The Chinese economic data overnight will be the key driver of risk appetite, at least in the early part of today’s session. China GDP data was in line with expectations, on 6.8% for Q4 2015 and 6.9% for the year. This seems to have reassured traders to a certain extent who would have feared a worse number (even though there will always be accusations of data fixing). There was other data though which may OK but not great which may slightly dampen the risk appetite. The Industrial Production was a slight miss at +5.9% (+6.0% exp) with Retail Sales at +11.1% (11.3% exp). Now in isolation this is a series of data that most countries would be desperate to come anywhere near, however there is a degree of caution still even though sentiment is slightly improved. With no steer from the US (which was on public holiday) Asian markets have been reasonably positive, with European markets following suit. It could though be a volatile day as the US is playing catch up.
Forex markets show the improvement in risk sentiment with the safe haven flow unwinding again as the euro and yen have fallen. Also the commodity currencies are all benefitting, however perhaps the true reflection will come as the US session kicks in this afternoon. Gold is trading flat (as it did for much of yesterday) which oil has bounced a touch.
Traders will be looking forward to some key European data, with UK CPI announced at 0930GMT with a slight pick up to +0.2% expected, whilst core CPI is expected to stick around +1.2% for the year. The final reading of Eurozone inflation is expected at 1000GMT which is expected to stay at +0.2%. German ZEW Economic Sentiment is also at 1000GMT but is expected to dip back slightly to 8.2% (from 16.1% last month). At 1500GMT the NAHB Housing Market indicator is expected to stick around 61.
Chart of the Day – FTSE 100
On an intraday basis yesterday, the FTSE 100 dipped to its lowest level since November 2012 (below the 5768 key August low by 2 ticks) and the technical outlook looks increasingly concerning. The bears have now been in control throughout January with the index trading higher on only three occasions of the 11 sessions in 2016. However yesterday’s bearish candle was an inverted hammer candle in a downtrend. This is an interesting candle as even though it has bearish tendencies, the fact that the intraday move drove initial strength suggests there is an appetite to buy and this could drive a recovery. It very much depends upon how positive today’ candle is, and the early signs are that there is the prospect of a bounce. I am still concerned by the FTSE 100 RSI position which is in the low 30s and still is not showing extreme trading, and with the Stochastics ad MACD lines in bearish decline it all of this suggests there is further downside potential. The intraday hourly chart shows there are a number of resistances that need to be overcome to turn more positive. Initial resistance around 5850 has been breached in early trading, so then the next test is at 5950, whilst 6015 is the key near term pivot. Below 5768 the next support is not until 5600.
The last session was a day of somewhat directionless trading, which is not to be unexpected in that the US was on public holiday for Martin Luther King Day. The daily chart shows not much impact has been made, coming with an “inside day” underneath the old resistance around $1.050, with flattening near term moving averages and momentum indicators which are basically neutral. However the intraday hourly chart gives a little more of an interesting angle with the development that the uptrend that has been in place since 6th January is now being tested early today. Already, a breach of yesterday’s low at $1.0865 would put a more negative slant on the chart, which would then put pressure back on the reaction low at $1.0833 and the key level around the old medium term pivot at $1.0810. As continues to be the case a consistent move back above $1.0950 would put the bulls back in control. The chart is very much in the balance today.
Yet another disappointing day for the sterling bulls, after they spent much of the day with Cable trading higher, only to lose the impetus into the close as the pair finished lower once more. This has formed an inverted hammer at the old key support of the May 2010 low at $1.4230. This is a big floor for the price as a breach would open the psychological $1.4000 support but with very little real support until around $1.3500. It is (loosely) possible that an inverted hammer candlestick can be taken as a (minor) positive, with the fact that the buyers were straining to pull the rate higher, only to fade again. However this does show that there is an appetite building and today Cable is trading higher again. Could it be that at this key support there is the prospect of a low? The momentum indicators are deeply bearish but this means there is a possibility of a snap back rally. The downtrend of the past 5 weeks comes in at $1.4490 today. Look at the hourly chart for clues. Yesterday’s high at $1.4330 was under the $1.4350 resistance, and these two levels need to be breached. Watch also for the hourly RSI moving up above 60 which would suggest improving momentum. Until this happens we have to stick with the trend and expect a continued move lower. However we could be close to a bottom now.
Yesterday’s bullish candle has been followed early today but further gains and the prospect of a second consecutive positive candle, which would be arguably the first time this year. Are we in the process of seeing a recovery build on Dollar/Yen? There is certainly potential with the improvement seen in the daily RSI which is now advancing. However much still needs to be done as this could simply turn out to be a consolidation phase over the past 7 sessions. From a near term perspective the hourly chart shows that there is considerable overhead supply that needs to be overcome. However the initial resistance around 117.20 has been broken overnight and the hourly momentum indicators are now approaching a key point in the recovery. Can the hourly RSI move into positive configuration above 70, and the MACD lines retain a more bullish position? The key tests will be at 118.35 which is an important first lower high and then the key pivot at 118.75. The improvement is encouraging, but once again, more needs to be done. Support is at 117.00 with 116.46 still key.
I spoke yesterday about being neutral on gold between $1077 and $1098 and this outlook has changed very little in the past 24 hours. A doji candle with trading very quiet range of just $6 does almost nothing for direction with the momentum indicators increasingly neutral. The hourly chart is doing little to provide us with a direction of breakout either, with flat moving averages and benign momentum. Therefore, once again we must look for a directional breakout given by a breach of $1077 support or the resistance at $1098.
The oil market is pretty much on its knees now as the bears continue to pummel the price lower. Another day, another bearish candle that was entirely made below the old psychological support at $30 (meaning that this is a decisive break). The next technical target is the 100% Fibonacci projection of the June to August sell off ($61.55/$37.75)measured from the October reaction high at $50.92. That 100% projection comes in around $27.15. The next key price support is the September 2003 reaction low at $26.65, with the next serious support coming in around $25. Although there has been an element of buying going on early this morning, momentum indicators still show very little real sign of a sustainable recovery on the daily chart and with the RSI still having room to fall (the August sell-off got down to below 22 on the RSI, with the current level at above 27 still). The intraday hourly chart remains a sell into strength, with the old $30.00 support becoming a basis of resistance now. The resistance band at $31.75/$32.20 is now key.