Last updated: May 3rd, 2017 at 09:58 pm
Market sentiment has taken a shot in the arm overnight amid the prospect of fiscal action from the major governments in Asia in an attempt to revitalize their ailing economies. This has meant that Asian markets have been stronger across the board amidst a positive reaction to two factors. One being the strength of Wall Street into the close, with the S&P 500 up 2.5%. However, the second factor was due to these supportive measures from Japanese Prime Minister Shinzo Abe who has pledged to drop corporate tax rates by 3.3%. This has caused the Nikkei to jump almost 8% on the day. In China, the Shanghai market was also been lifted amid news that the Chinese government was also ready to use fiscal policy to help the apparent economic slowdown. European indices are subsequently strong at the open with an elevated sense of risk appetite sweeping across the markets. The sentiment has also been lifted as commodity prices have also picked up.
In forex markets there is an interesting split. The dollar is tending to be stronger as it claws back the recent losses against the euro and sterling, whilst the recovery against the yen also continues. However the commodity currencies are pulling stronger due to action across Asia, with the Aussie and the Kiwi especially impacted.
Traders have got an action packed economic calendar today, starting off with UK data. The UK industrial production is at 0930BST and is expected to dip slightly to 1.4% from 1.5% year on year. The UK trade balance is also at the same time and is expected to worsen slightly to £9.5bn (was £9.2bn). Then into the afternoon there are the US JOLTS job openings at 1500BST which are expected to improve again to 5.29m (from 5.25m). The Bank of Canada is set to give its monetary policy at 1500BST but is not expected to move rates from 0.5%. However this evening, at 2200BST the Reserve Bank of New Zealand is expected to cut rates by 25 basis points to 2.75% (from 3.0%).
Are we about to see another reversal and the continuation of the range? I spoke last week about the big resistance band that comes in at $0.7390 (and up towards £0.7480) and once more this has acted as a barrier to gains before the euro has begun to fall back again. Now, looking at the daily chart there is a top pattern forming, needing a close below £0.7240 to complete. The momentum indicators are suggesting the pressure is beginning to mount to the downside. The RSI has already fallen over and is signalling the top, whilst the MACD lines are now in the process of forming a crossover sell signal. There is also a slight sign of a bearish divergence on the Stochastics. A completed pattern would imply 150 pips of downside to £0.7090. The intraday hourly chart shows a deterioration in the outlook, with continued pressure this morning. There is resistance in the band £0.7270/£0.7300 which looks like a decent sell-zone now as rallies look a chance to sell. There is further resistance at £0.7330 with a move above £0.7360 aborting the bear control. Beyond £0.7240 there is little real support until £0.7150/£0.7170.
The euro bounced well off the top of the pivot band at $1.1100 but the move has not been overly decisive, and this gives me a few concerns that there is still an uncertainty about the move. There have been a few reasonably positive candles but nothing to suggest that the bulls are back in control. Now this morning in the Asian session the euro has come under some corrective pressure again and as things stand the gains from yesterday’s session have all been wiped out. The daily momentum indicators also reflect this uncertainty, with the RSI at 50 and the MACD lines drifting, whilst the Stochastics are actually showing a negative configuration. The hourly chart shows the move back this morning towards the initial support around $1.1150 and if this level is breached then it will reopen the pivot support once more. There would also arguably e a small double top completed to imply 70 pips of downside and a retest of the low last week at $1.1086. A move above $1.1220 is needed to abort a corrective move.
After two strong days the rebound is just beginning to stall a touch. However, technically the outlook remains positive for a further rebound, with the Stochastics now on the brink of confirming a buy signal. I am now happy to consider minor corrections as buying opportunities and this is what I will be on the lookout for today. The hourly chart shows the near term momentum is just starting to roll over a touch as it hs got into overbought territory but I would see the hourly RSI unwinding back towards 40/50 and the MACD lines unwinding back towards neutral as a time to look for buy signals. The support band initially comes in at $1.5330 and anything around here would probably be ideal. The bullish recovery outlook would start to come under pressure on a move below the reaction low at $1.5265. The resistance is in place from yesterday’s high at $1.5412 just under the overhead resistance at $1.5420 from the 7th August high. Subsequent resistance is at $1.5445 and $1.5510.
The dollar bulls are fighting back as the constant back and forth of the chart in the past few weeks continues. The bulls have now posted two strong days consecutively and are gunning for a third now. Daily momentum indicators are subsequently recovering to take on more of a neural configuration over the near to medium term. This is reflected in the hourly chart which has taken on the characteristics of a rangeplay. The moves over the past 36 hours have been rather volatile and the market moves have been very choppy. Once more the rally is back towards the resistance of the old range at 120.40 and the first significant high at 120.60. With the hourly RSI towards 70, if this is going to be a range play then this is the sort of area that will see another high in place. A move above this 120.40/120.60 resistance would though re-open the 121.70 high. The support at 119.60 is growing into an interesting pivot level within the range.
Consolidation has really set in over the past few days as a series of small tight ranges have formed. However, the bulls are still hanging on to the support around $1117 and despite the corrective configuration on the momentum indicators there is still a failure to breakdown. I am though still expecting a move to the downside, with the lower high in place at $1147 and the gold price trading below all the moving averages, I still see rallies as a chance to sell. The intraday hourly chart shows the consolidation simply unwinding any stretched momentum and with resistance in the overhead band $1125.50/$1131.85 I am looking for a sell signal once more. I expect further pressure on $1117 before a dip back towards $1109.10.
Taking a step back, in the context of how WTI has been trading recently (i.e. with continued intraday volatility), the price is settling into somewhat of a consolidation period. For the past 5 days, each daily close has been within just a 3% range. This is where if you were trading on a line chart you may wonder what all the fussy was about. However, during that time there has been some sharp intraday volatility with a traded range of over 13%. Still though the momentum indicators are beginning to calm down with the with the RSI around 50, and the MACD lines edging back towards neutral. The intraday chart shows the support is strengthening around the 50% Fibonacci retracement of the $37.75/$49.33 rebound at $43.54, whilst the 23.6% Fib level is once more a basis of resistance at $46.60. The price action is forming into something of a consolidation symmetrical triangle on the daily chart, so we will have to wait which way it is going to break.
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