After a fairly drab session on Wall Street that saw the S&P 500 close a tenth of a percent lower, the Asian markets have started the week off on a negative grounding with widespread losses. A slightly stronger Japanese yen put the skids on the recent run higher in the Nikkei 225, which lost around three quarters of a percent, but losses in China and Hong Kong were well over a percent as commodity price declines continued to weigh. The European markets are following suit with early losses today.
In forex trading, the US dollar has started the week off poorly, with declines against most major currencies, including the euro. Sterling volatility remains elevated after last week’s Scottish independence vote seemingly continues to weigh on traders’ minds. There is little economic data to get too worked up about in the European morning, so traders will be looking towards the US Existing Home Sales at 15:00BST (expected to improve by around 1.0% to 5.20m). Other than that there is minor second tier data such as Eurozone consumer confidence, also at 15:00BST which is expected to deteriorate slightly to -10.5. The weakness of the dollar today is still doing little to curb the selling pressure on commodities today, with gold, silver and oil all trading lower.
Chart of the Day – USD/CHF
There has been a big battle going on in the past few sessions with strong candles both higher and lower. This seems to be holding resistance in place at 0.9433, whilst the support around 0.9300 remains intact. Throughout the last four months every time there has been a consolidation it has resolved to the upside and even within the latest period of trading there is still a bullish leaning. However, on the hourly intraday chart, although the hourly moving averages are in positive configuration, the momentum indicators are less conclusive. Consistently holding above 0.9330 would add weight to the bullish argument now and add to pressure on the recent high at 0.9433.
The euro has started the week in a fairly positive mood, however there is much to do to change the mindset of selling into strength that still dominates the trading outlook. There are however very slight suggestions that a bullish divergence is beginning to be seen on the RSI. However this is very much early days as there is still nothing yet on the Stochastics or MACD that backs up a recovery view. The consistent habit of the euro to break lower after consolidation is heaping downside pressure and the next support is the $1.2786 level which is 61.8% Fibonacci retracement of the $1.2040 to $1.3991 bull run. The intraday hourly chart shows an overnight low at $1.2825, whilst the lower high at $1.2930 is the first resistance.
Amidst all the volatility of the past few days, the bulls will point to a very interesting support that formed overnight at $1.6282 which was to the pip the exact support of the closed gap (that could still have been an exhaustion gap) from last week. As the volatility surrounding the Scottish independence referendum begins to recede we will be able to gauge how the technical picture has been impacted. The positive reaction to the new week is coming back to test the big 9 week downtrend once more. Also if there is to be a recovery the $1.6282 support and the 38.2% Fibonacci retracement level at $1.6278 of the $1.6644 to $1.6050 sell-off now needs to be sustained. The momentum indicators are also holding on to an improving outlook. This could be an important week for the Cable bulls. The initial resistance is around $1.6400.
The bull run has been incredibly strong over the past three week, but it has been some time now since the daily candlesticks had a lack of conviction. The last two sessions have had fairly long upper tails which suggests that the bulls may begin to be losing control slightly. Viewed on the hourly chart there is a growing prospect that a consolidation could turn into a small top pattern. A break below 108.47 would complete a top pattern that would imply a correction back towards 107.50.The hourly momentum indicators have been suggesting a slight loss of momentum for the past 24 hours of trading now and a correction is increasingly possible now. A move back towards the initial support at 107.40 would be seen as the bulls just unwinding some of the overbought momentum and give a great chance to buy again for the medium term move towards 110.65.
The downside pressure has shown little sign of abating as the new trading week has begun. The downside break from the bearish trend channel suggests an implied target at $1200 and there is little to suggest this will not be seen. All momentum indicators are extremely weak and with such a negative outlook on trends and outlook any rallies continue to be seen as a chance to sell. The next important level of support is not seen until $1184.50. The bearish configuration even on the intraday hourly momentum suggests that the selling pressure continues to come at lower levels. The latest minor reaction high was Friday’s peak at $1228.60 which becomes the initial resistance, with the first key resistance is at the breakdown of the old key June low at $1240.60.