Last updated: May 3rd, 2017 at 09:59 pm
A little bit of calm has been restored to trading sentiment today after a rather hectic session yesterday. The People’s Bank of China has seemingly helped to reassure markets by saying that there was no basis for a continued currency depreciation. This comes despite a third consecutive day of a devaluation, setting the yuan at 6.4010 (1.1% below the previous day’s fixing). The markets appear to be taking the PBOC at its word then as forex markets have settled in the Asian session. However the last two days it has been the Europeans that have driven the sharp moves, so it will be interesting to see what happens as the European session gets going. Sentiment will also be driven by developments over the third Greek bailout deal which needs to be agreed by the various Eurozone governments. It will be interesting to see if German criticisms of the deal begin to emerge.
Wall Street closed in positive territory last night as energy plays reacted to some stability in the oil price. The S&P 500 closed 0.1% higher, whilst Asian markets reacted positively to the PBOC comments overnight and the Nikkei closed around 1% higher. European markets are finally showing some green in early trading after a hugely disappointing couple of trading sessions.
The forex markets showed some real pressure put on the dollar yesterday amid a series of sharp moves. This mood has been tempered somewhat today and the dollar has recovered some of the weakness. It will be interesting to see if these moves are just unwinding some of the stretched oversold dollar positions and will give traders once more a chance to sell out of the greenback.
Traders will be watching out for the US Retail Sales today at 1330BST and a disappointment could be a catalyst for further dollar selling. Recent months have not been great for retail sales and a +0.4% month on month is expected (-0.1% last month). There is also the weekly jobless claims at 1330BST which are expected to be in line with last week at 270,000.
I am wondering if there is some sort of possible recovery forming for the Kiwi. The downtrend channel that has so neatly pulled the Kiwi lower for 3 months has now been breached by a period of sideways trading. The fact that the Kiwi bounce from a multi-year low yesterday should not be discounted as a positive candle was subsequently formed (could not quite make a bullish engulfing candle). However the momentum indicators have been gradually rising for a few weeks now and there seems to be some support forming. The real test will be a move above the late July rebound high at $0.6738. Until that is seen this will be merely a consolidation that will be delaying the next downside leg. However, the daily RSI and MACD lines are at a 3 month high and if they continue to improve then there could be something in it for the bulls. The near term resistance is around $0.6640 and a move back above here today would add to the improving outlook as it would be a 2 week high. The near term support band comes in at $0.6520/$0.6560. The multi-year low is at $0.6465.
The euro has now rallied so much to the extent that is has changed the medium term outlook. In the past two months, rallies have been used as a chance to sell as the euro has left a series of lower highs. However, this has changed now with a move that at its peak had added 190 pips on the day. Yesterday, taking out the resistance at $1.1130 and pushing above the 144 day moving average which has throughout the two months been an excellent basis of resistance has demanded a change of stance. The momentum indicators are improving and the RSI pushed to a 3 month high. Early in the European session today the euro has just backed away from the next resistance at $1.1215 but it will be interesting to see how the old support around $1.1130 is now treated. This should become supportive, with a further breakout support back around $1.1090 to give a band of around 40 pips that needs to hold today. The hourly chart shows that the small pullback from yesterday afternoon has unwound overstretched hourly momentum and this should be seen as an opportunity to buy if the euro bulls are in control. A break below the support at $1.1020 would now suggest the bulls have lost impetus.
Despite all the volatility and strong moves in forex markets in the past few days, Cable still remains rather benign in its moves. The range remains intact and it would appear that continuing to play the range is the best strategy. The daily momentum indicators show little sign of any imminent breakout and once again the move towards the top of the range yesterday seemed to be rejected. On the intraday hourly chart I continue to see the Fibonacci retracement levels as trading opportunities. The rally to the 38.2% Fib level at $1.5646 subsequently gives a chance to sell. Interestingly there are small bearish divergences on the hourly RSI and MACD lines that back up the assertion that this is a selling opportunity. I would expect another dip back towards the 50% Fib level at $1.5558. The main resistance in the band kicks in around $1.5670 with a brief spike high at $1.5690. Continue to play the range.
This is a chart which questions the position of the dollar bulls now. The correction (i.e. yen strength) yesterday has completed a bearish engulfing candle/bearish key one day reversal pattern. This has also broken the bottom of the uptrend channel that had been in place for a couple of weeks. I would say this chart is on the brink of a correction without quite giving the signals yet. Momentum indicators have fallen away slightly although do not necessarily suggest impending downside pressure quite yet. The day following a bear key one day reversal is always an important one as to get conviction from the signal you would want it to be followed by further bearish pressure, however this has not been seen yet as the pair is trading slightly higher. The break of the support at 124.08 was a waning but the further support at 123.80 has come in. However, the intraday chart shows the old support of the uptrend channel (currently around 124.60) is resistance. So I view today’s trading as important as if this rally starts to roll over again and move back below 124.00 (an old support) then I would say the correction is coming. One to watch with all these conflicting signals.
Yesterday we saw a fifth consecutive bullish candle and the candles are getting more positive by the day. The rally on gold recently completed a small near term base pattern above resistance at $1105.60 and this implied a return to test the old key floor that is now resistance t $1131.85. Yesterday we got close to that as the rally peaked at just over $1125. I still see there to be little reason to suspect that gold will not continue higher, but I have said all along that I thought that if a rally did take hold then there would be significant overhead supply around the old key breakdown level. I believe that this would be pounced upon and it would likely be the limit of any near term recovery. The intraday hourly chart shows strong momentum has just used the dip over the past 12 hours as a chance to unwind. There is near term support around $1119 that can be used, with further support from the neckline at $1105.60. However for the past 4 days these little intraday dips have been bought into and the move towards $1131.85 is still on.
Considering the hectic market conditions of global financials yesterday and the fallout from the China devaluation which drove volatility across dollar plays, the oil price had a remarkably restrained trading day. However, this does little if anything to change the bearish medium/longer term outlook. The inside day means a consolidation more than any sort of a recovery, with the big downtrend on the daily chart still intact and coming in with resistance ever lower (at $44.65 today). Momentum remains very bearish and this is likely to merely be a near term break in the selling pressure as a retest of the crucial March low at $42.03 remains well within range and highly likely in due course. The intraday hourly chart shows the consistent feature that old support becomes new resistance, with the latest around $45. Below $42.03 opens support around $40 before the December 2008/February 2009 lows at $32.40/$33.50.
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