Markets are incredible examples of pack mentality. Take Wall Street for example. A weak Retail Sales number yesterday has now got everyone questioning the potential for the removal of the word “patient” from the FOMC statement Fed tightening, something that had apparently been secured by the strong payrolls. I remain sceptical that the Fed would make this symbolic move (which leaves the door open to an imminent rate hike depending on the data) as inflation has shown no signs of picking up and whilst wages remain anchored. Still that did not stop the euphoria of the bad data being good for equities as the S&P 500 climbed back by 1.2%. The overnight positivity was also seen in the Asian markets with the Nikkei 225 up 1.4%. European markets are showing slight gains in early trading today.
Forex trading suggests that the dollar is bouncing back after yesterday’s slight blot on the copybook for the bulls. The greenback is trading positively against all the major pairs today, with the weakness once more on the euro the standout. It is interesting that after 8 days of losses the gold price is showing some early strength, which is counter to the conventional move that would be driven lower by a stronger dollar.
Traders will be looking out for the US PPI (or factory gate inflation) at 1230GMT with an expected month on month gain of +0.2%. The University of Michigan consumer sentiment is at 1400GMT and is expected to improve slightly on last month to 95.6 (from 95.4). There could also be some interest in sterling today with two Bank of England speakers. Nemat Shafik at 0900GMT could be of interest as she has been hinting more towards a hawkish move recently, whilst Andy Haldane is the Bank’s chief economist and should also be intriguing.
The Kiwi chart is another example of a key level being hit but the US dollar remaining in the ascendency. The sharp rebound seen from 0.7182 on a bull hammer candlestick on Wednesday continued the move yesterday. However the move then came up against the overhead resistance in a 10 pip range (shown on the intraday hourly chart) between 0.7440/0.7450. This is the near term barrier that if it remains intact it reflects the continues strength of the dollar and that the move is merely counter trend. The hourly chart already shows the rebound has rolled over, with a second lower high at 0.7407, the hourly momentum indicators, RSI, MACD and Stochastics are all falling away again. Watch the near term support at 0.7285 as if this is lost is would really confirm the kiwi bears/dollar bulls are back in control.
Yesterday we had the first really positive move on the euro in probably three weeks. The daily chart shows a positive green candle with a close in the upper half of the daily range, which means that the bulls had regained an element of confidence into the close. However, one swallow does not make a summer. The hourly chart simply shows that the rebound of around 190 pips took the euro back towards the resistance of an 8 day downtrend only for the price to fall away again. The hourly momentum has already lost impetus and as the European session has got up and running the selling pressure is beginning to build again. I do not see the rally as anything more than another chance to sell and there is little evidence to suggest the sellers are not going to just return once more. It would need a move above initial resistance around $1.0700 to improve the chart now and above the minor pivot level at $1.0820 to suggest the bulls had a real chance.
Sterling remains under pressure. The breakdown of the support at $1.4950 has been confirmed by a two day close below as the rebound that was seen intraday yesterday petered out very quickly. Across the board now Cable has a series of negative technical indicators and they all suggest that there is going to be continued pressure back towards $1.4812 which is the key July 2013 low. In a strongly trending run the RSI can move deeply oversold which signifies the strength of the trend, and the RSI is currently around 30 so there seems to be further downside potential. If Cable loses the support of $1.4812 then this would open levels not seen since mid-2010. There is a minor support around $1.4700 but in truth there is little to protect a move back towards $1.4235 from being seen. The intraday hourly chart shows the strength of the resistance that came in at $1.5020 yesterday, which was hit almost to the pip of the rebound, whilst even overnight the very near term old support at $1.4890 has provided a barrier to recovery. Cable looks in increasing trouble now.
I am still viewing the strength of the dollar run through the movement of Dollar/Yen. If this is the case then I have to remain bullish dollar. The movement over the past few days has been one of consolidation coming under the key old resistance at 121.84. There is still a cautious look to the last few days with another fairly uncertain candle yesterday. The bulls will certainly look to the hourly chart and see the support of the two week uptrend once more coming into play to put a floor under the price yesterday. This is just now strengthening the support band between 120.60 (which is now key) and 120.90. However there is still a lack of buying power through the pair and is reflects a degree of caution and whilst the resistance now at 122.02 remains intact it is difficult to fully back the bulls. I am in wait and see mode on Dollar/Yen now.
With the medium term bears in consistent control of the gold chart rallies continue to be used as a chance to sell. The gold price has now completed 8 consecutive negative sessions and in this time the RSI has moved into oversold territory. Momentum indicators are still strong to the downside so there is no real sign of any recovery yet. However yesterday saw an element of support coming in, with a candlestick that showed a higher low and higher high on the previous. Also today’s reaction during the Asian session has been marginally positive. The chart o look at therefore is the hourly intraday chart. The outlook shows a series of lower highs at $1175.40, $1170.60 and now at $1166.20. Hourly momentum has not yet picked up in any serious way and continues to suggest that rallies should be sold into. Therefore tor the bulls to gain any real semblance of upside, there needs to be a push above at least $1170.60 which is the latest reaction high within the downtrend, whilst also seeing the hourly RSI holding above 70 and ideally the MACD lines nicely above neutral. Until this is seen the outlook of selling into rallies will continue.
After weeks of trading sideways the WTI price has made a key downside break. The move yesterday resulted in a close below the key support at $47.36. This is a key move that reflects the deterioration in oil in recent days that has seen 5 negative candles in the past 6 sessions which has seen over 8% downside. The loss of support at $47.36 is now a serious development as this leaves the $43.58 critical low (the bottom of the sell-off) now wide open. Technically the daily momentum indicators are confirming the breakdown too with the RSI at a 6 week low and Stochastics in bearish configuration. The hourly chart shows there is now resistance initially between $47.33/$48.03 that is acting as a barrier to recovery.