The instance of another Ebola case, this time in New York could give nervous markets an excuse for a flight into safe haven plays today. This has already taken Wall Street markets back from their highs of yesterday to close (a still strong) 1.2% higher on the S&P 500. There has been another positive session in Asia, although gains of 1% on the Nikkei 225 would have been helped higher by the weakness of the yen. European markets are taking into account the decline of Wall Street off the highs and indices are trading solidly lower in early exchanges.
In forex trading, the major pairs are very undecided this morning as traders consolidate positions. However it is the yen which is the biggest pull, with Dollar/Yen off around 0.3%. If the movement in the yen is due to its safe haven status, strangely though the gold price is not yet benefiting, doubly so considering the slightly weaker dollar in early trading.
The markets will be looking towards the first look at UK Q3 GDP growth which is at 09:30BST. A slight dip to 0.7% (from 0.9%) is expected and any miss would put further pressure on Cable. Into the afternoon there is also the US New Home Sales which are expected to fall by 6.9% on the month to 470,000 units (from 504,000 last month.
Chart of the Day – NZD/USD
My first thought when looking at the Kiwi dollar is how similar the chart looks to Cable and both are testing key near term levels. The Kiwi bulls will be looking at holding on to the support at 0.7792 which was the higher reaction low on 13th October. The issue (as with Cable) is that the momentum indicators have rolled over and are looking to now take on a more negative configuration. It is for this reason that I now see rallies as a chance to sell near term. The intraday hourly chart shows a reaction high from yesterday at 0.7870 which was just under 0.7880 which has been a pivot area for past few weeks. With hourly momentum indicators unwinding from oversold I do not see the rebound going too far before the selling pressure returns to test the support just below 0.7800. A breach would re-open the key low at 0.7707.
After two strong days of selling pressure the euro has settled down slightly, with a day of consolidation that has to all intents and purposes left a doji candlestick (open and close around the same level). The fact that this consolidation has come above the support at $1.2604 should give the bulls some hope, however I expect that now the support at $1.2700 has been breached the outlook is once more under downside pressure. The momentum studies have turned negative once more with especially the Stochastics showing downside impetus. I continue to expect any rebound towards $1.2700 to now flounder and for the selling pressure to re-assert once this consolidation is over. There is immediate resistance built at $1.2676 over the past day and with hourly moving averages bearing down, I expect pressure on the support at $1.2604. A breach of the support re-opens $1.2500 again.
I have been talking about the importance of key near term support at $1.6020 and with the support breached yesterday I feel that further downside will be seen. This arguably needs confirmation with a close below the support (which is yet to be seen) but I see further pressure on the level in due course. The hourly momentum indicators have unwound with little real sign of any buying pressure on Cable and as has now been the case over the past week, rallies will continue to be used as opportunities to sell. The former support at $1.6080 has now turned into an important near term level of resistance as it capped the upside on Wednesday and in effect has taken the form of a right hand shoulder in a six day head and shoulders top pattern. A decisive move above $1.6080 is now needed to defer the corrective outlook.
The Fibonacci retracement levels on Dollar/Yen have become interesting indicators for the near term dollar outlook. With the rebound off 105.18 now hitting the 61.8% Fibonacci retracement of the 110.08/105.18 sell-off at 108.21, there has been some consolidation. However looking on the intraday chart this should be just a near term situation. The move above 107.50 yesterday completed a 9 day head and shoulders base pattern that gives an implies target of 109.50. I see this minor correction as a chance to buy. The ideal entry point would be for a pullback to the neckline support now at 107.50, but the improving technical outlook may mean this is not possible. The strong medium term outlook suggests buying into weakness. The next resistance is at 108.73, whilst the bullish base pattern remains intact until a breach of the key reaction low at 106.22.
The outlook for gold has taken a significant turn for the worse after a strong bout of selling pressure has breached the key reaction low support at $1231.50. The concern is that the momentum indicators have started to deteriorate. The Stochastics have a confirmed crossover sell signal now. What had been an improving medium term outlook is now mixed at best. Losing support at $1231.50 has suggested that the bulls have lost control, however if the support at $1221.70 is broken then the gold price will be at risk of further downside possibly back towards the lows. The intraday chart shows that old support in the band $1331.50/$1340 is turning into resistance and could now cap the upside near term. With hourly momentum indicators now in bearish configuration the outlook is certainly deteriorating. It would turn bearish again below $1221.70.
The key support around $80 remains intact as WTI has picked up off the critical support and pushed back higher again. This is clearly an encouraging development but the oil bulls are by no means out of the woods yet. The hourly momentum indicators tell a story of a recovery that is still just a bear market rally in this phase. The hourly RSI is continually struggling to get above 60 whilst the hourly MACD lines are unwinding back to neutral. The near term resistance band $81.50/$82.50 is key near term as this provided the floor for the price this week until Wednesday’s sell-off. A continued failure to breach this barrier could see the bulls quickly run out of steam once more and would then heap the pressure back on the $80 level once more. It needs a move above the resistance at $84.45 to open the upside, confirmed above the spike high at $84.83.