The past few days have shown the markets lose a little direction as traders look ahead to Janet Yellen’s speech at Jackson Hole. Her speech could be set to define how the Fed could move on monetary policy in the months ahead. Subsequently there is a lack of willingness to take a view reflects the uncertainty of what Yellen could come up with. Major markets across forex and commodities have become especially plateaued with Dollar/Yen and Gold especially lacking impetus. However, interestingly, US 2 year Treasury yields (which are likely to be very sensitive to Yellen’s speech) have started to push higher again and this is just having a small positive impact on the Trade Weighted US Dollar and is driving mild US dollar outperformance across major forex pairs today.
Equity markets have also become increasingly tight, with another minor gain on the S&P 500 (+0.2%), whilst Asian markets have been mixed to slightly positive overnight (Nikkei +0.5%). European markets are though slightly lower in early moves as the oil price has again dropped off overnight. News that China is looking to tackle tax evasion is impacting the demand side, whilst US oil supplies look to be building again.
There is little for traders to get interested in for the economic calendar today until the Existing Home Sales at 1500BST (5.51m expected, down from 5.57m last month). The EIA oil inventories could add to oil price volatility at 1530BST with an expected draw of 0.9m barrels).
Chart of the Day – AUD/USD
The near term corrective move on AUD/USD has dragged the pair back to the uptrend that has been intact since the end of May. This now is becoming another key test for the bulls. The retreat since the high at $0.7756 formed a small top pattern below $0.7633 with just over a 120 pip corrective target of $0.7510, a move that is still yet to play out. The Stochastics are accelerating lower and there is still room for the RSI to unwind as the corrective moves of June and July came back to around 45 before the bulls returned once more. The hourly chart shows there is an old pivot band around $0.7500 that is also supportive so this seems to be another attraction for a correction. For resistance, the near term pivot around $0.7650 interestingly capped the gains yesterday, whilst the pair is trading below a series of falling hourly moving averages. A breach of Monday’s low at $0.7580 would open the downside once more. This would all suggest that the bulls have got a battle to hold on to the uptrend.
The bull run higher from the earlier weeks of August has tailed off in the past few days and if anything is showing signs of a corrective move again. This comes as the market looks ahead towards what Janet Yellen has to say at Jackson Hole on Friday. The technical stalling of the rally now means that the move is drifting back to test the uptrend that has been in place since 7th August. However, the momentum indicators seem to have lost their impetus with the Stochastics crossing lower and the RSI dropping off. Watch for the Stochastics to confirm a sell signal and the RSI to fall back below 60 which would signal a corrective move back underway (although in front of Jackson Hole any losses are likely to be limited with traders unwilling to take a view ahead of what could be a crucial monetary policy defining moment). The support to watch is at $1.1270 which was Monday’ reaction low, whilst a breach of this would also confirm the broken uptrend. This would then re-open the previous breakout which is now supportive at $1.1233. Resistance in the band $1.1355/65 is growing, whilst there is a minor pivot at $1.1310 to also consider near term.
Rallies are still seen as being corrective to the overall bear trend. The latest move from the August low at $1.1268 has gathered a little bit more momentum in the past couple of days as the retracement back towards a shallow downtrend (currently around $1.3290) has continued. This has allowed the momentum indicators to unwind further and actually the RSI and Stochastics are now at their highest since the downside break from Brexit. However, with huge overhead supply still awaiting, it is still very difficult to be bullish about this being anything more than another rallies that will be sold into. The August rally high at $1.3370 is a big resistance that will contain many willing sellers. However, for now the near term improvement continues with the move above $1.3175 giving more room for a rebound in the next couple of days in the run to Jackson Hole. There is an interesting pivot at $1.3125 that means around 50 pips of support near term between $1.3125/$1.3275. A loss of $1.3125 would re-open $1.3025.
The chart has almost become marooned in the past few sessions as the market looks forward to Janet Yellen at Jackson Hole. The attraction of the 100 level is also clear as the market trades a few pips higher and lower as this represents a key psychological level for traders. The movement in the past few days would suggest there is unlikely to be much real movement of note to trade from ahead of Yellen. Momentum indicators have settled down and the hourly chart shows another range formation now between 99.53 up towards 101.00. A near term support at 99.90 has formed in the past couple of days but do not expect any real direction to be seen for the next couple of days.
As we are finding with many of the major markets, gold is another example of a chart devoid of any real direction, looking for a catalyst and one which Janet Yellen’s Jackson Hole speech is likely to provide. The price has been drifting arguably for the past few weeks with the resistance at $1358 capping the upside but $1330 ever more supportive. A couple of mildly negative candles have formed this week but with such small candlestick bodies it is clear that there is very little conviction in the market. I spoke previously of the converging trend lines and arguably the price has fallen below the bottom supportive trend, with the Stochastics falling however other momentum indicators on the daily chart are somewhat devoid of any real direction with the RSI ad MACD lines drifting in a very neutral configuration. Until the support at $1330 is broken or resistance at $1358 is breached there is little to really get excited about on gold.
The bull run higher has come up against some selling pressure, however the positive reaction as the market closed yesterday shows how the buyers are still prepared to support. Correcting back from Friday’s high at $48.75, the bulls returned to support the market at $46.60. So this is a key support now for the bull market. This is a very similar scenario to the early August correction that provided the springboard for six consecutive bull candles. The momentum indicators are also now in bullish configuration with the RSI holding above 60, whilst the MACD lines are also now positive. The Stochastics though are more sensitive and are now in decline, even though they are still way above 80. There now needs to be a move back above $48.75 to prevent move of a corrective outlook from forming with a lower high. The hourly chart shows initial resistance at $48.32 is now adding to resistance under the $48.75 high.