positive amidst a mixed batch of data. Weaker Chinese inflation from both consumers and producers gives slight cause for concern, but the strong Australian unemployment figure was a balancing force. The European markets have also opened with slight gains today.
After a mixed day yesterday in forex trading, the dollar bulls are regaining the upper ground, with weakness in the euro and the yen. The rebound in sterling yesterday was helped by a poll in Scottish newspaper the Daily Record which suggested the pro-independence campaign beginning to lose some momentum. The opinion polls on Scottish independence have been, and will continue to be, a key cause of the volatility in Cable in the run up to the vote on Thursday 18th September. Of the other major currencies, the Aussie dollar was showing some strength after the positive employment data and the Kiwi dollar was weaker after the Reserve Bank of New Zealand suggested the rate of tightening may slow.
Traders will be looking out for final readings on German and French inflation data today, whilst in the US the focus will be on the weekly jobless claims which are expected to remain all but flat around 300,000.
Chart of the Day – FTSE 100
Is there a head and shoulders top formation building on the FTSE 100 intraday hourly chart? Having once again failed to sustain the move above 6900, the corrective pressure on the index has left a reaction low at 6774. This is now the key support as it forms a potential neckline of a head and shoulders top pattern. One of the cardinal rules of technical analysis is to not trade in front of a completed pattern, and this pattern is certainly not complete. However the 55 hour moving average (now at 6846) which was previously a basis of support through the late August rebound, has flattened off and become a basis of resistance, whilst for the past few days the FTSE has been unable to breach 6850. The early rebound today is though a positive response to the pressure that has been building, but it needs to push and hold above 6850 to keep the bears at bay. A loss of the support at 6800 would reignite the near term downside pressure.
The euro is back into consolidation mode. However, what makes this consolidation any different to the previous ones which have all resulted in the next leg lower. At this stage, not much. On the intraday hourly chart there is resistance that has remained intact over the past few days around $1.2960 and with all the hourly momentum indicators and moving averages beginning to fall away again, the bulls may already be losing their appetite to hold up the euro. Watch for a retest of yesterday’s low at $1.288, below which opens the latest key low at $1.2858. Thoughts of a near term base pattern are beginning to fade once more.
The prospects of a recovery on Cable took a significant improvement yesterday. A sharp rebound formed a strong green (positive) candlestick. This completes the third candle of a three day formation called a “morning doji star” which involves a strong bearish candle, a doji candle at the bottom and a strong green candle to finish. Although the pattern is not 100% perfect, this is a still a bullish formation after the most positive single day on Cable since the 12th June left a key low at $1.6050. The next key factor to watch on this chart is Monday’s gap lower, which I am increasingly of the belief could be an exhaustion gap (ie. the final throws of a sell-off). If this gap can be filled at $1.6282 then it could again be another bullish factor. The intraday chart shows the near term support band $1.6157/86 now needs to be held to continue the recovery.
The incredible run higher on Dollar/Yen just shows no signs of stopping at the moment. After another strong day yesterday, the dollar has now hit the 107 handle as it moves ever higher towards the 110.65 resistance back from 2008. All momentum indicators remain incredibly strong, and although the RSI is stretched over 80, the last time it got to these levels was January 2013 (the midst of the QE related bull run) and the uptrend just kept on moving from strength to strength. With little resistance until 110.65, the prospect for this bull run to continue is high. The intraday chart shows support now around the latest near term breakout above 106.50 and also back at 106.00.
There seems to be little doubt about who remains in control as the resistance of the previous low around $1257 consistently capped the gains yesterday before the sell-off resumed to leave another new low in this downtrend channel at $1243.56. The intraday hourly chart shows all moving averages in consistent decline and all hourly momentum indicators in bearish configuration. The big question will now be what happens once the support of the key June low at $1240.60 is tested. The outlook is increasingly concerning as the downtrend channel drags the price lower. A move now below $1240.60 would open the lows of January at $1231.36, but the longer term chart would in all reality be suggesting a retest of the $1180.50 key December 2013 low. Selling into strength remains the best strategy.