The fact that Janet Yellen has felt the need to give rather an explicit message in a speech last night would suggest that perhaps it was felt that her FOMC press conference was a touch too dovish. “Most of my colleagues and I anticipate that it will likely be appropriate to raise the target range for the fed funds rate sometime this year.” Yellen’s comments seem to have settled a few nerves in the markets and calmed sentiment. The US dollar has subsequently rallied as financial markets now move to improve the probability of a December rate hike. This has helped to stabilize sentiment to a certain extent.
Wall Street closed lower with the S&P 500 off 0.3% however this was prior to Yellen’s speech, however the futures have picked up since. Asian markets have been mixed in response, however the Nikkei has finished strongly higher by 1.9%. The move in Japan is though being seen as a response to the core inflation data turning negative by -0.1% which is an indication that Shinzo Abe’s arrows may not be having the desired effect and there could now be calls for more monetary stimulus. European markets have opened strongly higher but the continued fallout from the Volkswagen emissions scandal continues to impact on volatility, especially for the DAX.
In forex markets, Yellen’s comments have changed the complexion of what had seemed to be a dollar correction and now we are seeing the dollar strengthening once more. The euro is especially under pressure as is the yen amid which is also being impacted by the Japanese dip back into deflation. If a weakening dollar helped to drive gold higher yesterday, there could be a reverse today and so far there has been the beginnings of a corrective move. The oil price has found support and is trading slightly higher.
Traders will be keen to see the final reading of Q2 GDP in the US, however the is not expected to be any revision to the 3.7% from the Prelim data. Perhaps then the Michigan Sentiment will be more of a steer on markets at 1500BST as it is a confidence indicator which is more forward looking. The final reading is expected to be revised higher from the flash data of 85.7 to 86.7.
For more than a month now the daily chart of Euro/Sterling has been in a sideways band. I have mentioned previously that The key resistance comes in at £0.7390 and this once more seems to have provided the ceiling after three days of gains. Yesterday there was another intraday test of £0.7390 but failing at £0.7410 the price closed back well below the resistance an once more the chance of a breakout has gone. Certainly, going on the RSI momentum, it does not look as though a breakout is likely to be forthcoming any time soon, as it is now starting to fail consistently around the 60 point. The intraday hourly chart shows the initial support at £0.7315 needs to be watched today and if this is breached then the sellers could return near term again. The deterioration in hourly momentum indicators would suggest that rallies are now being seen as a chance to sell near term. I would continue to play this range as the pair is likely to now start drifting lower once more with the support band £0.7195/£0.7235.
Having rallied clear of the big pivot level at $1.1100 the euro has once more started to unwind the dollar gains once more. The daily momentum indicators have picked up again and what looks like an increasing rangeplay above $1.1100 but below $1.1465 is taking shape. However the Janet Yellen speech has just pulled the bulls back a touch. The daily chart shows a closing price above the $1.1215 minor pivot level but the moment that Yellen gave her speech the pair fell back 60 pips. This has made the near term outlook a little mixed as the burgeoning rally has been flipped on its head once more. The Stochastics seem to have bottomed and reflect the range, whilst the RSI remains very neutral. Looking on the hourly intraday chart an old minor pivot at $1.1155 is being tested early today and a beach would once more re-open the $1.1100 medium term pivot which has been providing good support throughout the past few weeks. Initial resistance comes in at $1.1235 before the $1.1295 rebound high.
Cable seems to have remained under pressure and despite the general rally against the dollar yesterday, a doji candle is all that could be mustered. A doji is a neutral candle the suggests uncertainty with the prevailing trend, however the reaction to the Yellen speech has been for the dollar to resume strength and this is acting as a further pull on Cable lower. I spoke previously about the breakdown of the support at $1.5330 which was a key near term move as it opened the big range floor at $1.5170 and there is little in this chart that suggests this will not be seen. The Stochasics are corrective and the RSI is confirming the breaching of the $1.5330 old support. The big question is whether Cable has the downside momentum for a successful breach of $1.5170 and at this stage I am not so sure. The intraday hourly chart shows a shallowing downtrend and perhaps even a bull divergence in the hourly momentum, so maybe the sellers are running out of steam a touch. I think if the sterling bulls can repel any major selling pressure today as the Europeans react to the Yellen speech then I think there could be cause for looking for another low. Initial support is at 1.5200 and the bulls will be looking at yesterday’s reaction high at $1.5288.
The more I look at the daily chart of Dollar/Yen the more it ranges sideways. Yesterday is another classic case in point. With a daily range of over 110 pips it was quite an active day but once more there is a small head on the candle and back to basically flat. The intraday chart shows that just prior to the Yellen speech the initial support at 119.60 had been breached but a slightly hawkish lean in the speech has seen the dollar rally once more. If the Europeans run with this rally there could easily be a test of the initial resistance at 120.65 and then 121.00. Technically, once more the hourly RSI has given a great signal bang on 30 as a signal to play the range (ie. buying at 30, selling at 70) and this is pretty much the only technical way this chart can be played at the moment. Support at 119.20 protects the reaction low at 119.03.
Well the bulls really got hold of gold yesterday to drag the price higher. I have been talking about looking for the next sell signal between $1141/$1147 and around the big long term downtrend, but the rally has burst through that resistance. Has this materially changed the outlook. We shall have to see what the reaction of the European traders is to the Yellen speech will be today, but if the rally can continue then perhaps I will need to change my view. However, already there is a bit of a retracement underway. Also from a longer term perspective, the 144 day moving average which I still see as a good gauge for the longer term outlook (with gold still trending lower) , is still an overhead resistance, as is the August reaction high at $1168.40 The daily momentum indicators have picked up with this move, but the RSI is now around 60, at a point where the previous rallies (aside from the August rally) have tended to fall over in the past few months. I am therefore not going to chase this rally blindly as I still see bear forces at play for gold. The initial support is now the breakout level at $1141.50 today, a level that needs to remain intact for the momentum of this bull run to continue. The rally high from yesterday at $1156.30 is now resistance.
I am still happy to play the range on WTI, as the pressure on the key support at $43.20 has once again been held and a minor rebound has set in. However, the deterioration in the Stochastics is an amber warning light for sure, and if the RSI also starts to move lower, then the momentum signals will be really suggesting a problem for the bulls. The support at $43.20 is the key level to watch now and trading on an intraday basis is extremely difficult due to the sharp volatility that continues throughout the trading day. That is not to say that the support at $43.20 is certain to be breached (if it does then it would be a big sell signal for equity markets). The intraday hourly chart shows the 50% Fibonacci retracement of the $37.75/$49.33 rally remains supportive around $43.55 and has been tested on four separate occasions without yet being decisively breached. For now this remains a range play and the intraday hourly chart shows that moves towards 30 on the hourly RSI are being supported, for now. The rebound above the initial resistance at $45.15 needs to hold today to help the bulls now. A small head and shoulders reversal on the move above $45.10 suggests upside towards $46.50 could be seen if the bulls take control today.