We begin a big week for financial markets on a very quiet note, with traders appearing reluctant to take a view ahead of a raft of major central bank decisions and tier one economic data. There has been an increasing sense of consolidation that has taken over major markets in recent days. The ECB monetary policy decision last week had threatened to provide some direction, with renewed euro under performance and a stronger dollar, but this seems to have been limited. Any continuation of that move has been put on ice for the time being as traders look ahead to some far more pivotal announcements this week. There was also very little decisive reaction to the strong US growth data on Friday, with traders seemingly less willing to take a view ahead of decisions from the Bank of Japan (tomorrow) and the Federal Reserve (on Wednesday). There is a degree of negative sentiment coming through on equity markets this morning, as a trend of US tech earnings disappointments grows, but the central bank decisions are likely to drive the significant market moves in the coming days.
On Wall Street, there was a negative reaction to US corporate results, as markets fell on Intel and Twitter disappointments. The S&P 500 fell -0.6% to 2819 and with futures currently around -0.3% lower again, Asian markets have struggled overnight (Nikkei -0.7% and European indices are also lower in early moves. In forex, there is very little direction to speak of amidst the consolidation. In commodities, gold is slightly weaker and oil is consolidating after Friday’s slip back.
An incredible week of tier one economic data kicks off on a remarkably quiet note, with only US Pending Home Sales at 1500BST of any note on the calendar. Pending sales are expected to grow by +0.4% on the month.
Chart of the Day – GBP/JPY
With both central banks potentially about to announce interesting shifts in monetary policy this week, where do the technical on Sterling/Yen sit? Having broken down below 146.65 the market remains negatively configured, with rallies being sold into. This is reflected in a couple of bear candles that ended last week and an intraday move below 145.45 to a new four week low. Momentum indicators reiterate this negative configuration with the MACD lines beginning to find traction lower, as the Stochastics and RSI are both in decline. During the negative phases, the RSI has tended to move into the 30/35 region suggesting that around 40 there is still further downside potential I this current move. The next support is the 143.75 June low. Rallies are a chance to sell, with today’s early pop higher perhaps ready to give another opportunity. Resistance remains with the neckline at 146.65 with the hourly chart showing 145.75/146.20 is a near term sell zone for an intraday rally.
The technical consolidation that has been ongoing throughout the past few weeks maintains a neutral outlook on EUR/USD. In the wake of the ECB last Thursday, there looked to be the prospect of some direction forming, but there was a degree of stabilisation with Friday’s mild positive candle and the sellers could not breakaway. Although there is a very slight negative bias, with the Stochastics having swung lower, there is still a consolidation within the converging trendlines, whilst the RSI remains in its 45/55 tight band of several weeks. The trendline support is at $1.1595 today whilst the reaction low to watch is $1.1570. The upper trendline is $1.1730, with key near term resistance at $1.1740/$1.1755. The market is awaiting a catalyst which may come from the major central banks this week, but for now we wait.
The market continues to trade with a negative bias within a downtrend channel, where rallies are seen as a chance to sell. Although the market consolidated in a very tight range candle on Friday (just 50 pips) and the lack of direction continues today, the technical outlook remains negative following the bearish engulfing candle of Thursday which left resistance at $1.3215. A close below support at $1.3070 would open the downside once more, with a likely retest of $1.3000 and the key low at $1.2955 likely to be tested again. Daily momentum remains negatively configured, with the Stochastics rolling over again and sterling looks primed for another downside leg. The hourly chart broadly reflects all of this, but for now the market is consolidating in front of both central banks being set to announce monetary policy in the coming days. Initial resistance at $1.3130.
The bull hammer candlestick that saved the bulls from a broken four month uptrend remains a key support at 110.60, however the buying pressure remains stunted as another mildly negative candle was formed on Friday and there is almost no direction today. This is though understandable, given that both central banks are set to announce monetary policy in the next two days. With the market on the brink with the uptrend again (which comes in today around 111.00), momentum indicators are also on the brink. The RSI is at 48 (where 45 has been a key floor for several months), whilst the Stochastics look to be plateauing around 20 again (where the key lows of May and March came in). However for several days, the old breakouts 111.15/111.40 have been a barrier to gains. This lack of direction is reflected on the hourly chart where indicators are almost entirely neutral again. We await a catalyst which is sure to come from the BoJ or the FOMC.
The momentum of the recovery from the $1211 low appears to have given way as the downtrend channel seems set to drag the market lower once more. The overhead supply of the old key support at $1236 has prevented the recovery from taking off, and now the negative momentum of Thursday’s bear candle is weighing on the market within the trend channel. Daily momentum indicators remain negatively configured with the RSI stuck below 40 and the sensitive Stochastics swinging lower again. A breach of $1218 in Friday’s session suggests the market is creaking lower for a retest of $1211, whilst the $1204 July 2017 low is well within range. Direction is likely to come from the central banks in the next few days, so it may be a touch quiet again today. Initial resistance is Friday’s high of $1223.
After a calm drift higher, the market lost some momentum on Friday as a negative candle formed. With a high left around $69.90 there is still seemingly regard being given to the pivot around $69.50, whilst the psychological $70 level could also be a factor in preventing the recovery continuing. This recent calming of the daily moves is resulting in the momentum indicators becoming increasingly neutralised again, however, should another negative candle form today this runs the risk of $69.90 being another lower high. It would also increase the importance of the resistance at $71.10 whilst also bringing the key medium term pivot at $67 back into play. A close above $70 would now be needed to regenerate recovery momentum.
Dow Jones Industrial Average
After a big few sessions of gains, Friday’s mildly corrective candle on the Dow is not a disaster for the bulls, and could actually provide another opportunity to buy. The bulls remain in control as the four week uptrend runs around 25,300 today and the support band 25,367/25,400 (of the Fib level and old key highs) remain a basis for the bulls to now work from. Finding a low at 25,370 on Friday (almost bang on the Fib level) before an intraday rebound, is also reflective of a positive market. Momentum indicators remain strongly configured for buying into weakness with the MACD lines still pulling decisively higher and the RSI into the high 60s. Plenty of reason to believe that the bulls are not done quite yet. The initial resistance of 25,587 should not be too troublesome and the February high of 25,800 and 76.4% Fib level at 24,845 should be realistic targets.
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