Last updated: May 3rd, 2017 at 09:58 pm
In the wake of the Fed’s decision to hold fire on interest rates the general market reaction has been one of concern. The concern has been over the fact that fears over global growth are now preventing normalisation of monetary policy. This is not a good environment to be bullish of risk or equity markets. This has played out in the weakness into the close on Wall Street on Friday and Asian markets have followed suit today (with the exception of China), as the Nikkei 225 has fallen another 2%. European indices are mixed in early trading today. The Greek election has passed without any real destabilizing result, with Syriza again the leading party bulked up by a coalition of the Independent Greeks. This means that Alexis Tsipras can continue as Prime Minister and try to enact the austerity measures necessary for the disbursement of the €85bn third bailout package. As yet there has been no major reaction to the Greek election result as traders continue to focus on concerns over global growth.
In forex markets there has been little reaction as yet on the euro to the Greek election result, however it would appear that the commodity currencies as beginning to lose ground once more against the dollar. There is little movement as yet on the precious metals as the gold price hangs on to the gains of the past few days, however the oil price has bounced slightly in early trading.
There is little on the agenda for European economic announcements so we need to wait until 1500BST and the US Existing Home Sales which are expected to drop slightly to 5.51m (from 5.59m last month.
Commodity currencies have fared much better in the past few days and have also been boosted by the Fed’s decision not to hike interest rates, however for the Kiwi, for now this remains a counter-trend move that will still likely be sold into. Taking the technicals on their merit, nothing has been seen that changes the view that consolidations continue to be sold into and minor rallies are used as a chance to unwind oversold momentum. The latest key resistance to watch for comes in at $0.6500 and even the intraday spikes have been unable to make much headway. Peaking at $0.6455 on Friday the European session take over today with a weak handover. The daily RSI looks to be struggling again as it unwinds back towards 50. There is though a closing resistance at $0.6395 that if the bulls can manage to breach then it would mark progress. The hourly intraday chart shows that the sellers have retraced almost all of the Fed inspired move now and if the pressure continues to the downside then a test of the $0.6308 low could be seen which would be bearish again if it were to be breached. The resolve of this minor recovery is being seriously questioned.
The euro has had some choppy trading in the last few sessions and interestingly, as the European session takes over on Monday morning, the pair sits around levels that were seen just prior to the FOMC announcement. So in effect very little has actually been achieved in that time, where a strong bull candle has been followed by a strong bear reaction. The support has started to form again though and $1.1260 will be seen as a marker now, seeing as it was the reaction low of the retracement. This comes above the key near term support that has strengthened at $1.1215. Despite the retracement there is a slight bullish bias to the outlook, with momentum indicators on the positive side of neutral and whilst the support at $1.1215 remains intact the bulls will still remain fairly positive that the range high could be tested again at $1.1465. The market is clearly looking to settle still but for now I am favouring a move to test the near term resistance that comes in around $1.1370 and towards $1.1415.
Friday’s session has left a bearish piercing line candlestick pattern (a negative pattern that retraces a large bull move) which has stopped the bulls in their tracks and questions the bullish outlook for Cable. This is not a disastrous candle and certainly if Thursday’s low at $1.5485 can remain intact then the bulls will still feel confident. In the past couple of weeks, Cable has been consistently bought on weakness and as yet I see no reason why this will not continue for further gains in the recovery. The reaction today has so far been fairly indecisive, but the hourly chart momentum is still with a slightly bullish bias and initial support of Friday’s correction is holding at $1.5510. The positive outlook will remain whilst trading continues above $1.5485 with the key near to medium term support still at $1.5330. Resistance is at Friday’s high of $1.5670.
I have spoken recently about the fact that trading Dollar/Yen for any length of time that is more than a day is a difficult task. There have been a series of indecisive candles characterised by small bodies and long shadows. This series continued on Friday with a “long legged doji” which is a highly indecisive candle with an volatile intraday move. There is a very slight bearish bias to the pair over the past week but unless trading is on a short term time frame, it is difficult to make much headway. The momentum indicators are configured to slightly favour short positions but there is still a real lack of decisiveness to the outlook. The intraday hourly chart shows 120.40 is a near term band of resistance now, but there has been a slight element of support that has come in as the European session has got going, around 119.70 and if this can be held then the buls will start to gain a bit of confidence. A breach would re-open the low at 119.03. We still await some proper direction.
Within the context of what I see as a bear market rally, this is now entering the time at which the net sell signal could begin to form. The 3 day rally (helped by the FOMC on Thursday) has driven the gold price rally, however the big downtrend comes in at $1150 today and thus far the resistance at $1147.20 is intact. Momentum indicators on the daily chart are mixed to slightly positive and are reflecting the rebound without looking extensively bullish. The hourly chart is interesting though as the bull target from the bullish falling wedge pattern has now been achieved at $1141, a level at which there is starting to be an element of consolidation. If this consolidation begins to set in the bulls may look upon the recent rally and start to eye it as a chance to take profits. The support levels to watch out for are initially at $1133 and then at $1127, with the latter being Friday’s reaction low. Breaking the sequence of higher lows would likely trigger the selling pressure once more. However in the meantime the bulls still have control, but for how long?
After initially consolidating in the wake of the Fed announcement, WTI has started to fall sharply again. A big bearish candle on Friday has turned the outlook negative within the range once more and the key support at $43.20 could now come back into play quickly. Daily momentum indicators are fairly neutral still though and for now I am calling this a range play and should be traded as such. The near term breach of support at $46.40 becomes new resistance and intraday rallies should now be seen as chance to sell for a move towards the lows at $43.20 again. Volatility looks to be ramping up once more if the price movement on Friday is anything to go by so, be careful when setting stops in trading environments such as these. There is a lower reaction high at $47.03 which comes under the $47.70 resistance in the wake of the Fed announcement. I am looking to use the early rebound as a chance to sell towards the range lows.
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