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Are markets already positioning for the Fed?

Last updated: May 3rd, 2017 at 09:58 pm

Market Overview

Can it be that already the market is moving into “wait and see” mode in front of the Fed? With 5 trading days before the announcement of the FOMC’s decision on rates this would be a long run of consolidation. The Wall Street session had a far more settled look to it with gains of around half a percent on the S&P 500. Furthermore after a few days of sharp swings, the Asian markets were also relatively muted overnight with just a minor slide on the Nikkei 225 which closed 0.2% lower. US Treasury yields are also taking on a less volatile look to their daily ranges. The sentiment took a bit of an upturn into the close yesterday as the oil price rallied, whilst base metals such as copper have also found support. The price of oil has been seen as something of a key barometer of late, the initial move today is lower by around 1.5% and should keep a lid on market sentiment. European markets are trading broadly flat in early moves.

In forex trading, the improvement in sentiment continues as the euro has held on to recent gains and Dollar/Yen (another barometer for market sentiment) is also solid. The commodity currencies have also found a bid today with the Kiwi unwinding some of yesterday’s weakness following the RBNZ rate cut and dovish comments, and the Canadian dollar also positive. Precious metals prices are broadly flat today.

There is very little on the economic calendar for traders to get worked up about in the European session, whilst the US PPI will be eyed at 1330BST, with a expectation of a slight pickup in core PPI to +0.7% in August. The September University of Michigan Consumer Sentiment is at 1500BST and is expected to dip to 91.2 (from 91.9 last month).

Chart of the Day – AUD/USD

A near term technical rally is underway. But how far will it go? Yesterday we saw a bullish head and shoulders base pattern completed (on the intraday hourly chart). This came on the completion of a bullish outside day as the Aussie rallied sharply (on the better than expected unemployment data). The daily momentum indicators have moved into recovery mode now with a confirmed Stochastics crossover, the MACD lines in the process of a bull cross and the RSI unwinding too. There is further to go too with this RSI unwind as the rebounds have tended to fall over around 55 (currently the RSI is at 41). The truth is though this is still just a counter trend move, to the downtrend in place since the mid-May high. Today this trend comes in at $0.7190. The intraday hourly chart shows the small base pattern that completed above $0.7070 yesterday and implies a rebound to $0.7230 (remember though that bear market rallies will tend to undershoot their upside targets due to the impatience of the sellers). The hourly chart shows the initial support comes in today at $0.7045 with further support around $0.6990. Beyond yesterday’s high at $0.7100, near term resistance comes in at $0.7120/$0.7150.

AUDUSD   10092015


After another choppy session finished on a strong note, is the euro finally beginning to gain some upside traction? I’ve been less than convinced by the rally so far but it is now seemingly beginning to test the bid on a serious basis. We have now seen five consecutive positive closes on the euro and sluggish momentum indicators are just starting to pick up now. The move yesterday has opened the upside towards $1.1330 which was the key reaction high from 1st September. The hourly indicators reflect a far more positive outlook now and the consolidation overnight suggests the market is happy to go with yesterday’s move. The breakout range $1.1230/$1.1250 becomes the initial support now as the bulls will look towards testing the key overhead resistance at $1.1330. A sustained move above here would put the bulls back in control within the medium trading band once more.

EURUSD   11092015


After an initial corrective move, the sterling bulls got back in control to push Cable strongly higher again. A bullish engulfing candle (bullish outside day) is a strong near term signal and should suggest a continuation of the run. The daily momentum indicators are positive too, with the MACD lines now bullishly crossing, whilst the RSI and Stochastics are rising. The hourly chart shows that the support line I have spoken previously about at $1.5330 was an excellent springboard for the run higher and now becomes a key near term level. Hourly momentum is positive and intraday dips should continue to be used as a chance to sell. There is a breakout support around $1.5400 which the bulls would want to now hold for a test of the next resistance at $1.5510 and then $1.5560 will come into view.

GBPUSD   11092015


Of all the forex majors I call on a daily basis, Dollar/Yen is the one that is perhaps the most difficult to read as fluctuations are driving rather uncertain technical signals. Taking a step back, I believe that the pair is in a big range of around 340 pips between 118.30/121.70. The last four days has seen a rally which has pushed close to the range high (yesterday’s high was 121.30) around which I expect the bulls to run out of steam. That procedure is perhaps now underway as after three fairly strong candles there was a “spinning top” candle (long shadows both higher and lower, with a small body in the middle). This reflects uncertainty in the recent run. The fact this is coming not far from the highs is also interesting. Also of note is that on the hourly chart there are bearish divergences on momentum indicators versus yesterday’s high in the price. RSI, MACD lines and Stochastics have all posted lower highs, which again could indicate a slowing trend. At some stage in the coming days a consolidation is going to set in (due to the FOMC meeting uncertainty), perhaps this is the end of the run higher (at least for now). Initial support is at 120.45 with a breach of 191.90 re-opening the pivot at 119.60.

USDJPY   11092015


Having made the breakdown below the two supports around $1117 and then $1109, the outlook has turned negative. The momentum indicators on the daily chart are all negatively configured and with lower highs and lower lows being formed, the preferred strategy now becomes selling into rallies. There is a good downtrend that can be drawn in from the August high at $1168  and currently comes in around $1121. Yesterday’s trading posted a small positive candle but this is merely going to be seen as a move within the downtrend that can help to renew downside potential. The old support at $1117 is the first line of resistance and would a good area to start looking for a sell signal. Interestingly the hourly technical indicators have already unwound back to a level at which the sellers will now be waiting again. I expect a retest of the $1101 initial support before the potential for a retreat back towards $1180 again. The resistance in the band $1125/$1132 is now key.

Gold   11092015


The support has kicked in again to once more drag a more neutral outlook back from the brink of bearish control. The daily chart shows the 23.6% Fibonacci retracement of the big $61.50/$37.75 sell-off coming in to support the market to the pip at $43.36 yesterday. Despite this though there is still a sequence of lower highs and a downtrend over the past 8 sessions that needs to be broken or else there will be further tests of the key support at $43.20 again. The downtrend comes in today around $46.20 and ideally there would need to be a close above it to confirm a breach. The bulls will point to the hourly momentum indicators improving with the RSI pulling above 60. For now I am on the sidelines, as this is a consolidation that could go both ways now. This could be a descending triangle which would complete on a break of $43.20, but equally it would be a bullish falling wedge pattern. Key resistance to confirm a bull turnaround is at $46.40.

WTI   11092015

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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.