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Market Overview

There have been several factors in the past day that are beginning to turn market sentiment more corrective once more. The FOMC minutes last night showed that the Federal Reserve is edging ever closer to a rate hike at the end of this year. This is nothing really to change the view, but it does help to solidify and the hawks are concerned that continued low rates could lead to a recession in the US. Subsequently Treasury yields have taken a bit of a hit and equity markets have started to correct. The oil price has also started to slide on news that OPEC countries are still pumping at record levels. Furthermore, overnight we have had China trade data that has disappointed on both imports (-1.9% versus +1.0% expected) and exports (-10.0% versus -3.0% expected). Although these numbers can be volatility on a month to month basis, this has negative implications for risk appetite. Subsequently, riskier currencies such as the Aussie and Kiwi are under pressure today, whilst the yen and gold have strengthened overnight.

Wall Street closed mixed overnight with the S&P 500 +0.1%) whilst Asian markets were are struggling with the Nikkei -0.4%. European markets have opened lower with the FTSE 100 losing the 7000 support. In forex, the yen is the main outperformer whilst the eur is also holding up well. Sterling is back trading lower again too. The precious metals are trading higher and oil is beginning to develop more of a corrective look.

The economic calendar is fairly light today with US Weekly Jobless Claims at 1330BST (254,000 expected), whilst the EIA Oil inventories at 1600BST will be watched for a continuation of the surprise drawdowns of recent weeks with crude stocks expected to rise by +0.4m barrels.

Lucky 8 – FX Trader of the Year 2016 competition update

I am now moving on to look at a new set of Lucky 8 instruments for Week 2 of our competition that we are running throughout October. I will be giving daily updates on how the Lucky 8 instruments of the week are performing.

• GBP/USD –  The recovery may have already run out of steam as the bears returned yesterday to limit the gains. Resistance at $1.2330 is increasingly key near term and the rolling over of momentum indicators suggests the bears are ready to sell off again. A further lower high is now at $1.2260.  (See below for more detail).
• NZD/USD – The decline continues and yesterday’s failed recovery candle shows that rallies are now a chance to sell. Momentum remains negative and there is now resistance in the band $0.7095/$0.7105. A breach of $0.7000 would open the key support at $0.6950.
• EUR/GBP – After a brief sterling rally yesterday the market has settled again above support at £0.8960 and the drift higher has resumed. Corrections remain a chance to buy for a likely retest of £0.9140.
• EUR/AUD – The pair is on a bit of a hoppy rise near term but there is now a band of resistance 1.4630/1.4680 that is looking to cap recoveries and rallies are being sold into with a corrective configuration on the hourly momentum.
• USD/ZAR – There has been some volatility on the breakout above $14.08 but the market has used this as a basis of support for a corrective move and is now pushing higher again. Expect a retest of the $14.93 reaction high and the 55 hour moving average is a basis of support near term.
• FTSE 100 – The early loss of 7000 is a blow for the bulls and this now means that an increasingly corrective move is being put together. A close below 7000 would open 6955 but also complete a near term top pattern of 120/130 ticks of downside..
• WTI Oil – A near term corrective move has taken over and suddenly intraday rallies are now seen as a chance to sell. $50.00/$50.40 is a near term resistance and it will be interesting to see how the market reacts once the oversold near term momentum has unwound. A retest of $49.15 could be building. Watch for the EIA oil inventories.  (See below for more detail).
• Cocoa (CCc1) – Rallies remain a chance to sell and once more the momentum indicators remain bearish and the negative candle posted yesterday shows the sellers are in control. Resistance is now at 2688 under the 2708 breakdown. Expect further weakness below 2625.

Should you have any questions and would like to discuss this competition further, please don’t hesitate to contact us at [email protected] or give us a call on +44 020 7036 0850.

 

EUR/USD

The bearish outlook continues to develop as the third consecutive bar candle in a row has confirmed not only the breach of $1.1100 but also the long term pivot at $1.1050. This now means that this 50 pips band becomes an area of key resistance now for any rallies. The market will now be eying the breakdown target of the top pattern at $1.0960 and with $1.0950 the key late July low, this is likely to now be tested. Momentum indicators are now increasingly bearish with the Stochastics accelerating lower, the MACD lines falling below neutral. Traders will now be asking themselves whether to continue to back the sell-off on the pair with the RSI approaching 30 which is a level that is very rarely hit and even less common is a break below 30. That might suggest the immediate downside potential in this recent run is becoming limited. Interestingly, the markets has started to try and build support at $1.1000, and the market has looked to rebound a touch today. The reaction to the pivot band $1.1050/$1.1100 will be telling for the next move.

GBP/USD

Have the sterling bulls already run out of steam? The selling pressure seemed to abate yesterday with a rally back towards near term resistance at $1.2330, however the “hard Brexit” rhetoric emanating from the UK Government seemed to put sterling back under pressure once more. The daily momentum indicators are still bearishly configured an rallies continue to be seen as a chance to sell. This is shown well on the hourly chart with the bearish configuration of the hourly momentum indicators, with the RSI failing around the mid 50s, the MACD lines unwinding to cross lower around neutral. Once the resistance at $1.2330 had been strengthened, the market has started to leave lower highs again with yesterday’s late reaction high at $1.2260 adding to overhead supply. Expect further downside pressure and a retest of the low at $1.2086 is likely with intraday rallies being sold into.

USD/JPY

The dollar strength remains a key driver on the pair as the price moved out above the resistance first at 104.15 and then more importantly at 104.30. The intraday move may just have hit the buffers near term and failed to close above the key resistance, but there is little to suggest this is a false break and the bulls look well positioned for further gains. A closing breakout would be seen as a key move with the way being opened for a move to 105.50 and then perhaps even the next key reaction high at 107.45. Momentum indicators are strong for the move and whilst the hourly chart shows an early drop back today there is a band of support now between 103.15/103.50 to prevent a continued correction. The support at 102.80 is increasingly strong and will be seen as a near term turning level. I am looking to buy the overnight correction today.

Gold

The market remains settled in a consolidation phase with very little direction posted now for the past few days. Could this be the early signs of some sort of a recovery? The overnight gains means that the market has now broken above the previous day’s high for the first time in 9 sessions, which Is certainly an improvement. The bulls will be looking at the daily momentum indicators and see the RSI starting to rise on a move that is ready to cross back above 30. However, I believe that much more would need to be done to see this as a viable recovery signal. A move above resistance at $1265 is first on the list of factors that need to be seen, whilst a move would need confirmation above $1277. The concern for me is that a mere consolidation could also be a reason behind the RSI improvement, and buy signals may just be part of an unwinding process rather than a sustained bull move. My expectation is that a rally would struggle to gain traction and is likely to be sold into. I feel this one is in wait and see mode.

WTI Oil

The bull control is certainly now being questioned after two consecutive corrective candles. This move is beginning to impact on the momentum indicators which are rolling over. The bulls will be looking at the key reaction low support at $49.15 which is a key near term reaction low. This is becoming an increasingly corrective move and if the bulls do not support it soon the traction could begin to build to the downside. A breach of $49.15 would open the old key breakouts at $48.75, $47.75 and $46.50. The hourly chart shows the price trading below all the moving averages and back below the $50.00 support area. The hourly RSI is now more corrective and a failure to move back above 50/55 would be seen as bear momentum developing. Today’s EIA oil inventories will drive near term volatility.