Once more the markets are hit with a cautious sentiment. Since the initial reaction of from the FOMC minutes last week that put a possible rate hike for June or July firmly on the table, there has been a far more cautious look to trading. Forex and bonds have been far more settled in the past few days with a lack of conviction. The markets seem to be waiting for something and it seems as though increasingly that they are cautiously waiting for the comments from Janet Yellen. Yellen will be making speeches in the next couple of weeks that are likely to determine the market’s pricing of a rate hike. Yellen speaks at Harvard on Friday. Sentiment has also been made more cautious with the oil price coming under a little corrective pressure amid suggestions that Iran could be in a position to have supplies running at 2.2m barrels a day in the summer. Although not as strong a driver as it was a couple of months ago, oil still has an impact on market sentiment.
Wall Street dropped back into the close last night with the S&P 500 down 0.2%. Asian markets have also been weaker overnight with the Nikkei (00.9%) also impacted by a slightly stronger yen. European markets are also cautious in early trading. In forex markets there is little direction on the key majors with the euro, sterling and yen not showing any significant direction against the dollar. However the more cautious outlook is impacting on the commodity currencies which are all underperforming. Gold and silver remain in corrective mode and continue their slow drift lower. The oil price is also around half a percent lower.
Traders will be on the lookout for the German ZEW Economic Sentiment today at 1000BST which is expected to pick up mildly to 12.1 from 11.2 last month. Mark Carney also has the Bank of England inflation report hearings at 1000BST. US New Home Sales are at 1500BST and are expected to improve slightly to 521,000 (from 511,000 last month). The Richmond Fed Manufacturing Index is also at 1500BST and is expected to drop back to 9 from 14.
Chart of the Day – AUD/USD
The Aussie remains under pressure and despite early signs of promise for a rebound yesterday, once more intraday strength was sold into and the continuation of the correction is underway. Over the course of the past few weeks there have been four or five occasions where the bulls have tried to mount a recovery, however each occasion has been curtailed after just a couple of days where the rallies have been sold into and the bears remain fully in control. The rallies have tended to last between 100/150 pips before falling over and the latest has been just under 90 pips before failing yesterday. This suggests the latest rebound will continue lower towards the March low at $0.7100 and probably the big figure at $0.7000. There is still very little reason to suspect there is a recovery on the way with the Stochastics still showing no signs of life, the RSI is around 30 yet and there is further downside potential. The posting of two doji candles in the past three sessions may suggest a warning sign for the trend, but the support at $0.7173 has been broken this morning and re-opens the downside once more. Despite this though, yesterday’s high at $0.7260 is initial resistance before the latest lower high at $0.7365 which is now key. The hourly chart shows negative configuration and that there is also resistance at $0.7297.
The consolidation continues into its fourth day, and still we are no closer to knowing whether this is a pause within the sell off or some real support coming in. For the past four sessions the euro has traded within a 65 pip range. The momentum indicators are configured for a correction but the impetus within the sell-off has reduced somewhat. Perhaps this is the price settling within the downtrend before the next decline. I am still tending towards a negative bias following the break down below the support at $1.1213 last week. The sequence of lower highs and lower lows continues on the hourly chart too, with the band of resistance $1.1255/$1.1290. I still favour a test of the late March low at $1.1142 and a likely retreat to $1.1100 the long term pivot. Key resistance remains $1.1345.
The uncertain outlook for the near term on Cable continues and a very small bodied candle with a daily range of over 100 pips only adds to the mixed picture. The concern for the bulls is that there has been another failed attempt to break through the downtrend in the past week and this has questioned how strong the medium term bulls can be. The momentum indicators are also very mixed with the Stochastics now crossing downwards, whilst the RSI and MACD lines are all but neutral. The mixed outlook is also reflected on the hourly chart with the momentum indicators showing little real decisive direction. The supports to watch come in at $1.4400 which is the pivot back in play once more and the key reaction low at $1.4330. The initial resistance is $1.4550/60 which now protects the high at $1.4660.
Have the bulls lost control again? The recovery uptrend of the past few weeks has been broken following yesterday’s bearish candle that was the biggest pips decline since the rally began in early May. The move comes with momentum indicators rolling over around where the sellers would be eying a next opportunity, with the RSI again failing in the mid-50s, the Stochastics crossing lower and the MACD lines around neutral. The hourly chart shows the move back below the old breakout at 109.50 which could now build again as a the basis of resistance, with a band of overhead supply now between 109.50/90. The key reaction low at 108.70 is an important support, but a breach of 108.20 would certainly confirm the bears resuming control.
The corrective slide continues as the medium term bulls have now lost control. Having broken the support around $1260 on the Fed minutes last week, a drift lower has formed which has broken several technical factors that the medium term bulls had been clinging to. The seven week uptrend has been broken, the 55 day moving average (now $1249) has turned lower again, the RSI has dropped to its lowest level of 2016 and the Stochastics are now bearishly configured. The price is falling in a downtrend channel now and further retracement of the bull run seems now likely to test $1227 support. The hourly chart shows lower highs and lower lows with negatively configured momentum showing that rallies are now a chance to sell. There is now a near term band of resistance $1248/$1255, with the main band of resistance now $1260/$1263. A decisive breach of the old pivot band at $1243 today would re-open the downside once more.
Despite little real damage having been done to the technicals, with three bearish candles in the past four completed sessions the potential for a correction is mounting. The WTI price continues to trade above the support band at $45.60/$46.80 and this would suggest that the bulls are hanging on to the positive outlook. The momentum indicators retain a positive configuration however the bulls are beginning to look a little tired and at risk of a near term pullback. The intraday hourly chart reflects more of a consolidation pattern formation with the hourly momentum taking a more neutral configuration and the moving averages flattening. In spite of the loss of momentum though, medium term trends and indicators all continue to suggest that near term corrections are a chance to buy with the key October high at $50.92 within range. The near term resistance band $48.80/$48.95 is holding the bulls back though.