Market sentiment is being thrown around once more and this time it is positive as oil has rallied again (at least in the near term) with risk appetite improving as a result. This came in the wake of supportive comments from the Kuwaiti OPEC governor suggested that there would be an agreement to freeze production levels in Doha, somewhat contradicting what the Saudis had said last week. With oil eventually moving higher (the reaction was by no means instantaneous) the move has seen traders once more trading out of safe havens and back into more riskier asset classes. Treasury yields have picked up and the gold price is off its highs of yesterday, whilst equities have reacted positively in Asia overnight and commodity currencies have found some support. Expect the markets to be thrown around by comments regarding the production freeze all the way up to the meeting date on 17th April.
So, despite a 1% decline on the S&P 500 yesterday, risk appetite in Asia has been broadly positive (the Nikkei was down 0.1% as the yen remains strong), whilst European markets are also positive at the open. In forex markets we see the dollar still outperforming sterling and the euro, whilst the yen advance has halted (at least for now). The commodity currencies are performing better though with the Aussie an Kiwi both stronger. Gold has just slide a couple of bucks, whilst the oil price is now well over 2% higher today.
There is little real driving economic data to look out for today and traders’ attention will again be on the Fed. The meeting minutes from the latest FOMC decision are released at 1900GMT and traders will look for signs of why the Fed was so dovish. There are also a couple of Fed speakers today who could also rock the boat with Loretta Mester and James Bullard who are both voting FOMC members set to talk. The EIA crude oil inventories are at 1530GMT and are expected to show another build of 3.3m barrels.
Chart of the Day – EUR/GBP
Since bottoming against sterling in November, the euro has been busy building a recovery and periods of consolidation have consistently broken to the upside as the rally has continued. The recent consolidation played out as a near classic consolidation rectangle prior to a bullish upside break. The breakout above £0.7930 has opened the next bull leg higher. Friday’s closing breakout completed the move and there was a minor pullback to reaffirm the bulls in control with the support found at £0.7955. This now means we can take the range depth from £0.7690 and project it higher from the breakout which gives an implied target of £0.8170. Momentum, indicators are strong across the board but perhaps with the RSI pushing into the high 60s, perhaps looking to buy into a correction is an idea. The support now in the band £0.7930/£0.7955 would be an ideal “buy zone”. The pair is now up at levels not seen since November 2014, with initial resistance at £0.8065, whilst the next resistance beyond there is £0.8150. The intraday hourly chart shows there is a band of support initially at £0.8000/£0.8020 to also possibly look at. The support at £0.7830 is now key for the continuation of the rally.
The candles posted over the past three days reflect a tight battle for control. Very small bodies (the difference between the open and the close) but with little real direction. The chart does show that the rally of the past week or so has rolled over having shown a first negative close in seven sessions, however the bulls are still fighting to hang on. Despite this though there is still a feeling that there is a near term top in place at $1.1437 (underneath the long term range resistance at $1.1465) and there will be a near term corrective move. The momentum indicators show limited upside potential (RSI again rolling over around 70) with the prospect of near term sell signals (specifically on the Stochastics with a crossover). I spoke yesterday about the intraday low at $1.1332 and this support is still intact, with yesterday’s low at $1.1334 adding to the support. This becomes an increasingly important near term support, with a breach completing a small top and implying around 100 pips of downside. There is additional resistance at $1.1410.
The technicals on Cable continue to point towards a test of the key medium term support at $1.4050. The attempted rally from Friday’s bearish Non-farm Payrolls candle was quickly snuffed out yesterday by a decline which closed below Friday’s low and continues the negative drift. Rallies continues to be seen as a chance to sell with this move. However, as yet, there is still no significantly bearish momentum, with the RSI and the MACD lines still fairly neutral, although the sensitive Stochastics are in corrective configuration. This suggests that whilst a test of $1.4050 is still likely, there is no huge bearish momentum pulling the pair lower. There is a downtrend that has formed in the past week on the intraday hourly chart and this comes in around $1.4250 currently, so as the near term momentum unwinds look to use this as a chance to sell. The initial resistance at $1.4170 is already holding back a rally, with further resistance between $1.4190/$1.4240.
The bears achieved two significant breakdowns yesterday, a close below 111 and another new multi-month intraday low. This all signals the completion of the breakdown of the consolidation range and implies a move back towards 107.15 in the coming weeks. It is important to bear in mind that these moves are rarely straight line moves and despite the fact that there is further downside potential in the RSI move, there is the potential for a pull back rally which may prove to be a better near term entry point. The intraday hourly chart shows a series of lower highs has left resistance at 110.77, 111.35 and 111.80. The hourly RSI shows that unwinding moves back towards 45/50 are a chance to sell.
In the past few weeks, the gold bulls have consistently failed to maintain any traction in the recovery. The strong bull candles have been consistently followed by corrective moves. So we look at yesterday’s big positive candle up to the resistance of the downtrend channel and see if this time will be any different. So far the reaction overnight has been for a slight negative drift which appears to be continuing the recent trend of selling into strength. The daily momentum indicators could though be at their inflection points with the MACD lines unwound back to neutral and the Stochastics showing possible signs of bottoming. This is an interesting one to watch therefore. Looking on the hourly chart it is interesting that the pivot at $1225 is playing an important near term role, recently acting as the basis of support. If this support can hold then perhaps the bulls can get a foothold in a recovery. A failure of $1225 would though continue the trend lower and suggest another retest of $1208 support. Key near term resistance remains $1242.90.
After the selling pressure of recent days the oil price has started to find some support, but the big question is whether this support is meaningful and sustainable. The small positive close last night (aided by positive comments from Kuwait over the prospects of an agreed production freeze at the Doha meeting) has been followed by additional gains this morning. This in itself is not enough to abort the corrective forces in this chart, as the first lower high at $37.20 is still intact. Although near term indicators are far more positive, there needs to be a sustained improvement to prevent this from being seen as a chance to sell. The key resistance to overcome is at $38.15 which is the neckline from the small top. There is now support in place at $35.25.