Last updated: May 3rd, 2017 at 09:58 pm
Sentiment took a turn for the worse yesterday as once more a decline on the price of oil below $30 on the Brent Crude market for the first time in 12 years. This has meant that market sentiment is again under pressure as it as it has pulled money back into safe haven trading which undid all the good recovery story that had been developing. This caused a huge sell-off on Wall Street with Asian markets all under pressure overnight and the Europeans waking up to more fearful losses on their indices this morning. Terrorism on the streets of Jakarta in Indonesia overnight has certainly not helped the situation either. However there is a glint of light amongst all this with the People’s Bank of China opting for a slightly stronger mid-point for the yuan which may be helping to stabilize sentiment. The two driving forces behind markets moves of late (oil and China) are pulling in different directions today and it will be interesting to see which is the more dominant force. The oil price is currently the bigger impact. In forex trading there are few clues being given away, with a mixed outlook against the dollar. The Aussie dollar has though found a bid after better than expected unemployment data).
Traders will be looking for the Bank of England rate decision at 1200GMT. Although there is no change expected from the MPC on rates or QE, the voting make-up of the minutes will be interesting to see if Ian McCafferty continues to vote for a hike. He is forecast for a hawkish vote but the market turmoil and signals that the UK economic indicators are rolling over, will he blink? There are also weekly jobless claims at 1330GMT which are expected to be similar at around 277,000.
The sell-off on the Aussie has certainly slowed and the consolidation could yet turn into a technical rebound. However it seems as though the market is struggling with conflicting forces in recent days and the choppy nature of the candles are reflecting this. What had looked to be a recovery building yesterday was snuffed out to form a bearish candle with a close towards the low of the day. However overnight with the better than expected Aussie unemployment data, there has been another bounce to muddy the near term outlook once more. The momentum indicators had reached a stretched point in the wake of the early January decline, with the RSI at 30, and the Stochastics oversold, and since then these indicators have started to consolidate, but the bulls are struggling to find traction in a recovery. The old support at $0.7010 is now a source of overhead supply and each of the last three days have seen an attempt at a recovery that has been sold into as the day has progressed. Subsequently the bears remain in control for the correction and a test of the $0.6893 low. However, if the bulls can hang on to the support around $0.6920 intact over the past few days then confidence will begin to build again. A close above $0.7010 would improve the outlook and then re-open a possible technical rally towards $0.7090.
The trendline squeeze on the euro continues after yesterday’s bounce from around the $1.0810 key pivot. The outlook is becoming increasingly neutral as it seems that direction has come out of the market in the past few days. The pivot has held as a basis of support in three of the past four days now, with yesterday’s positive candle meaning that the bulls will be eying up a test of the 4 week downtrend now which today comes in around $1.0920. Although the RSI confirms the shallow downtrend channel, the momentum studies are generally rather neutral now. So we drill down into the hourly chart for indication of direction, and again it is all fairly neutral with rangebound trading as the momentum from yesterday’s rally already seeming to be rolling over. Trading now seems to be between the key floor around $1.0810 and the overhead resistance at $1.0950. We need a breakout to provide us with direction now.
The outlook remains the same, as it has done for several days now. Intraday rallies should be sold into. In the absence of any real reversal signals on the daily chart it is difficult to make any other assessment. The 4 week downtrend today comes in at $1.4580 which suggests there is still room for a technical rally and still there would be bearish control. But looking on the hourly chart there seems to be no real sign of a recovery there either. Hourly momentum retains a bearish configuration which suggests that rallies will continue to be sold into. Failing at $1.4475 means that the bounce could not even reach the old floor at $1.4490, so the stepped decline continues. With the 89 hour moving average (around $1.4480) which has been a n excellent basis of resistance over the past few days adds the to barrier overhead that is preventing a recovery. The recent low at $1.4350 looks rather precarious and further weakness towards the 2010 low at $1.4230 is likely in due course. There is further resistance in the $1.4600/$1.4640 band.
Safe haven trading looked to be on the reverse yesterday morning, however it did not last long as the yen looked to strengthen once more. However the overnight weakness has dissipated and there has been a slight bounce as the European session kicks in. This leaves the chart outlook rather messy, as there is a succession of long tailed candles and small bodies. This reflects the uncertainty of the past few days and makes calling near term direction rather difficult. The improvement in the momentum continues but is not a story in itself (yet). The intraday hourly chart has taken on more of a neutral rangebound outlook and once more the momentum indicators have started to improve this morning. Can it last though? The near term support at 117.20 has been catching the lows well recently and is subsequently increasing in importance, coming as it protects 116.70 and then the key low at 116.36. Resistance is in at 118.35 and then more importantly at 118.75. I am increasingly inclined to play the near term range.
The bulls were breathing a sigh of relief as after three days of corrective candles a late rally seems to have saved the outlook of the base pattern. I have been saying that a move below the old key floor and now pivot at $1077 would be curtains for the base pattern but the bulls have supported the market at $1079.25 and a close back above the old neckline at $1088.70 is also positive. Momentum indicators are hanging on to the medium term positive configuration although the mixed set of moving averages would suggest the outlook is increasingly neutral, and my take on it is that gold looks to be increasingly choppy. The intraday hourly chart shows the rebound off $1079.25 has started to form resistance around the old near term breakdown at $1093. A clear break higher would re-open the $1098 and $1100 barriers.
Although the market has managed to form a degree of support, it would appear as though the bulls cannot even muster a whole day of gains without the selling pressure resuming. The inside day bar suggests a day of uncertainty, something which is also corroborated by the small body of a candle that had a day range of around $0.60 or almost 2%. There is little, if anything to suggest that the bottom has been reached yet. Subsequently the pressure will remain on Tuesday’s low at $29.93, with the momentum indicators remaining negatively configured. There is an argument that the RSI is looking stretched and due a technical rally, however looking at the intraday hourly chart the configuration of momentum suggests that intraday rallies are still being sold into. For a technical rally to set in there needs to be a move above the resistance (and pivot band) at $32.10/$32.20. As I mentioned yesterday there is a 100% Fibonacci projection at $26.90.
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