Financial markets are becoming increasingly cautious as key risk events approach but there there is an ongoing underlying sense of a dollar positive bias in the market. There is a growing sense that the identity of the next Fed chair is coming down to one of two men, Jerome Powell (effectively a continuity candidate from within the FOMC) and John Taylor (an outsider seen as a hawkish move). This is impacting on Treasury yields with the 2 year Treasury yield breaking further into multi-year highs and the 10 year also pulling above a key barrier of 2.40%. This is helping to drive the dollar higher, with key major pairs such as Dollar/Yen, Cable and Dollar/Swiss reflecting this, whilst gold is also being dragged lower. The euro is though in consolidation mode ahead of the crucial ECB monetary policy decision tomorrow which could contain a major policy decision on asset purchases. Traders seem unwilling to take a view ahead of this.
Wall Street continues to push into new high ground with earnings season and potential for tax reform a driver. The S&P 500 was 0.2% higher at 2569, although Asian markets were mixed (Nikkei +0.5%) and European indices also continue to struggle for gains. In forex there is a mixed look with the Australian dollar the only real significant underperformer. Australian CPI came in lower than expected at +1.8% (+2.0% YoY exp) and this is weighing on the Aussie today. In commodities, gold continues to be sold into strength, whilst oil is holding on to yesterday’s breakout.
There is a lot for trader to get their teeth into throughout today’s session. First up is the German Ifo Business Climate at 0900BST which is expected to stay around the multi-year highs of recent months at 115.2 (although this would still be a third month of decline from 115.3 last month). The UK first reading of Q3 GDP is at 0930 BST and is once more expected to be a tepid +0.3% (which was where the final reading of Q2 finished). The main US data of the day is the Durable Goods Orders at 1330BST which is expected to see the core reading (ex-transport) growing once more by +0.5%. The US New Home Sales are at 1500BST and are expected to show a slight decline to 556,000 (from 560,000 last month). The Bank of Canada will announce monetary policy at 1500BST with rates expected to stay the same at +1.00% but with the message that rates are likely to continue to rise over the medium term. The EIA oil inventories are at 1530BST and are expected to show crude stocks in drawdown by -2.5m barrels (last week -5.7m barrels), distillates in drawdown by -2.3m (+0.5m barrels) and gasoline stocks also in drawdown by -1.3m (+0.9m barrels last week).
Chart of the Day – USD/CHF
The dollar bulls are firmly in control now. The market completed a large base pattern in early October on the move above 0.9770 which implies 330 pips of upside in the coming months (towards 1.0100) but the past few sessions has been where the market has really started to generate the upside momentum that confirms the move. With Friday’s strong bull candle closing back decisively above 0.9770 the bulls have taken the reins to pull above the next key resistance at 0.9850. This has come with the RSI pushing into the high 60s and a 10 month high, whilst the MACD lines have completed a “bull kiss” to turn higher again. An old pivot at 0.9950 is an initial barrier, but the next real resistance does not now come in until parity at 1.000 whilst the next key highs are from April/May at 1.0100 (i.e. the medium term bull target now). Look to use weakness as a chance to buy, with the medium term pivot at 0.9850 an ideal entry point now for any pullback. The hourly chart shows support at 0.9830 with hourly indicators strongly configured.
Traders appear to be increasingly reticent to take a view on the euro ahead of the crucial ECB meeting on Thursday. Having found the near term support around $1.1725, the pair is settling down and seems to be waiting for the likely big catalyst from the ECB meeting. Two small bodied candles in a row reflect this and once more this morning the market is almost dead flat. This comes with momentum indicators plateauing on both the daily and hourly charts. A spike to $1.1790 quickly unwound yesterday and there is little direction to speak of on a near term basis now. The medium term outlook will be driven by a breach of $1.1660 key support to complete a top, or a move above $1.1880 resistance. Still in wait and see mode.
The corrective downtrend which is now nearly five weeks in, continues to pull the market back and has scuppered the prospects of a near term reversal pattern. The resistance at $1.3230 could not be breached and yesterday’s negative candle has increased the pressure once more to the downside. Momentum indicators are still relatively neutral on the daily chart but a second consecutive negative candle today would begin to turn this into a mild bear bias. The hourly chart shows yesterday’s low at $1.3110 remaining intact overnight above last week’s low of $1.3085. Watch for the hourly momentum indicators rolling over again which would suggest that rallies are a chance to sell. If the hourly RSI starts to fail around 50/60 and the hourly MACD lines fail around neutral then the bears would seemingly once more have grasped control. Resistance at $1.3230 is now strengthening.
The bulls reacted well yesterday to the pullback following the initial breakout above 113.43. A strong positive candle has all but negated the corrective impact of Monday’s candle and taken the market well clear of the previous breakout at 113.43. The momentum indicators are tracking higher with positive configuration on the RSI in the mid-60s and Stochastics around 80. Intraday corrections are a chance to buy now. This comes with the positive configuration on the hourly momentum indicators, a six day uptrend and the market finding support on the 89 hour moving average. Expect further pressure on 114.10 initially with the key July high at 114.50 still likely to be tested in due course. Support is growing between 113.05/113.25.
Gold continues to track lower with near term rallies seen as a chance to sell. The positive impact of Monday’s rebound candle have now been all but negated as yesterday’s bear candle has been followed by further downside early this morning. The market has now left seemingly another lower high at $1284 under the previous reaction high at $1291. The pressure is growing on this week’s support around $1272 whilst a breach would open the October low of $1260 and the medium to longer term support band between $1250/$1260 which is around the support of a ten month uptrend. Expect near term weakness to remain in play as rallies continue to be sold into and hourly indicators take on a more corrective configuration.
After a week of consolidation under the resistance at $52.35 the bulls have posted a strong positive candle that has closed above the resistance and continues the move higher. This is continuing the run for corrections to be bought into at higher levels as the bulls eye the resistance at $52.85. The daily chart shows bullish bias with the positive candle now pulling the RSI into the 60s and Stochastics into strong configuration. Not only will the be eyeing resistance of the September high at $52.85, but also then also the $53.75 April high as the uptrend channel of the past few months continues to act as a pull higher. The hourly chart shows the positive positioning in the range of the past eight sessions, whilst the near term pivot around $51.70 is also continuing to be supportive. Weakness remains a chance to buy for an eventual upside break to challenge $53.75.
Dow Jones Industrial Average
Strong earnings from two high prices stocks on the Dow (3M and Caterpillar) have once more bolstered support for the Dow and pushed the market into an all-time high once more. There are clear arguments over the impact of the market calculation here (the S&P 500 was only up +0.2% versus the Dow up +0.7%) but the Dow remains very strong. Subsequently, the corrective candle from Monday has been completely wiped out once more and the market is pushing ever higher in the bull run again. The 2.0 standard deviation Bollinger Bands continue to rise at around 75 ticks per day (currently the top band is at 23,459) and continue to be hugged by the rally. With the Average True Range now up to 99 ticks and the bulls in the box seat, there is little reason not to see further gains. As for a corrective move, the Parabolic SARs indicator has been running higher now for nine weeks and comes in at 23,104 currently. The bulls definitely continue to win this one.