As we start the new week there is a mixed outlook to trading. Friday’s neutral close on Wall Street did not give the Asian session too much to go on and subsequently resulted in stock markets making very little ground. This period of trading continues to be volatile with the VIX Volatility index jumping around 8% higher on Friday. Markets are also beset by low volume still as the summer rolls on. However with the Jackson Hole symposium looming on the horizon (ie. Friday) interest should begin to build up once more. European markets are trading positively at the open.
The dollar is mixed in early forex trading today with gains against the yen and sterling being balanced by a slight decline on the euro. Traders have little economic data to draw upon today, however the Eurozone trade balance at 10:00BST could be ready to impact the euro, if it is vastly different to the €15.0bn forecast. The US Housing Market Index at 15:00ST could also impact on the dollar if there is any surprise to the 53.0 forecast.
Chart of the Day – FTSE 100 Index
Friday’s shooting star bearish candlestick pattern is a warning short across the bows. If today’s session closes lower then we could be in for a disappointing week, because the momentum indicators are still in the process of just unwinding back from oversold and a pattern like this could easily stop the bulls in their tracks. However on the intraday chart there is still the small head and shoulders reversal pattern on the move above 6650 and also the rising 21 hour moving average (now 6694) which has been a good basis of support for several days continues to be supportive. The implied target is at 6770 and the recovery bulls will be hoping that Friday’s sell-off from 6743 was just a minor blip. The neckline support is at 6650 with the recovery pattern intact until 6612 is breached.
The gains posted on Friday meant that the euro closed at its highest level in a week and did the prospects of a technical rally now harm at all. The momentum indicators continue to bullishly diverge and suggest a near term recovery, except that the price just now needs to break higher from the consolidation phase. The intraday chart has the euro finding a higher low now on each of the past three days, (Friday’s low around $1.3360) as pressure on the initial resistance around $1.3400 continues. Look for a consistent period of trading above $1.3400 as a slight change in outlook. There needs to be a break above the consolidation high at $1.3445 which would open the key resistance band $1.3475/$1.3500. A loss of $1.3330 would continue the sell-off.
Cable has begun the week looking spritely, with a small jump back above $1.6700. However this still just looks to be a bear rally within the 5 week downtrend which currently comes in around $1.6795. Momentum indicators also remain in bearish configuration and suggest this is little more than a technical rally that will be another chance to sell. The intraday hourly chart shows the initial resistance comes in at $1.6754 and could be s near term stumbling block and is the beginning of over 50 pips of resistance up to the downtrend on the daily chart. The outlook for Cable is weak and once the sell signal comes through it is unlikely that the bears will wait for long before piling back into short positions. It would need a move above $1.6845 to now even begin to suggest any substance to a recovery.
After 4 consecutive days of higher highs and higher lows, Friday has broken the sequence. Despite another higher high, an intraday correction has seen a lower low posted as the momentum in the recovery just began to tail off just under the resistance around 102.80. The mildly positive outlook within the trading range 101/103 is now being questioned once more. However, the rate continues to trade above the support at 102 and also above all the moving averages. The near term outlook has turned more neutral again as, on the intraday chart, the hourly moving averages have flattened off and hourly momentum indicators now more neutral. However if support can now build again there does seem to be an outlook for dollar gains, so then upside impetus for a test of the resistance band 102.80/103.00 can resume. Losing support at 102.00 would change to outlook once again.
An increase in volatility and a downside break back below $1300 on Friday seemed to signal an end to the consolidation with the bears back in control. Mildly bullish momentum indicators have been dragged back into line as the selling pressure begins to build again. The neutral outlook may be under pressure again if there is a close back under $1300. This would then suggest a test of $1280 support again could be seen. Taking a step back, it is clear that this remains a very choppy period of trading for gold with no real trend. It is also one which is susceptible to the geopolitical impact on the price (hence Friday’s volatility). The recent low at $1292.40 becomes the near term support.