It is amazing what the prospect of continued loose monetary policy can do for markets. The improvement in trading sentiment continues and another strong close on Wall Street suggests that traders are increasingly positive once more. I asked the question yesterday of how long this would last for and I remain sceptical at present, but for now we must go with the wave of sentiment. One indicator to watch which I continue to see as a gauge is the US 10 year Treasury yield. The yield unwound all of the Non-farm Payrolls related decline yesterday but as things stand still remains in a bearish trend, so is still a warning signal. Whilst forex markets continue to consolidate the equity markets have been gaining amid the improvement in sentiment, but with an early stalling today this could still change again. Wall Street closed higher again with the S&P 500 up 1.8%, whilst Asian markets again followed suit. Perhaps the China national holiday is helping, but also sentiment will have been supported by the finalising of the Trans Pacific Partnership trade deal which according to some estimates could have global annual benefits of $295bn by 2025 (although this still needs to be ratified by Congress). European markets are a touch pensive this morning first up.
In fore trading there is a relatively calm handover from Asian trading at the moment. Most majors are broadly flat against the dollar so far, but the notable mover is a 0.4% gain on the Aussie. This perhaps is a touch surprising as although the Reserve Bank of Australia held rates steady at 2.0%, it maintained an accommodative rhetoric and there is an expectation of another rate cut of 25 basis points by the year end. In commodities, the gold price continues to consolidate, with silver also supported. The oil price is trading just above flat as well today.
On the data front there is not much to be worked up about. At 0815BST there is the announcement of the Swiss CPI which is expected to remain firmly in deflation at -1.4% on the year on year basis. The at 1330BST the US trade balance is expected to worsen to -$47.4bn from -$41.9bn last month which could put the dollar under some pressure.
Chart of the Day – DAX Xetra
There has been a notable improvement in the technical outlook after a 2.7% rally yesterday, a move that has been held by a broadly flat open today. However, with this move there has been a confirmation of a buy signal on the Stochastics, the RSI has moved to an 8 week high and a downtrend dating back to early August has been broken. As ever when I talk about the DAX we must look at the Fibonacci retracements of the 8355/12390 rally which have so often acted as key turning points. The 76.4% Fib level at 9308 held up the sell-offs in August and now September so we must look at the 61.8% Fib retracement at 9897 as a key band of support. In truth though this is the beginning of 100 ticks of overhead resistance that needs to be breached after resistance was left at 10,000 during the sell-off. The improvement on the intraday indicators are clear but this move needs to be held because the rallies in the past three weeks have struggle to gain lasting traction before a correction is seen. The hourly chart shows the move above the resistance band 9745/9788 now needs to become supportive today otherwise a retreat back to fill the gap at 9560 could be seen. The bulls will be eyeing a sustainable move above 10,000 which would then open the next resistance at 10,336.
The volatility within the near term range is still fairly high, however as yet there has been no decisive breach in either direction. The pair has spent the past two sessions flying higher and lower as a battle for near term control has continued. However the daily candle yesterday shows the bears with more of a handle on the current outlook. There is still no real signal to be taken from a neutral set of daily momentum indicators but with yesterday’s move back below the near term pivot at $1.1200 there is a slight bearish bias now and this could result in another test of the key support around $1.1100. I am still looking at the hourly RSI for signals of exhaustion within the range and it is currently not oversold so there is some potential for a drift lower intraday today. I am not though expecting any downside break and with several higher lows between $1.1100 and $1.1150 should provide ample support. Continue to play the range.
The Cable bulls have been held up in their recovery and if yesterday’s bearish close is anything to go by they are going to have to fight hard if this recovery is to gain any real traction. For me, a move above $1.5240 by a couple of ticks does not constitute a completed base (and certainly not confirmed), so for now this has to remain a consolidation. However we still have the bottoming of both RSI and Stochastics to be positive about. However, looking at the intraday hourly chart, quite simply the overnight low at $1.5135 now has to remain intact otherwise the bears will gain control and there will be a retreat back to test $1.5105 again. This is a consolidation on a knife edge now. A breach of $1.5105 opens $1.5088 but more than likely there would be a retreat to the historic pivot at $1.5000. The bulls still need to decisively breach the resistance around $1.5240 which has been bolstered by failed tests in the past couple of days.
The first solid body candle in over a week has provided a hint of direction but there is still little real suggestion that this will result in any decisive move. A daily close gain of almost 50 pips is a decent if unspectacular move, but when you are starved of any direction it becomes tempting to talk up any signal you get. This is where it becomes difficult, searching for a signal that perhaps is not there. The daily momentum indicators have ticked mildly higher but again this is nothing to really play with conviction. Turning to the hourly chart, once more a suggestion that it is possible to play the near term extremes on the hourly RSI. Yesterday’s rally took the RSI to 70 at which point consolidation has set in, whilst the hourly MACD and Stochastics indictors have also turned lower. By convention this should result in Dollar/Yen moving back to trade around 120.00 once more. The range resistance is 121.25 with support taken between 118.65/119.00. Continue to play the near term range.
The spike higher from the Non-farm Payrolls report has now entered into a consolidation phase. A “spinning top” candle is an indecisive candle but also shows that the rebound in gold is being questioned. A close higher after such a strong move would have been a bullish indication and would have meant that I would have perhaps needed to question my ongoing strategy of selling into strength. However having found resistance around $1141.50 (yesterday’s high was at $1141.80) which is around an old resistance level, I see this as a good chance to sell. The big long term downtrend comes in around $1150 and if there were to be another day where the bulls cannot control the price move I find it difficult to see too much more upside before the selling pressure kicks in. Initial support comes with yesterday’s low at $1129.60, with the old support around $1121 also relevant. Key medium term resistance is now at $1156.30.
The oil price has rallied once more, however the interesting aspect of this move is that the very slight bearish bias within the trading range that has been in place for the past 5 weeks now seems to be turning more neutral. I have been concerned by the gradual downside pressure that had been building on $43.20 but that pressure has been relieved after the rally since Friday which now seems to have breached a shallow downtrend. There has also been a notable uptick in the Stochastics which had been falling consistently for the past few weeks has now started to turn higher. The daily chart shows the 38.2% Fibonacci retracement of $61.50/$37.75 in at $46.80 is the immediate resistance now, whilst the initial price resistance is still in at $47.15 prior to $47.70. The intraday hourly chart shows that this is now a range play that can be traded by looking for signals around the extreme levels on the hourly RSI. The key highs have all recently come with the hourly RSI around 70, whilst the key lows have been seen around 30. The initial support comes in around $45.70.