Market sentiment looks to have stabilized a touch in the past 24 hours. Treasury yields have popped higher, whilst the dollar has clawed back some ground, demand for safe haven plays (such as gold and the yen) has dipped and equity markets have formed some support. This mood looks set to continue today as an air of consolidation has drifted through the markets. How long this will last is the question though. Looking past today’s trading the next big risk event is looming on the economic calendar, with China flash manufacturing PMI is a big black cloud that could rain down on the markets once more. Tomorrow morning we get the next big signal of the performance of the Chinese economy and this is a big one as it is a forward looking piece of data. With the Fed concerned about China the last thing the hawks (ie. dollar bulls, equity bulls) want is a weak manufacturing PMI.
Wall Street closed last night with a rather steady set of gains, as the S&P 500 ended the day 0.5% higher, which helped calm sentiment through the Asian session (Japan is closed until Wednesday). The European markets also remain relatively settled with mild early gains in the initial exchanges.
In forex markets the dollar is consolidating the strength it gained against the euro yesterday, whilst Cable is looking to test a key near term support again. The gold price which had been under pressure yesterday is broadly flat today. Traders will certainly be watching the oil price which has been a signal for sentiment on equities recently, and it has started on the back foot with losses of around 1%.
There are just a few minor data releases today with the UK public sector debt at 0930BST which is meant to be +£9.0bn. The Eurozone Consumer Sentiment is at 1500BST and is expected to dip slightly to -7.0 (from -6.8).
Chart of the Day – Silver
The breakout above $15.00 resistance has re-opened the old key resistance around $15.50 again, however the medium term outlook remains bearish and rallies continue to be seen as a chance to sell. Looking at the medium term configuration on the momentum indicators the timing could be close to the next high. The RSI is once more back at 60 (a level at which the sellers have tended to return), whilst the Stochastics are also rolling over. In the past couple of sessions the bull recovery has somewhat run out of steam with a weak bull candle on Friday and now a “doji” candle (denoting uncertainty with the prevailing trend) yesterday. There was also a failure to continue the sequence of higher highs yesterday. The hourly chart shows it as a consolidation but I think that the bears are circling and are ready to pounce. A breach of the support at $15.00 would now confirm for me that the recovery has failed. This would then open up at test of the initial support at $14.75 and then $14.25. The key overhead resistance remains around $15.50.
A second day of significant selling pressure on the euro has meant that the key near term support at $1.1215 has been breached. This meant that from the peak on early Friday morning, in two trading days the euro has lost over 250 pips. This is a big turnaround in the outlook and has resulted in the Stochastics crossing lower and with the price closing below $1.1215 the bulls have lost control (as this was a key reaction low within the two week euro bull run). The outlook is somewhat uncertain near term but with the momentum building to the downside again there is a real possibility of another test of the old key pivot band $1.1050/$1.1100 again. The intraday hourly chart has got negative momentum but is also towards oversold near term. There is now a resistance band $1.1215 (old support becomes new resistance) up towards $1.1260 so it will be interesting to see if any slight unwinding of momentum fails to breach this. A sell signal in this range would add to the downside pressure. The near term outlook would improve on a move above $1.1330.
This could be another interesting turning point for Cable. Within the rally that started on 7th September, there have been a couple of tests of the bulls’ resolve. However the support at $1.5330 came in to support excellently last week and now with two days of selling pressure there is another test for the bulls. The support at $1.5475 which was an old breakout within the recovery held yesterday almost to the pip and has remained intact overnight. The move has unwound the hourly momentum indicators on the hourly chart which have now started to settle down again as the price has consolidated. This is now a key moment in the recovery. The support at $1.5475 could also be argued to be a neckline of a top pattern now and a decisive breakdown would imply a retreat towards $1.5300. The bulls will be looking towards a test of the lower reaction high at $1.5566 today. This one is on a knife edge now.
The pair has failed to put together two consecutive decisive candles for at least two weeks as an indeterminate period of trading has played out. The strong bull candle yesterday needs to be followed up by a second otherwise once more the move and subsequent retracement that has characterised recent trading will just continue. The resistance at 121.00 will be eyed as the first key barrier today, however if trading in the Asian session is anything to go by then the omens for a run higher are not great. The daily momentum indicators continue to fluctuate around neutral. On the intraday chart, the hourly RSI is a decent near term indicator, but continues to suggest this will be a rangebound trade. If that is the case then looking to close longs or open new short positions with the hourly RSI around 70 (currently around 60). Until there is a decisive breach of 121.00 then it would be best to play the range. There is near term support at 120.20 with the next support at yesterday’s low of 119.70.
After three strong bullish candles in a row, which took gold within touching distance of the big downtrend, I was talking yesterday about the next medium term sell signal. A corrective candle has been seen and whilst this clearly questions the longevity of the rebound, I cannot say that this is the sell signal, yet. The daily momentum indicators have started to react slightly lower but nothing yet as a firm signal. The intraday chart shows that an upside target from a near term falling wedge has hit target whilst hourly momentum indicators have also pulled lower. I would watch out for the support at $1126.90 being tested as a breach would form a top pattern that would imply $1114.00. Furthermore, a second day trading consistently below the rebound high at $1139.90 would also begin to be a concern for the bulls. The main resistance though remains at $1147.20 with the big downtrend today coming in around $1149.
Technically, the chart is beginning to look all rather messy. The outlook on WTI Oil is subsequently all fairly indecisive and has a tendency to completely shift from one day to the next. The basic picture is that the support band at $43.20/$43.50 remains intact and whilst this is the case then there is little real bearish momentum that can be garnered from the chart. Once more the bulls came in just above the range lows to change the near term complexion with support forming at $44.25. However, just when we start to look back towards the upside again, it looks as though the outlook is once more being flipped. An overnight failure at $46.74 has subsequently resulted in a drifting back lower again. The hourly momentum indicators have turned negative with hourly MACD lines crossing lower and Stochastics falling too. I am also increasingly mindful of the ability to use the hourly RSI as a signal to play what is increasingly becoming a range trade. Looking to use the RSI moving towards 70 for a chance to take profits on long positions and/or looking for the next short trade; whilst using dips towards 30 to look to close short positions and/or open near term longs again. The near term resistance increases at $47.03 and $47.70 is key near term. A pivot level is forming within the range at $45.50.