The sell-off on the global markets went deep into the close on Friday and there seems to be little sign of downside pressure abating on Monday. The S&P 500 closed the session off 1.2% and is now approaching a crucial support around 1900. With ratings agency S&P also cutting its outlook for the credit rating of France to negative from stable (meaning that it is at risk of a downgrade to its rating in the next 3 months) this will heap further pressure on European markets today.
Despite a strong set of Chinese trade data, which included better than expected numbers for both exports and imports, Asian indices were lower on Monday morning, whilst European markets are trading again sharply lower in early exchanges. It will be interesting to watch the VIX Index of volatility which is now above the February high and is consistent with levels at which a downturn is consistent with a major low in the markets.
In forex trading, the dollar is under a little bit of pressure in early moves, with the euro, sterling and the yen all trading stronger. There is very little economic data with which to focus on today, with Federal Reserve member Charles Evans speaking this afternoon at 17:30BST being the highlight. Evans is a dove on the FOMC so his comments should help to keep the dollar down this afternoon.
Chart of the Day – DAX Xetra
Having fallen 2.4% on Friday, the DAX has closed below the key support at 8903. This now means that it has completed a 12 month head and shoulder top pattern and if there were to be a second daily close below the 8903 support it would suggest an implied target of 7750. This is an incredible downside projection and reflects the weakness in the DAX at the moment. However immediate momentum is becoming increasingly oversold with the RSI at 22 (lowest since August 2011). The severity of the downside target would suggest that further confirmation is probably needed, requiring a breach of the next key support band at 8691/8770. The neckline of the top now becomes the key near term resistance at 8903.
The euro has been fairly volatile over the past week and the further rebound today suggests that traders are still unsure as to how to play the pair. However the outlook continues to suggest that selling into strength is the best strategy. There was an intraday base pattern completed above $1.2700, and after turning lower to leave key near term resistance at $1.2791, the reversal pattern seems to have been scuppered by a sharp correction on Friday. This is reflective of the volatility the Euro faces. The old neckline around $1.2700 is once more acting as a basis of resistance today and unless there is a demonstrable move above resistance at $1.2715 then the euro will be at risk of leaving a lower high and be sold into once more. A move back below the support at $1.2604 would re-open the low around $1.2500.
Although the outlook for Cable has been very choppy in the past month, the 12 week downtrend remains intact and there is still a feeling that rallies are a chance to sell. It may be that the volatility that has been increasing on Cable in recent weeks will result in a continuation of this choppy trading as traders struggle to come to terms with these markets. However, for now the move in Cable back above $1.6100 could be a chance to sell. Momentum indicators on the daily chart have rolled over and just look as though they have unwound to renew downside potential. The rally today has left a key near term support at $1.6006 with further support at $1.6060. Near term resistance is at $1.6135.
Amid the increased concern over global financial markets there has been a flood into the safe haven of the yen. A breakdown from the consolidation band above 108.00 (which now looks to have been a top pattern that implies 106.00) has now moved back into the next band of support between 106.80/107.40. The outlook remains corrective with all the momentum indicators continuing to fall away. The early indications are that the rate may begin to settle down, however the near term significance of 106.80 support is growing. A breach would then open the implied target from the top pattern at 106.00, with the next real support not coming in until 105.40. I have been saying all along that I felt a correction back towards 107.00 would be a medium term opportunity to buy, so I am now looking for the rate to settle properly and then give a buy signal.
The gold price has regained its upside momentum that had been building over the past week and breached the resistance at $1234.80. This is the final barrier that has been standing in the way until a test of the key medium term resistance at $1240.60. The near term momentum is fairly positive now for the move. This resistance at $1240.60 certainly looks to be a near term watershed. If the gold price can push above it, it would be a sign of intent by the bulls. There is still much overhead supply to be fought through but the outlook is certainly far better than it has been for some time. The resistance of the bottom of the old downtrend channel has been broken and the sequence of lower highs has been breached. The near term support now comes in at $1217.10 above the key near term low at $1204.60.
Are we nearing a recovery in the WTI? The recent sell-off has been precipitous and although the sequence of 5 straight lower highs and lower lows continues a strong green candle on Friday suggests an element of support. This is coming with the RSI below 30 and also Friday’s session taking place outside the Bollinger Bands, both of which suggest an element of extreme trading. The intraday hourly chart shows support forming at $83.59 and a subsequent higher low at $83.90. Although it is still too early to start calling a major low is in place, for the first time in days there is an element of support to talk about. The bulls will now look to push above the resistance at $86.83 and the key near term resistance at $88.38. The bears remain in control and intraday momentum indicators remain in negative configuration, but in such a weak period for the oil price this is to be expected for a while.