The announcement of statement from the Federal Reserve suggests that the US remains last man standing in terms of its path towards rate tightening. However the reaction of the market to the announcement would suggest that this has been broadly as expected, with only a minor bout of US dollar strength as a reaction. The words “considerable time” were removed and have been effectively replaced with “patient”. The Fed also noted a “strong” labor market and “solid” growth, whilst the voting was unanimous. However the market did not take this as an overtly strong signal for the dollar, or at least it has not yet. Equity markets fell sharply but this is more a function of the falling oil price ad continuation of a reaction to negative results (Apple aside) than the Fed. Wall Street was sharply lower with the S&P 500 another 1.4% down at the close and back towards 2000 once more. The Asian markets were broadly lower and European markets are sharply lower in early trade today.
In forex trading, I had thought that the FOMC stamen may have been able to drive some direction in some consolidating markets but it has not been the case. The euro and sterling are broadly flat today with most major pairs showing little direction.
Traders will be looking towards the announcement of German inflation which is released throughout the morning with the composite number at 1300GMT and an expectation of a -0.2% move. Weekly jobless claims come out at 1330GMT and are expected to drop slightly to 300,000 whilst the US Pending Home Sales at 1500GMT are expected to rise by 0.6%.
Chart of the Day – DAX Xetra
Aside from the fact that the DAX has opened lower today, the signs of a stalling in the bull run are mounting. There has been a basic RSI sell signal (cross back below 70), whilst the MACD histogram is also falling away. The Stochastics have rolled over and over the past few months this has in the least offered up a period of consolidation (if not correction). Looking on the hourly chart will be interesting as during the bull run the RSI has consistently sat above 40 with the MACD lines in positive configuration. If this configuration starts to break down then it would suggest the run could be at an end (at least in the short term) and there is a correction that could start to drag the DAX lower. Also interesting is that a 38.2% Fibonacci retracement of the recent bull run comes in at 10,270 which is around the top of the first real area of consolidation. There is also a top pattern would complete on a move below the 10,552 reaction low from yesterday which would also imply a correction back towards 10,300.
I have been focusing on this technical rally on the euro for the past couple of days but over the past 24 hours the bulls appear to just have run out of steam. The resistance of the six week downtrend is intact (today at $1.1460), whilst he daily momentum indicators are still suggesting this is a bear market rally that is struggling to gain traction. The chart shows the RSI having unwound back towards 30 and the MACD lines have settled but remain in negative configuration. There is still the curious position of the Stochastics rising at a one month high, but this is still the only signal improving on the daily chart. Intraday, the base pattern on the hourly chart is coming under pressure as the rate has fallen back below the neckline at $1.1295, whilst hourly momentum is also deteriorating. The euro has been sold since the announcement of the FOMC statement, which has now left resistance at $1.1370, coming under Tuesday’s high at $1.1422. For now we are getting mixed signals from the intraday chart but the bigger picture suggests the euro remains a sell into strength. For now the intraday base pattern remains in play as a reversal until a breach of the support at $1.1320, but its influence is waning.
The negotiation of the crossroads for Cable that I mentioned yesterday is still in question after the sharp two days of gains could not penetrate the 21 day moving average resistance (at $1.5165). The RSI has stalled its advance in the mid-40s, and more interestingly, the resistance as shown on the intraday hourly chart around $1.5200 is still a key factor. The hourly chart shows that although there have been two attempts in the past two days to breach $1.5200 there has never been a decisive break. Even on the volatility of the FOMC announcement last night the resistance held firm. We are now in a position where the hourly momentum has lost impetus and is becoming a drag on sterling. Unless the bulls can muster the resolve to push for a decisive break of $1.5200 (i.e. a consistent trading phase above the resistance for at least a few hours) then the overhead pressure and lack of momentum could begin to pull Cable lower again. Resistance is at $1.5222 and then $1.5269. Initial support comes in at $1.5115 and then $1.5060.
It would appear that even the FOMC statement has been unable to shake Dollar/Yen out of its consolidation phase which is now into its eighth day of trading in the band 117.20/118.90. The daily indicators are increasingly benign however it is noticeable that there has developed a very slight negative tilt (albeit only marginal). This is perhaps showing through on the intraday hourly chart more, as despite the fact that the pair is trading within a range, there has been a very slight sequence of lower highs in the past week, with yesterday’s peak at 118.25 the latest. It is becoming less obvious that you can use the classic RSI buy/sell signals too on the hourly chart as the it is beginning to sit far more consistently below 60. This is another suggestion of the slightly bearish tilt. Pressure is mounting on the support at 117.20 and even though the support remained intact in the wake of the FOMC statement, there is a definite sense of bearish influence growing. A decisive breach of 117.20 would re-open the 115.80 low.
The recent consolidation continues on gold however there still seems to be a slightly corrective aspect to the chart. Having drawn in the Fibonacci retracements on gold from the recent bull run, the support around $1272 becomes increasingly important. The 23.6% Fibonacci retracement of $1168 to $1305 comes in around $1274. This adds weight to my assertion that the key near term support at $1272 is protecting gold from a deeper correction back towards the $1255 support of the key October high. There is a corrective target of $1252 from a top pattern on the hourly chart, whilst the 38.2% Fib retracement comes in at around $1254. The hourly chart shows a rally off $1272 support has turned lower at $1297 and is now sliding lower again. The outlook will remain unsure until either the support at $1272 gives way, or the resistance at $1298 is breached. Either way, for now the gold price is in consolidation mode.
The oil price is putting increasing pressure on key support at $44.20. Intraday yesterday there was a brief breach of the support (down to $44.08) before a consolidation has since set in, however the bears are massing. All the negative aspects remain intact on the daily chart (big downtrend at $47.60, resistance of the falling 21 day moving average at $47.90 and bearish configuration on momentum that has also now unwound). The intraday hourly chart shows a sequence of lower highs now and a consistent failure of the bulls around $46 which remains a near term pivot level that suggests that downside pressure is growing. (Furthermore, fundamental signals show continually high readings on the weekly crude inventory stocks, which is negative for WTI). However the technical indicators are certainly suggesting further downside pressure below $44.20, with a decisive breach opening $40 as the next support. Above the reaction high at $46.55 would open upside to $47.76.