After some minor trading anomalies over the thin volumes of the Christmas trading period, it will be interesting to see how markets react as trading desks begin to get back to normality today. The dollar spiked around over Christmas, but most notably it was weaker against the euro, and despite a minor recovery yesterday, the greenback is looking a touch weary again today. Perhaps this is a bit of a New Year hangover following such a strong final few weeks in November and December. The movement on Treasury yields will continue to be a key driver of sentiment on the dollar and their direction is again likely to be key today, with the two year lower and the ten year higher in early moves. Mild dollar weakness is showing through in the early morning trading and is impacting across the forex majors (apart from against the yen) and helping to support commodity prices. The general market appetite for risk seems to be positive to start the year, after the China Caixin Manufacturing PMI was higher than expected. Equities are positive in early moves too, with the European markets trading higher.
The first trading day of the New Year will be dominated by the announcement of the PMIs. The UK Manufacturing PMI is at 0930GMT which is expected to stay around where it was last month with 53.3 (last month was 53.4). The US ISM Manufacturing is at 1500GMT and is expected to improve slightly from last month to 53.7 (last month was 53.20). German inflation will also be watched to give an indication of Eurozone inflation tomorrow, with the German CPI at 1300GMT and expected to pick up t +1.5% for the year on year read (last +0.8%).
Chart of the Day – AUD/USD
Having broken below the key support at $0.7300 in December the next key support is now under threat as 2017 has kicked off. The last few trading days of 2016 had the US dollar seeing some corrective pressure. However the strength of the bear candle on the first trading day of 2017 has put the pressure back on the crucial support of the $0.7145 May 2016 low despite a rebound today. The momentum indicators are solidly in bearish configuration. A successful breach of the support would open $0.6970 which is the February low but there is little real reason not to expect a full retracement to the critical multi-year January 2016 low at $0.6825. The intraday hourly chart shows that the market is ranging in the past few days but rallies continue to be sold into and that there is a near term area that the bear will be targeting today for the next chance to sell between $0.7230/$0.7250 for renewed pressure on $0.7145. A move back above $0.7280 would improve the outlook for a recovery.
Trading is still settling down after the spike higher over the thin volume volatile period between Christmas and the New Year in which the price spiked higher briefly to $1.0650 before quickly retracing again. A bear candle yesterday has looked to even out the move but the market has pushed slightly higher once more today. Until the market is back to full capacity during today’s trading it will be difficult to really trust any move and the outlook is somewhat neutral around the old key breakdown of $1.0456. The hourly chart shows the market is broadly neutral with a slightly negative bias. Support is at $1.0445 and then $1.0370. The bulls will be looking to form more of a positive outlook on a move and hold above $1.0500. We will know a lot more after the first really full trading day of the year today.
As the market started to trade consistently below the support band $1.2300/$1.2330 during late December, the outlook became more corrective within the range between $1.2080/$1.2775. Despite a minor rally during the thin trading between Christmas and New Year, the bears remain in control and there is a negative bias for the slide back towards $1.2080. The momentum indicators have begun to slightly unwind and there is an argument for a potential positive signal on the Stochastics but this would only be a trigger that can be taken with any credence if accompanied by a price breakout back above $1.2387 this week. However, for now, the rallies are being seen as a chance to sell for a move back to test the recent $1.2197 low and then the bottom of the range. The hourly chart shows ranging near term configuration but with the resistance at $1.2350 and $1.2387.
The consolidation that became a feature of much of the final two weeks of December is broadly continuing. One of the key features of the trading in the past couple of weeks has been that one more the market has dropped back to find support at the previous breakout of 116.12. The bounce came at 116.02 but this is enough to suggest that once more the bulls are happy to buy into the corrections. The momentum indicators may be unwinding but this is coming with the market in consolidation mode and looks simply to be unwinding overbought momentum with the RSI holding above 60. with the thin volumes during the Christmas trading. The market is marginally dollar corrective today at the moment but unless there is a close below 116.12 then the bulls will remain confident that the trend will continue higher to test 118.65 again. The hourly chart shows 117.80 is initial resistance with 116.40 supportive.
After weeks of selling pressure the gold price has managed to claw back some of the losses over the past week. However, there will always be some scepticism with recovery gains over the thinly traded period between Christmas and New Year, so the bulls really need to hit the ground running today as markets begin to get back towards full capacity. The early move is positive and the bulls will be eying last week’s high at $1163. However, the consistent drag lower that was seen over the past 8 weeks of decline means that this rebound is still simply a bear market rally and will be just that for a while yet. The initial resistance is the old 61.8% Fibonacci retracement of $1047/$1375 at $1172 and this will be seen as a natural barrier. The RSI is also approaching 50 again. If the bulls can maintain the late momentum of December then the rebound could continue near term but I will still be on the lookout for the next sell signal.
The bulls remain in control moving into the first trading day of the year. The temptation to take profits on the year end trading never really took hold as the oil price has been trading sideways in the past three sessions above $53.40 support, with the hourly chart supported above the rising 144 hour moving average (currently c. $53.40). Corrections continue to be bought into and momentum indicators remain bullishly configured, with the daily chart showing the RSI unwinding to find support around 55 in the past few weeks. The real move higher came above the resistance band $52.00/$52.40 and this is the basis of support that will be watched as important in the coming days. There is still an upside bias for pressure on $54.50 which was the December high, whilst a breakout would open the next trading range resistance between $56.50/$62.50.