It is Super Thursday for the Bank of England and this is likely to drive volatility for sterling and possibly some direction for Cable. As it has done for the past couple of days, the US dollar continues to chop around the and markets are increasingly uncertain. Moves on forex markets have lacked direction for a couple of days now as the dollar has been unable to maintain the traction in its recovery and come up against profit taking against the yen. All the while though, Treasury yields have been falling as fears over global growth continue. Some of the big retailers announced earnings in the US yesterday with suggestions that the consumer is pulling back in the US. Wall Street suffered with the S&P 500 down 1.0% and Asian markets were hit by the overflow of this sentiment overnight too Nikkei -0.3%). This is also filtering through to a somewhat cautious open to European markets which seem to have lost the impetus in the last couple of days.
Forex markets show a marginal strengthening of the dollar but once more the main moving pair being Dollar/Yen which is around 0.5% higher as the European session takes over. The Aussie dollar is the other big mover on the day with weakness on its ties to China as the announcement of New Yuan Loans fell to 900bn yuan (from last month’s lofty 1370bn). Gold and silver are broadly flat on the day, as is the oil price after yesterday’s sharp gains on the oil inventories report.
Traders will be looking out for the Bank of England’s Super Thursday announcements, with monetary policy, its meeting minutes and Quarterly Inflation Report all at 1200BST. The expectation is for no change on rates, and a unanimous vote for the decision (especially in front of the EU referendum next month). The market will though be very interested in any changes to inflation and growth prospects and any further updates on the impact of a Brexit. The US weekly jobless claims are at 1330BST with 270,000 expected (down slightly from 274,000 last week).
Chart of the Day – German DAX Xetra
The outlook for the DAX has become far more mixed in recent days. The vital aspect was that the key April low around 9500 remained intact on the early May sell-off. This left support at 9737 and the prospect of another higher low. However the candles of the past couple of days are a touch concerning for the bulls on a near term outlook. Tuesday’s opening gap higher has now been bearishly closed by yesterday’s weakness and a decisive intraday move below 9950 would also complete a near term top pattern on the intraday hourly chart (a move that would be confirmed by a close below 9950). This would imply a potential corrective move of just over 150 ticks, suggesting a retracement back towards 9800, but something that would also open the risk of a full retracement back to the May low at 9737. On the daily chart the momentum indicators look to be turning neutral as the rally has rolled over again, with the RSI rolling lower from 50 and the MACD lines flattening. The DAX is also trading between a mixture of bearish (89 and 144 day) and bullish (21 and 55 day) moving averages, meaning that the outlook is still very mixed. The concern for the bulls is also that resistance is now in place at 10,106 which is also around an old pivot at 10,120 form the first few months of the year and adds to the overhead barrier to gains. The bulls have work to do to suggest they are in control.
The drifting sequence of lower highs and lower lows has been broken as a strong bull candle has left support in place at $1.1357 to push higher again. A close above the near term resistance at $1.1420 will encourage the bulls for a test of $1.1465 again. The slowing downside momentum and subsequent uptick in the price has shown through with the momentum indicators bottoming, with the Stochastics turning higher and RSI picking up. The hourly chart shows improving momentum with more positively configured hourly RSI and MACD lines. The bulls will hope to hang on to the near term support now in place $1.1400/$1.1420 and then start to build upside impetus. The long term range limit was in at $1.1465 and this will again be a consideration, but a move above there and the Non-farm Payrolls spike high at $1.1475 would re-open the way back towards $1.1530 and possibly the high at $1.1614. The support at $1.1357 is now key near term.
The band of support around $1.4400 continues. Once again there was a minor intraday dip below the support and once again the bulls looked upon it as a chance to support again. In posting two days of gains (albeit only with very slightly positive candles) the momentum of the recent sell-off has been lost. This has resulted in the momentum indicators becoming far more benign with the RSI and MACD lines now flat around neutral. However the battle around $1.4400 is still not yet won and this could simply turn out to be a consolidation before a continuation. The intraday hourly chart shows a neutral configuration now on all near term momentum, but the lack of any upside traction would still be of concern for the bulls. The resistance is in place at $1.4486 which protects $1.4540. The support at $1.4372 is taking on ever more importance as protection for $1.4300. A catalyst is needed and perhaps the volatility of the Bank of England’s monetary policy, minutes and Quarterly Inflation Report today will provide it. After a sedate period of trading it could be a choppy ride.
After the dollar rally that induced a rebound on Dollar/Yen in the last week and a half, the stuttering recovery leaves the outlook rather uncertain. Yesterday’s strong bear candle which dragged the pair 85 pips lower completely unwound the previous day’s gains. The fact that this came to halt the rally with the RSI once more back around 50 suggests that the recovery is under threat of being sold off again. However this morning’s gains muddy the waters further and the uncertainty returns. The intraday hourly chart shows the overnight low at 108.20 was around a very near term support from earlier in the week and the reaction higher in the past few hours suggests the bulls are not quite ready to relinquish near term control. The rebound high will be a big test at 109.37, but there is still much overhead supply that lies in wait around 109.75 and then up towards 111.00. I still see the rally as a chance to sell. A move back below 108.20 re-opens 107.60.
Just as the dollar bulls have fought back against the yen, a similar picture is developing on gold. Yesterday’s strong rally which added $11 on the day has just come off the top again. The support around the old resistance at $1260 has been strengthened (with the low at $1257.25) but there is still a sequence of lower highs over the past 8 days that means that the medium term bullish outlook has a near term corrective look to it. The slide lower in the early moves today are adding to this mixed outlook. The momentum indicators show that the overbought move following the breakout to $1303 have been unwound now and retain a positive medium term configuration, with the Stochastics and RSI turning up above 50, and the MACD lines retaining a positive configuration. The importance of the support now at $1257.25 is growing and the bulls are not having it all their own way. Holding above $1264.40 would add to their case, but the sequence of lower highs needs to be broken for them to feel in control once more. Resistance is now at $1278.50 with the key lower high at $1295.70.
The EIA oil inventories showed a surprise draw on oil stocks of -3.4m barrels whilst distillates and gasoline stocks were also a surprisingly bigger draw. This meant that an oil price that had been consolidating for much of the session yesterday suddenly found a bid and the market has risen. A second strong bullish daily candle has broken through the resistance around $46.00 is now set to challenge the key high at $46.80. The support band $42.50/$43.50 has subsequently once more been bolstered and its importance to the medium term outlook continues to grow. Technically the momentum on the daily chart remains strong and the deterioration in the Stochastics is beginning to turn around once more with the two bull candles. The big resistance remains in place at $46.80, however with the oil price holding on to the gains early today, the bulls will now be looking at yesterday’s low at a trading band from yesterday between $43.95/$44.96 as a near term support to build from. Above $46.80 would open the next resistance of the November high at $48.35.
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