Last updated: May 3rd, 2017 at 09:58 pm
Wall Street managed to squeeze out some gains yesterday into the close as the oil price started to pick up again. Commodities and specifically the price of oil have been driving sentiment once more as the market has pondered the concerns over global demand. The big question is how long can the rebound in oil be sustained before the significant band of willing sellers puts paid to the improvement in market sentiment. In the meantime though, sentiment has improved through the Asian session (with the Nikkei mildly lower at -0.2%) whilst the European session has managed to open with slight gains.
Forex markets seem to have entered a consolidation phase as Christmas approaches, with ranges forming on sterling and the Japanese yen. However, interestingly there are also smatterings of gains with the euro looking to hold on to yesterday’s rebound and the Kiwi also a stronger performer. The improvement in gold is also a notable mover of the past couple of sessions. After yesterday’s late jump, oil also remains supported today.
Traders will be on the lookout for the final reading of US Q3 GDP at 1330GMT which is expected to come in at +1.9% and slightly down from the 2.1% of the second reading. There are also the existing home sales at 1500GMT which are expected to sit around flat with 5.32m (last 5.36m).
Considering the bearish pressure being exerted on commodity prices (which has told on other commodity currencies such as the Loonie and the Aussie), the performance of the Kiwi has been remarkable. The recovery has formed an uptrend channel over the past 5 weeks which continues to pull the Kiwi higher (probably not exactly what the RBNZ would have been hoping). The low post the FOMC decision at $0.6680 has now seemingly provided the next basis of support for the channel to pull the Kiwi for another test of the resistance at $0.6830. I have spoken previously above the medium term range play that the Kiwi has become, trading above all moving averages and using the key pivot as $0.6615 as the basis of support. Well if the bulls can breach $0.6830 then there is little reason why a test of the big October high around $0.6900 cannot be seen. The momentum on the RSI and MACD lines is positively configured and as long as the Stochastics hold up the outlook remains positive. Dips within this range (support line coming in around $0.6700 today) are a chance to buy. The key support for the bulls remains the $0.6615 pivot.
The euro has now completed a whole trading session clear above the $1.0810 key support band and this will be giving the bulls some confidence after the downside pressure in the wake of the FOMC. The momentum indicators are picking up with the Stochastics turning higher, and the RSI also gaining. This means a continuation of the range between $1.0810/$1.1050 can continue and this is possibly now where the euro is set up for the Christmas period. The hourly chart has shown a near term break above $1.0880 has completed a small base pattern which implies $1.0960. The hourly momentum is also more positively configured (although the hourly Stochastics need to hold up). Today we should now see a near term band of support around $1.0880, however with the near term improvement in sentiment the bulls will still be eyeing the resistance at $1.1005.
I wrote yesterday about the slowing of the selling pressure and that this may help to induce a near term rebound. Well, the slowing has continued and I am not yet sure as to whether this is due to the lower volumes and consolidation associated with Christmas trading or not. However the daily candlesticks have become far more settled after last week’s large sell-off. As such, momentum remains in negative configuration but is far more benign. The consolidation is shown on the hourly chart with a 90 pip trading band between $1.4860/$1.4950 which is into its third day now. With the hourly momentum indicators also rather calm but with a slight bearish bias, perhaps it is best to see how this mini trading band resolves before deciphering direction. Above $1.4950 opens the more considerable resistance band $1.5000/$1.5100 and I continue to also see rallies as a chance to sell.
There is a degree of consolidation that has now set in following Friday’s sharp bearish engulfing candle. It is also interesting that yesterday’s trading band was defined almost to the pip by the Fibonacci retracements of the 118.04/123.67 rally, with the resistance at 38.2% Fib at 121.52, and the support at the 50% Fib of 120.86. Momentum indicators are on the slightly negative side of neutral however this is the legacy of the sharp sell-off following the BoJ on Friday. The hourly chart shows that trading since those initial few hours following the BoJ has been all but neutral, with a 90 pip band at resistance of 121.75 and support at 120.85. With even the hourly moving averages all but neutral, we await the next decisive signal. I still see the 122.20 pivot band as a key near to medium term level.
I am starting to view gold in a bit of a different light. From a bullish perspective I am hearted by the lack of selling pressure that has been seen, even in the wake of the FOMC rate hike. In fact gold yesterday formed a second consecutive bullish candle (something not seen for two weeks) and the price has closed at a two week high. This is now breaking higher from this short term downtrend channel and the upside pressure is building. The next test is to trade consistently and hold ground in the overhead supply band $1077/$1098. The momentum indicators are also a source of encouragement, with the Stochastics reacting higher, whilst the RSI is back up around 50. The key resistance is $1088.70 which was the post-ECB reaction high and it would be a big barrier to breach, whilst also completing a double bottom base pattern. The hourly chart shows higher lows have been left with $1066.60 and $1063.50 adding support.
The medium term bear pressure continues on WTI and has turned into a slow drip of losses now, however this does not mean to say that the moves are exclusively lower. The momentum indicators retain an extremely bearish configuration and any rallies should be seen as a chance to sell as there is further downside potential with the RSI still above 30, whilst during the big August sell-off it got back to the low 20s. Intraday moves continue to be pounced upon by the bears. Oil has formed some support yesterday (likely to have been helped by yesterday’s options expiry) with the move now into the initial band of resistance between $36.00/$36.50 which will provide overhead supply. The bulls would realistically only be able to get interested in a move above the 15th Dec bounce high at $37.90.
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