The world does not stop revolving when the US has a public holiday, but the extended nature of Thanksgiving takes a chunk of traders out of the market resulting in lower liquidity and markets often unwilling to take a view. That may be true of some markets, but not all, as shown with sterling yesterday as the latest newsflow on Brexit gave traders something to go on. However, whether they have got it right is another matter. Sterling jumped on a draft agreement setting out a bunch of principals for the future trading relationship between the UK and EU. All sounds great, except the UK Parliament is deeply (and I mean deeply) sceptical on anything that Theresa May seems to be able to produce. The Brexiteers do not want any part of the “Northern Ireland backstop” (which would in effect treat Norther Ireland differently to the rest of the UK in the event that no agreement can be reached). Whilst there is a large portion of pro-Remain MPs in Parliament that see this as an appeasement that tries to please all sides but in the end pleases no one. The Labour Opposition does not know how it would deal with the situation in a realistic manner and so puts up fantastic obstacles for Mrs May, many of which could never be achievable in the real world. Aside from all of that, will the EU sign off on the deal? Will Spain veto? And so although sterling rallied yesterday, it its current form this is a rally that appears doomed to fail along with Mrs May’s deal, whilst the negative correlation between sterling and FTSE 100 was again back in play yesterday. And what of other markets on Thanksgiving? Aside from the continued selling of dead cat bounces on oil, we may have very little direction until the US returns in earnest on Monday. There will be some trading today but given the early close of markets, volumes are likely to remain light and lack conviction.
Wall Street was closed for Thanksgiving yesterday, whilst Japan has a public holiday today, however in China the Shanghai Composite fell by -2.3%. European futures are broadly flat though. In forex, there is very little direction again, but with the slightest of dollar positive moves. For commodities, gold is all but flat, whilst oil seems to be back under pressure again.
The economic calendar is European heavy today with the flash PMIs culminating in the Eurozone flash PMIs at 0900GMT. Consensus expectations has the flash Eurozone Manufacturing PMI to be at 52.0 (in line with October’s final 52.0) whilst the flash Eurozone Services PMI is expected to slip a shade to 53.5 (from October’s 53.7) and flash Eurozone Composite PMI is expected to be 52.0. Canadian inflation for October is at 1330GMT and is expected to be +0.1% (following a drop of -0.4% in September). Flash PMIs continue for the US at 1445GMT where the flash US Manufacturing PMI expected to remain at 55.7 (55.7 in October) with the flash US Services PMI expected to improve a shade to 54.9 (from 54.8 in October).
Chart of the Day – USD/ZAR
A 25 basis point rate hike by the Central Bank of South Africa from 6.50% to 6.75% was the first rate rise in over two years and is an attempt to control elevated levels of inflation. The technicals have been deteriorating on USD/ZAR (i.e. increasingly Rand positive) for several weeks where a run of lower highs and lower lows have now completed a large top pattern. A closing break below 13.95 back in early November completed the top which has since been tested and now confirmed with the renewed selling pressure this week which has taken the market to a new three and a half month low. The move below the top neckline at 13.95 implies a move towards 12.20 in the coming months, with the July low at 13.08 a prime retracement target now. A continued run of lower highs and lower lows now suggests selling into strength. This is reflected in the negative configuration on momentum indicators and there is a growing band of resistance now between 13.85/14.16 which will be seen as a near term sell zone for any intraday rallies. .
In the absence of US traders taking liquidity out of the market, some of the major markets have been volatile (oil, Cable) and some have done very little. The euro fits into the latter. A mild positive candle formed for a second day of marginal gains on EUR/USD to once more take the market drifting back above the old downtrend channel resistance. Although the dollar strengthening aspects of the big bearish engulfing candle will remain in place until the market breaches the high at $1.1470, the fact that the dollar bulls have been unable to maintain traction in a corrective move certainly questions the validity of a prospective move lower. Picking up off $1.1355 in the past couple of sessions, this is now a key basis of support near term. Momentum indicators are giving a variety of signals, both near and medium term, so the next real signal to sit up and take notice of would be the breach of either support at $1.1355 (negative) or resistance at $1.1470 (positive). The hourly chart in a slight uptrend over the past week and a half still along with marginal positive momentum configuration lends a marginal positive bias, but only just.
The near to medium term fate of sterling lies squarely in the hands of the Brexit gods. For that it is anyone’s guess which way it will go. Yesterday’s spike higher of over 100 pips was on the news of the latest aspect, a draft declaration between the UK and EU, over the supposed future relationship. However, UK Parliament holds a different view and is still highly likely to scupper the whole thing. Sterling was up but I do not see it lasting. Anyway, to the technicals, a bullish candle has been held so far, but at a downtrend of the past couple of weeks where rallies have continually been sold into. Momentum indicators are threatening to tick a shade more positive again however, it is difficult to see sterling bulls lasting the course. Thin trading will mean that sterling is likely to remain volatile in the coming days. Initial resistance at $1.2925 under $1.3000/$1.3070. Support is initially $1.2760 and then $1.2720.
A mildly negative candlestick for yesterday’s session has seen the momentum of the dollar bulls just stalling for now, something that has continued with a further initial slip this morning. However there is still a positive configuration on the medium term outlook which suggests near term corrections remain a chance to buy, The support at 112.30 is being built upon, the six month uptrend is rising at 112.00 today. Near term indicators are in a relatively neutral configuration to reflect the slight loss of positive momentum in the last couple of sessions. However, a slip back on the dollar is still likely to be supported. The question is whether there is any sizable upside traction in this chart and more. I am beginning to have my doubts and feel that a larger trading range could be set to form.
There is a continued positive configuration in the run higher of the past eight sessions which has taken the market above the resistance at $1217 and opens $1236 as the next test. There is a drift higher on momentum indicators to accompany the move higher, but there is a lack of conviction in the momentum. Perhaps this is something to do with Thanksgiving trading, but this means that the way traders return next week will be key. With the lack of conviction in momentum the prospect of a failure around $1236 key ceiling f resistance is growing. Support remains at $1217 and $1207.
Oil continues to struggle against a backdrop of negative momentum and a market that seems intent to sell into any strength. Whilst there is a degree of caution that needs to be taken with yesterday’s thin volume session, the fact is that WTI is again testing its recent lows and a breach of $52.75 would open for the next leg lower with subsequent support below the $50 psychological level at $49.10. Price action of the past few sessions shows how there is now a band of overhead supply near term at $54.75/$58.00 whilst a three week downtrend sits at $56.00 today. The bigger six week downtrend also comes in at $58.65 today. Momentum remains deeply negatively configured with any intraday rallies seen as a chance to sell. There is, as yet, still no end to this bear market.
Dow Jones Industrial Average
With Wall Street closed for Thanksgiving yesterday it may have given the battered bulls a chance to regather thoughts in their scrambled minds. Once more on Wednesday we saw a failed rally as initial gains were sold into. The failure meant that the market closed almost bang on the low of the day and negative momentum continues to build. The market has been unable to fill the gap at 24,900 which means that a band of resistance 24,800/24,900 is growing. Tuesday’s low at 24,369 is initially supportive but will remain under threat and unless the bulls can come back after Thanksgiving in better spirits, a test of the October low at 24,122 is likely.
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