There may be the odd sideshow through this week, but the two main drivers (Greece and the FOMC meeting) will increasingly gravitating around centre-stage. Rhetoric surrounding the Greek negotiations is becoming increasingly belligerent (not the best recipe for agreement), with Yanis Varoufakis also suggesting there is no new deal on the table from Greece. The situation is deteriorating. Another situation deteriorating also are the relations between Russia and the US which according to Russia are being impacted by US forces building up tanks and heavy weaponry in countries close to Russia. The Fed meeting also starts today, the result of which will be known at 1900BST tomorrow evening. Certainly the data releases from yesterday (disappointing Industrial and Empire State data) will not have helped the cause of any would-be hawks. Market sentiment is subsequently quite cautious.
The negativity surrounding equities continued from Wall Street’s close last night (S&P 500 down 0.5% to Asia overnight, which was again lower with the Nikkei down 0.6%. European markets have opened once under pressure. Forex markets show a mixed performance for the dollar today. The euro has continued its rebound, whilst sterling is also slightly positive ahead of inflation data. The Aussie dollar the biggest loser amongst the majors after the RBA released its meeting minutes which showed that it will remain accommodative despite keeping rates on hold at 2.0%, although it will be assessing the development in the economy, so effectively another country that is “data dependent”.
There are several key data points for traders to look at today. UK CPI inflation at 0930BST could be a big impact with expectation of a move back into inflation from -0.1% (or deflation) last month, the expectation is for a bounce back to +0.1%. The German ZEW Economic Sentiment is at 1000BST and will drive the euro. Expectation is for a dip back to 37.10 from last month’s 41.9. This afternoon there is also US building permits at 1330BST which are expected to come back to 1.10m from last month’s strong reading of 1.14m, whilst housing starts are at the same time and also expected to dip back to 1.10m from 1.14m last time out.
Chart of the Day – FTSE 100
The Footsie is under pressure. Two strongly negative candles have taken FTSE 100 to a new three month low and open for a test of the crucial March low at 6695. This is now extremely important for the health of any lingering old bulls, or even those in the neutral camp. It would be very difficult not to start turning bearish on FTSE 100 if the support at 6695 were to be broken on a closing basis. It is trading below all the moving averages which are also increasingly tuning lower. The RSI and Stochastics are bearishly configured, whilst the MACD lines are also negative and the lowest since January. There is little to be positive about the FTSE 100 currently, and the market has opened slightly lower today. The hourly chart shows there has been fairly consistent selling pressure over the past couple of sessions. Initial resistance comes in at 6734 and then 6760, but much needs to be done to turn sentiment around now, a push back above the reaction high at 6870.
The euro has developed into a choppy form of consolidation. The past week has continued to see a fair amount of volatility through the market but with little real direction now. The daily technical indicators are increasingly neutral with the RSI, MACD lines and Stochastics flattening off. The slight slide in the price has formed a bit of support at $1.1150 and subsequently posted a couple of consecutive positive candles to improve the near term outlook. The truth is that the euro is going through a period of respite, lacking direction, as shown by the flat moving averages on the hourly chart. It is waiting for the next catalyst and with a crucial Fed meeting on the horizon this is probably fair enough. Initial resistance is around $1.1330 and then $1.1384.
Another intraday turnaround has resulted in Cable once more closing towards the high of the day. That is now the fifth of the past six sessions where the bulls have surged into the close to end the day on strong footing. This is a good trait to have in an uptrend and now brings the key lower reaction high at $1.5700 firmly into view. The momentum indicators are becoming positively configured as the strong showing yesterday has now dragged the RSI above 60 for the first time in nearly 4 weeks, whilst the MACD lines are also finally starting to push higher. The intraday hourly chart shows the improvement in sterling since yesterday afternoon which has left a key reaction low at $1.5485 which came just above the supports back at $1.5465 and $1.5420. The sharp move higher has also improved resulted in an improvement in momentum which should allow for a sustained move higher to test $1.5700 now. It is likely to be a volatile day again today with UK CPI early on sure to add to the direction.
With the Fed meeting starting today, trading in Dollar/Yen has effectively dried up. Two consecutive doji candles denote the uncertainty with the outlook currently, with the pair continuing to consolidate around the resistance band 123.50/124.10. Even the hourly chart has become increasingly stuck for direction. The support at 123.10 has marked the low of a particularly dull two days of trading and is currently supportive, interestingly this is also around where the 38.2% Fibonacci retracement of the bull run 118.86/125.85. A loss of that support would in effect re-open the 50% Fibonacci retracement at 122.35, which is still where I see the move coming back towards as the daily technicals remain corrective near/medium term. For now though we wait for the catalyst (likely to be with the Fed announcement tomorrow night at 1900BST) for any break. Resistance comes with the spike high at 124.12.
There was a fair amount of volatility in trading gold yesterday with an $18 range. The result has been a bullish “outside day” or bullish engulfing candle which is now testing the resilience of the 3 week downtrend. For this candle to be validated as a potential trend reversal there would need to be a positive close tonight to follow it up. However for now, the fact that the rally yesterday fell over below the initial resistance at $1192.10, gold continues to trade below all its falling moving averages, the daily RSI remains below 50 and MACD lines have barely budged, I am not getting too worked up yet about this one day. The hourly chart shows that it is more of a range play currently which is already showing signs of falling back lower again. I would expect the price to drift back again today, but as the FOMC meeting begins today it could be that this is all part of a consolidation waiting for the next catalyst for the dollar (and subsequently gold). Support comes in with yesterday’s low at $1172.50.
With WTI once more trading around the middle of the range $56.50/$62.60 the technical indicators have settled back once more into a neutral outlook on a medium term basis. As the near term move has fallen over again, the short term technical are slightly corrective but there is very little conviction in the trading once again. This is reflected in the sharp rebound from yesterday’s low at $58.73 which has again suggested the sellers have lost the near term impetus. When a market moves in a trading range, (as WTI has been for the past 6 weeks), traders will often take positions that move around key retracement levels. The Fibonacci retracements of the $56.83/$61.82 rally are now acting as near term pivot points. The 38.2% Fib level around $59.91 has been a pivot for the price in recent days, whilst the 61.8% Fib level at $58.74 has been used almost to the pip as support yesterday. Near term momentum has improved slightly overnight but a move above the near term resistance at $60.44 is needed to re-open upside within the range once more. A breach of the 61.8% Fib would re-open the low at $58.63 and the range lows again. Still rangebound.