As Thanksgiving arrives, it will mean many traders in the US taking time out. Thin markets, low volumes, low liquidity and usually either dead markets or huge volatility results. In the absence of newsflow, this can mean a sleepy time for markets, however, focus will remain on the political wranglings of Brexit and the Italian budget. Unless any real ground is given by the Italian government then the “excessive debt procedure” looks set to be initiated. For now, it looks as though the renewed dollar strength that had threatened following Tuesday’s risk retreat has failed to ignite. Treasury yields did not run rampantly higher as a run of US data disappointed (Durable Goods, Weekly Jobless Claims and final Michigan Sentiment all negative surprises). Ceteris paribus (as economists love to say) this should mean the dollar bulls will struggle for traction in the coming days and markets be relatively stable. However, with Theresa May meeting EU officials amid concerns that their deal is dead in the water, the prospect for a surprise is high. Also any drip feeds of newsflow over whether the Italian government will compromise over its spending plans will also need to be watched. Thin markets have a tendency to do funny things, so staying close to the newswires is important.
A late sell-off on Wall Street saw almost all the early gains given back as the Dow closed almost dead flat and the S&P 500 was +0.3% at 2650. US futures are a shade higher but Asian markets have been mixed overnight with the Nikkei +0.7% and Shanghai Composite -0.2%. European futures are marginally higher in early moves. In forex, there is little real move on the dollar, with the euro and sterling a shade higher, whilst the Aussie and Kiwi are slightly underperforming. In commodities, with a lack of dollar direction, gold is almost flat, whilst oil is a shade lower.
With the US on holiday for Thanksgiving today it could be something of a muted session and this will not be helped by a minimal economic calendar. The release of the ECB monetary policy meeting accounts (i.e. its minutes) from the October meeting of the Governing Council at 1230GMT and the market will be looking out for comments surrounding a prospective slowing of Eurozone economic activity and inflation trends, along with the prospects of ending the asset purchase programme in December. There is also the Eurozone Consumer Confidence to consider at 1500GMT which is expected to show a further slip to -3.0 from -2.7 last month which would be an 18 month low.
Chart of the Day – EUR/CAD
The euro has been looking far more positive in recent sessions whilst it is interesting that the Canadian dollar has struggled (something to do with a bear market in oil perhaps?). This has driven a strong recovery in EUR/CAD in the past week and a move which is now at a crossroads for a potential key upside breakout. The resistance of the October high at 1.5135 was breached intraday yesterday only for a corrective move back and negative candle. That the high came at 1.5170 which was at the considerable resistance of a five month downtrend and the falling 144 day moving average which has been a consistent barrier since June shows how the market sees this as a crossroads. A breach of the downtrend and a positive candle formed today would be a significant positive development. There is a band of to watch between 1.5050/1.5135 which has been near term breakouts. There is a strengthening of momentum indicators, with the MACD lines rising above neutral once more, the Stochastics strongly configured and the RSI above 60. If these momentum conditions can hold then the bulls will be well positioned to break the confluence of the trend 1.5135, trendline and 144 day ma resistance. This would then open a test of the September highs of 1.5325/1.5370. A close below 1.5050 would now be a disappointment.
The dollar bulls have failed to build momentum on the bearish engulfing candle that has threatened to change the outlook for EUR/USD. Subsequently there is a degree of uncertainty now forming on the near term outlook. Although the downtrend channel has been broken this week (positive), the bearish engulfing candle on Tuesday suggested this could be a false upside break, but then the candle has failed to find corrective traction. The mixed signals in recent sessions mean that momentum indicators are flattening off but with little decisive direction. Yesterday’s mildly positive candle gives us very little, as does the initial marginal move higher today. Being Thanksgiving too, this seems to be a pause for breath in the market. The hourly chart does still show an uptrend of the past eight sessions, whilst near term support at $1.1355 will be a level to watch for direction. A pivot at the old $1.1430 protects $1.1470.
A degree of consolidation has set in as the political turmoil in the UK has calmed down somewhat in recent days. The support of last week’s low at $1.2720 remains intact but the momentum would still point towards a negative bias and downside risk being greater. Resistance at $1.2885 threatens to now be another lower high with the run of lower highs and lower lows still continuing. A breach of $1.2720 opens $1.2660/$1.2695 key lows. The configuration of the hourly chart reflects the negative bias, but the momentum in the selling pressure is fairly light for now. It seems that newsflow surrounding Brexit will still likely be the main driver of Cable for now.
A second consecutive positive candle suggests that the bulls are starting to regain their confidence following the recent corrective move. We have focused on the rising 89 day moving average being a key basis of support over the past few months and rising at 112.12 today the low of Tuesday was less than 20 pips before the support kicked in around 112.30. This has come with the momentum indicators starting to pick up once more, whilst the RSI again turning higher in the low 40s and MACD lines looking to bottom above neutral. This suggests that the near term correction within the medium term bull trend is indeed a chance to buy and that intraday weakness is an opportunity now. A near six month uptrend comes in at 111,95 today. The hourly chart shows a decisive move above 112.90/113.10 opens 113.70 initially but the resistance at 114.20 is key.
The market continues to edge higher in a recovery within the uptrend channel for a move that is probably best described as being slow and steady. Holding support above $1217 has been a key near term improvement in the outlook for a move that seems to be edging higher towards a test of $1236 in due course. The concern would be that momentum is laboured and considering the strength of the resistance around $1236 this may be a key restriction. The Stochastics are losing their impetus whilst the MACD lines are barely even rising. Whilst backing the move higher has been increasingly the correct strategy in recent sessions, the bulls are finding the going tough and this may eventually impact negatively. Support in the band $1217 and back to $1208, whilst resistance is considerable at $1236/$1243.
The EIA inventories did not contain the surprise drawdown on crude stocks perhaps some had hoped for (at least after the API data on Tuesday) but the recovery in yesterday’s session still looks to be counter-trend and is likely to struggle with overhead supply. The consolidation of the past week which broke down on Tuesday means that there is now a band of resistance overhead between $54.75/$58.00. Yesterday’s intraday spike higher failed at $55.85 only to drop back again and will add further overhead supply now. Momentum indicators remain deeply negatively configured and subsequently rallies remain a chance to sell. Even on the hourly chart there is still very little for the bulls to go on yet, with the hourly RSI failing around 60 and hourly MACD lines also stuck under neutral. Expect further pressure on initial support around $54.00 before a retreat to $52.75.
Dow Jones Industrial Average
With Wall Street closed for Thanksgiving today it may give the battered bulls a chance to regather thoughts in their scrambled minds. Once more yesterday 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.
At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.