With China returning from a two day national holiday, a major driver of volatility is back in play. However so far today, the selling pressure has not been sustained and the outlook moving into the European session is reasonably stable. This comes in the wake also of a Non-farm Payrolls report from the US on Friday that gave little definitive clues over the potential for a Federal Reserve rate hike in September. The mixed report showed a surprise miss on the headline jobs number but with improving wage growth. It would appear that markets are focusing on the impact of the latter.
So as Asian markets hand over a solid if unspectacular session to the European traders with the Nikkei up 0.4%, markets such as the FTSE and DAX are showing decent gains today following on from the latest sharp declines on Friday. The US is closed for Labor Day public holiday. In forex markets there is a mixed picture so far, with little real trend to speak of. With some key technical levels still being tested, the euro and Aussie are slightly stronger, whilst sterling and the yen are weaker. Gold and silver are trading broadly flat, whilst oil is weaker in early trading.
There are no economic announcements of any real note, and with the US public holiday this could be volumes will be lighter.
Chart of the Day – Silver
Although it has not been conforming with classic downtrend analysis, silver has been a sell into rallies for several months. The August rally which fell over around the resistance of the old key support area around $15.50 reflects this. The latest rally which hit $14.95 last week now looks to be another rebound that should be sold into. The momentum indicators are all at levels that have unwound previous sell-offs and have renewed downside potential. The rally has fallen over around $15.00 which is an old resistance too. A move below $14.41 would be a one week low and re-open the key near term low at $13.93 which as things stands is the lowest price since August 2009. It would need a move above $14.95 to improve the near term outlook whilst the key medium term resistance is $15.66.
The correction on the euro is holding up, for now. The pressure back on the medium term pivot band at $1.1050/$1.1100 has so far been unable to breach the support. This comes despite an interesting Non-farm Payrolls report on Friday which could put the Fed one step closer to a rate hike. The technical momentum indicators are a touch on the negative side with the Stochastics still falling away and the MACD lines also in decline. This slight bearish bias is also reflected in the intraday hourly chart which is trading largely below a clutch of falling hourly moving averages and with near term momentum looking negative. The market has unwound into a resistance band between $1.1155/$1.1200 and this looks to be an area where the bears will look to return once more. A move above $1.1250 would be needed to improve the near term outlook which is likely to continue to put pressure on the $1.1050/$1.1100 pivot band.
Cable is another pair that is testing a key near level. The June low at $1.5168 was slightly breached on an intraday basis during Friday’s bearish session which was the 9th consecutive negative close, only to close bang on the support. With the market a few ticks higher today, the bulls are hanging on by their fingertips. I am therefore on the brink of turning negative in my medium term outlook, but I am not quite ready to make the cut. I am concerned by turning negative on a pair that has been so rangebound for so long and which has posted such a strong line of bearish candles without reversal. The RSI is in the high 20s too and stretched. However the trend is your friend and Cable is in decline. The hourly chart is reflective of this with negative signals across the board, a consistent downtrend and momentum indicators in bearish configuration. This suggests that rallies remain a chance to sell. Friday’s reaction high at $1.5273 has become the key near term resistance and could be the key level to watch for. Near term resistance around $1.5220 is already holding back a recovery. There is little reason to suggest $1.5160 will not be retested, below which opens $1.5088.
The rather choppy period of trading continues as a decent start to the trading day has pulled the pair higher again. This has come just at the support of the 23.6% Fibonacci retracement of the 125.28/116.46 sell-off at 118.54. The first real test of a corrective outlook that has been forming across the past 6 days is now underway. The near term resistance comes in at 119.60 and this could be important for the near term outlook. The hourly momentum indicators have all unwound up to levels at which the sellers have tended to return in recent days and if the bulls can resist this pressure then a further retracement can further unwind to take on the resistance at 120.70. I feel that Dollar/Yen is still in the process of forming a new outlook and is full of uncertainty with how it is trading. Friday’s low at 118.72 is the near term support that is preventing a full retracement back to 116.46.
The way the momentum indicators are developing would suggest that the downside pressure is mounting for gold and that the bears are on the brink of regaining control. The Stochastics are in bearish configuration and the RSI and MACD lines are all close to a negative confirmation. The market is trading below all the moving averages and the pressure on the $1117.30 support is mounting (it was briefly breached on Friday). It certainly seems as though gold is building up the pressure on the support and a move below $1109.20 would confirm the bear control now to re-open the lows around $1080. The intraday hourly chart shows lower highs and lower lows with $5 of resistance now in place between $1135/$1130.
In the context of the huge volatility of recent weeks, Friday’s trading was in a remarkably restrained band of just over 3% (and this despite being a Non-farm Payrolls Friday). It is far too early to suggest that the market is beginning to settle down (China is trading again this week, so expect the volatility to ramp up once more). However the support of the low in place at $43.20 is growing now, coming around the 23.6% Fibonacci retracement of the big $61.50/$337.75 bear run at $43.36. The support grows even more on the intraday hourly chart as this is also around the 50% Fibonacci retracement of the $37.75/$49.33 rebound at $43.54. These Fibonacci retracement levels are taking on an important role now as the 23.6% retracement of $37.75/$49.33 at $46.60 is now being seen as a consolidation level near term. The hourly momentum is settling a bit into a range play, with resistance at $48.42 now preventing a retest of the range high $49.34.