The dollar managed to unwind some of its losses yesterday as strong factory orders helped to drive a recovery. However, over the past weeks the corrective outlook for the dollar has been building and it will be interesting to see if this is anything more than a rally within the corrective pressure. The trade weighted dollar index completed a top below 100.65 and the move has merely unwound back to that neckline which is now an area of resistance. The yields on US Treasuries have been consolidating and are now longer advancing for now as the market is clearly pondering just how far the dollar has come in such a short space of time. The euro gave back some of the ground that it made following the Italian referendum, however it is beginning to consolidate today as traders look towards the uncertainty of the ECB monetary policy meeting on Thursday. This is a meeting where we expect the ECB to extend the easing program by at least 6 months, but could also begin to signal a potential tapering of these asset purchases too, and so volatility is likely to be elevated.
Wall Street closed higher again last night with the S&P 500 +0.3% at 2212, whilst Asian markets were broadly higher (Nikkei +0.7%). European markets rallied into the close last night and are showing good gains today. It will be interesting to see if the DAX can finally break the shackles of the resistance band 10,800/10,827 that has held it back for the past four months. In forex markets the dollar has remained positive with sterling and the yen both weaker, however it is interesting to see the euro consolidating. The Aussie is the underperformer again today as Q3 growth unexpectedly fell into contraction to -0.5%. Gold and silver are both mildly lower, whilst oil has started to drop back after news of record supply from Russia and OPEC despite the recent agreement to cut production in January 2017.
Traders will be watching for UK Industrial Production at 0930GMT which is expected to pick up by +0.2% for the month (last month having dipped by -0.4%), and for the year on year reading to improve to +0.5%. The Bank of Canada monetary policy is at 1500GMT although it is expected to stand pat on rates at +0.5%. The US JOLTS jobs openings are at 1500GMT and are expected to improve marginally to 5.50m (up from 5.49m). The EIA oil inventories are at 1530GMT and crude stocks are expected to show another drawdown of -1.5m barrels (-0.9m barrels last week) and will always tend to be volatile for the oil price.
Chart of the Day – Silver
Gold and silver will tend not to move independently of one another for too long. That is why it is interesting that the technical indicators on silver have picked up in recent days, whilst the gold price is still languishing. Whilst gold has been posting a series of lower highs and lower lows in a downtrend (see below), silver has been building support. This support is coming as the momentum indicators have been looking to lead the price higher. Special focus on the improvement on the Stochastics, but there has also now been a MACD lines crossover (similar to the one in October just prior to the last technical rally). It was interesting to see that Monday’s move above the near term neckline resistance at $16.89 failed to achieve the closing breakout which would complete the pattern and imply $0.75 of recovery to $17.64. Yesterday’s mild negative candle was a disappointment for the bulls and if the market falls away again today the recovery will begin to come under pressure again. The hourly chart shows that Mondays low at $16.48 is important for the near term outlook and will be watched as the hourly momentum indicators drift lower. The initial resistance is $16.88 under $16.98.
The rally on the euro has just tailed off slightly as some of the sharp gains of Monday have unwound. However the positive near to medium term outlook remains in place following the completed base pattern above $1.0685. The corrective bear candle yesterday saw the market drop back by 45 pips towards the neckline support of the breakout and this will be seen as a near term barometer, with a band of support $1.0685/$1.0710. The daily momentum indicators remain positively configured with the Stochastics rising and the MACD lines having crossed higher. The bulls may be a touch cautious with the RSI which has just stumbled at 50, however for now this is not too much of a concern. After yesterday’s negative candle it is important that today is not bearish again as the impetus in the rally may be lost. The hourly chart shows momentum has unwound. A move below $1.0685 would be disappointing with below $1.0660 changing the near term outlook more negative again. Resistance is at $1.0785/95.
After the run of positive candles in the past week, the negative candle posted yesterday should not in itself be of major concern. However if the move continues lower today, then the bulls may start to be concerned of a continued correction. The momentum indicators have been more positive in recent days but the Stochastics are threatening a corrective signal now. Yesterday’s trading lost around 50 pips and the indication from the early Asian session is that the slide may continue and the bulls have just lost their way for the time being. The hourly chart shows that the market needs to hold up above the support at $1.2623 which was Monday’s low. Watch for the hourly RSI dropping consistently below 30 as a potential signal of further weakness. A move below $1.2623 would open the pivot at $1.2557. Resistance is now at $1.2775 which is just under all the overhead supply at $1.2800.
The dollar bulls are hanging on and are looking to try and wrestle control back again. A second positive candle was completed yesterday and although it was marginal gains on the day, the move has continued to drift higher again today and is looking to put pressure on the key 114.82 resistance again. The momentum indicators retain their positive configuration but have yet to shed their negative divergences. The hourly chart shows the market has been finding support back above the near term pivot at 113.90 overnight and this gives it a bullish bias within this range 112.85/114.82. However, hourly momentum is not excessively positive and really suggests that this is still a range play for now. The trend is still your friend on Dollar/Yen but I remain cautiously bullish due to the divergence on momentum. Above 114.82 opens 115.95.
The struggle that the gold bulls are facing continues to be a drag on the price. The consolidation around the $1170 closing level seems to be ready for the next move lower as the market stays to pull lower again. The trends are all negative whilst the momentum indicators are configured to suggest that rallies remain a chance to sell. The Stochastics have been edging higher in the past few days but there has been a sense that this is not the formation of a buy signal, more that the bears are likely to see any bounce as a selling opportunity. Pressure on Monday’s low at $1157 remains likely and with the market beginning to trade clear of the 61.8% Fibonacci retracement of $1047/$1375 (at $1172) the way will be open towards 76.4% Fibonacci retracement at $1125. Resistance is $1175 and $1187 under the huge overhead supply at $1200.
The bull run has rolled over and after four consecutive bull candles a more bearish candle formed yesterday to open a corrective move. However this is an understandable move after such a big move higher and the market will now be eying the next levels to look for a chance to buy again. The daily momentum indicators are positively configured but have just ticked lower into a bit of a correction mode. The key breakout levels between $48.75/$49.20 will now be eyed as a zone of support and the bulls would be ideally looking to support there or above for the next bull signal. The hourly chart shows the rolling over of the rally and the formation of a small head and shoulders top pattern below $50.90 which implies $49.40. The neckline at $50.90 has already been seen as resistance and will be important for the near term outlook. The initial support is $50.18 and will be seen as important today. I will be looking to use this correction as a chance to buy for a retest of the range highs in due course at $51.93/$52.42.