Last updated: May 3rd, 2017 at 09:58 pm
With the Fed now out of the way, market sentiment seems to once more be on the commodities story and with the oil price remaining under pressure there is a negative mind-set as traders begin the new week. To be fair, Friday’s close on Wall Street has not helped, as the S&P 500 closed 1.5% lower. The VIX volatility index has spiked higher again and is back above 20 once more (generally a level considered to be where volatility becomes elevated). US Treasury yields have fallen away too and with safe havens such as gold in demand, this all paints a fairly negative picture in the run up towards Christmas. With mild weakness on Asian markets this morning (Nikkei down 0.4%), the European markets are also trading lower in early moves. Could forex markets be calling a turnaround though as we are beginning to see the dollar starting to retrace some of the gains made in the wake of the FOMC decision.
The dollar which has been strong since the FOMC meeting is beginning to correct. The yen is the worst performing major currency today with other majors all outperforming the dollar. The gold price is positive whilst oil is broadly flat.
There is little on the economic calendar for traders to look towards for direction, however the Eurozone Consumer Confidence is at 1500GMT and is expected to improve very slightly to -5.9 (from -6.1).
I have spoken about the Aussie on numerous occasions recently as the formation of a top pattern progressed. The pattern finally completed on a move below $0.7170 last week and implies a downside test of the key support just above $0.7000. However the Aussie finished the week with a rally, however that rally has merely unwound the pair back towards the key overhead supply of the neckline resistance of the pattern around $0.7170. The daily chart shows that momentum indicators confirm the completed pattern and in their continued deterioration reflect the bearish momentum. The intraday hourly chart shows a downtrend resistance over the past two weeks which comes in around $.07240 today, whilst the hourly momentum suggests that this rally is one that is now ready to be sold into. Look for a sell signal in the $0.7170/$0.7240 resistance for at least a retest of Friday’s low at $0.7090 and likely further weakness in due course.
I continue to view $1.0810 as the key medium term level that needs to be watched. Trading above this has continued in the wake of the FOMC rate hike (apart from the odd intraday spike towards $1.0800), whilst the euro again bounced off this key level on Friday and is looking for a recovery in the range once more. I will be looking at the daily momentum indicators which still look corrective and if the Stochastics start turning higher again this would confirm for me that the range will be holding again. The intraday hourly chart is looking to form a near term base pattern and if the early improvement of the European session continues to trade decisively clear of $1.0880 then there is a near term target of $1.0960. The hourly momentum indicators are improving still as the hourly RSI is now into the 60s again. Watch for the resistance around $1.0900 as breaching this could be another signal of the euro rebound continuing.
After four consecutive strongly bearish candles, there were signs on Friday that the selling pressure was beginning to run dry, at least for this latest leg lower. The failure to breach the previous day’s low came in the formation of an “inside” day which has continued early today with a slight rebound. Will it continue? The hourly chart shows an improvement in momentum and now a move above $1.4950 would trigger a retest of the old big figure psychological pivot at $1.5000. I still view Cable rallies as a chance to sell and the near term rebounds continue to fail at lower levels. This is a difficult time to be trading Cable as the medium term trend is clearly lower and buying the rally would be a dangerous counter-trend move. However if the pair can breach $1.5000 then it would improve the case for being near term long, even if I would still prefer to wait for the next sell signal. Thursday’s low at $1.4862 is the new support.
The candle following a huge reversal is always a difficult one. The dust needs to settle still on Dollar/Yen to get the true reflection of the impact on the chart following the enormous bearish engulfing candle. Technically the chart is rather neutral now with moving averages all but flat, and momentum indicators buzzing around neutral configuration levels. We have so far seen a consolidation during the Asian session and this can often be seen as traders unwind some of the previous excesses. Near term resistance is at 121.75, whilst trading below 122.20 gives the chart a key pivot ceiling again. There is near term support at 121.00, 1ith a breach re-opening 120.32. I still view the need to let the pair settle before finding a definitive outlook. In the meantime it is a choppy range play.
I have been paying this downtrend channel for the past two weeks and although the past few sessions have been more volatile, the channel remains intact and Friday’s latest rebound looks to again be a chance to sell. Momentum indicators reflect weak downside momentum in that there is no huge strength in the selling pressure, however there is still a bearish drift. The caveat is that it is situations such as these where a short squeeze will suddenly induce a sharp rally, however I continue to see the near to medium term overhead supply in the $1077/$1098 range. The hourly chart shows that momentum indicators are at levels that have previously been previously seen as an opportunity to sell in the downtrend. Resistance is at $1078.20 and $1088.70.
With the rarity of the bull candles on WTI, you can be forgiven for getting carried away by the sight of a light at the end of the tunnel. However these false dawns continue to be sold into and there is much that needs to be done before I get excited by the fact that by some miracle, oil has not been once more sold off. Daily momentum indicators show almost no improvement baring a slight uptick on the RSI, even the sensitive Stochastics are failing to respond. I would view Friday’s “spinning top” candle as another chance to sell. Bulls may point to the intraday move to multi year lows below $34.55 before a rebound as a “false downside break”, but I see this as merely a minor inconvenience for the bears. The hourly chart shows resistance in the range in the range $36.00/$36.65 as rallies should now be seen as a chance to sell.
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