Markets seem to have reached a crossroads with a rather benign period of trading with participants taking their time in deliberation over the next direction. Perhaps this is a function of some high volatility events in the offing, with the crucial OPEC/Non-OPEC meeting in Doha this Sunday, the start of earnings season in the US and some crucial Chinese economic data. Treasury yields have stabilized after their recent decline and perhaps this is helping to generate a very slight uptick in risk appetite this morning, at least across the forex markets. This has been shown with the sell-off on Dollar/Yen taking a pause for breath (and possibly even beginning a rally). Talk of the prospect of BoJ intervention continues to come through, but this seems likely to be just jawboning at this stage and there is no evidence of any action.
The slight uptick in sentiment is impacting across forex markets with the weaker yen being a key development after days o strength. We are also seeing the commodity currencies stronger again. However the euro remains stuck underneath its old long term range highs and is really struggling for direction now. The gold price is just coming off the top after a few days of gains, whilst the oil price is doing the same.
Traders will be on the lookout for UK inflation at 0930BST in which the headline CPI is expected to pick up to +0.4% (from +0.3%) whilst the core CPI is expected to move to +1.3% (from +1.2% last month). This would be sterling supportive to a degree.
Chart of the Day – FTSE 100
The bulls are close to regaining control, but they just cannot make the break. A remarkable period of sideways trading on the FTSE 100 continues with the resistance band at 6200/6237 still intact. The FTSE 100 has made a total of 13 intraday moves above 6200 since the beginning of March and remarkably, the highest close is at 6204. The shackles of resistance just cannot be broken, with yesterday’s candle forming a doji pattern with a close bang on 6200. With the early morning moves again showing the market struggling around the resistance, the momentum indicators are now in drift mode and the concern would be that the bulls just become tired now. What has now become a 200 tick trading band is putting pressure on the highs but cannot make the breakout. The Bollinger Bands are increasingly tight now and when the bands move close together (between 6096/6233) there is a sense of impending breakout, which can often be very decisive. Look for a closing break above or below the bands to signal the end of low volatility and approaching higher volatility (ie a new trend).
We are still awaiting for direction on the euro as another very neutral candle has been posted in this increasingly benign sideways range. The price has now been trading in this band between $1.1325/$1.1453 for the past seven completed sessions and there is little real sign that the market is ready to break either way. The only hint of a sign has been that last night’s close was the first close above $1.1400 since October. The momentum indicators remain positively configured but I am still reticent due to the fact that the price is so close to the long term range highs and if the range I to continue, then this would still be considered an opportunity to take profit. Despite this there is no sign of profit taking yet. The hourly chart shows the benign outlook with momentum neutral (RSI oscillating between 40/65). Until we get a breakout above $1.1465 (the long term range resistance) or below $1.1325 then continue to play the range.
Sterling engaged in something of a short squeeze yesterday, but I still retain my outlook that rallies are a chance to sell and I am now on the lookout for the next sell signal. The consistent pressure on $1.4050 in the past few weeks has helped to generate a bearish drift on indicators such as the RSI and MACD lines and the underside of the old downtrend channel (currently around $1.4450) is still a basis of resistance. As the Stochastics unwind from the latest test of $1.4050 there is still some room for additional unwinding on the daily chart in the near term, but there is considerable overhead resistance. The hourly chart shows the breakout above the pivot line at $1.4170 completed a near term rally that implied $1.4290, a target that has all but been achieved. In bear market rallies, the rebounds tend to undershoot their targets and this could be the case here, and with strong near term resistance at $1.4320 I expect this to be around where the next near term high comes in. I would expect pressure to resume back on $1.4170 and a retreat to $1.4050 in due course. A decisive move above $1.4320 opens the recent highs around $1.4425 and $1.4460.
Has a low been posted at 107.60? There may be signs of relief with the dissipating selling pressure (for now) but there is as yet no real suggestion of a rally. The overnight move has seen the yen weakening and if this continues it would be the first session in eight that the Dollar/Yen price has risen. After so many bearish candles and what had seeming been the acceleration lower, yesterday’s rather neutral looking candle (very small negative body in the middle of the range) has come as something of a relief. The intraday hourly chart shows that the downtrend that had been pulling the price lower is just now being breached as the consolidation has taken hold. However there is some immediate resistance to be negotiated, with 108.50 as a near term pivot, but the key near term resistance is at 109.10 and until this is breached the current move is merely a consolidation. The hourly momentum has unwound again (hourly RSI up at 60 and MACD lines at neutral) so this is the point at which the sellers would normally start to look for the next opportunity. Below 107.60 re-opens the medium and longer term targets around 107.00.
After finding a bit of traction for the past few days the gold price has just started to question the immediate continuation of the recent rally. The improvement in the momentum indicators suggests that the selling pressure has now dissipated, but are the bulls in a position to really challenge the previous highs? I am not sure that they are quite yet, and this may induce another near term dip back, which could give a better entry level for longs. The hourly chart shows a consistent rally of higher lows and higher highs in the past few days but the latest high at $1259.60 has coincided with an old resistance and also seen the hourly momentum indicators beginning to form negative divergences, which could put on some corrective pressure. The support of yesterday’s low at $1245.80 was just above the pivot around $1243 but these levels could come under pressure once more if the bear divergence really kicks in. A move above the overnight high at $1259.60 would see a test of the next resistance at $1270.90.
The outlook for oil remains positive as the recent recovery continued to maintain the break above the previous resistance around $39. The price trading well clear of the 23.6% Fibonacci retracement of the $26.05/$41.90 rally means that the bulls are back in control and the previous high is still possible for a test in the coming days. The daily momentum indicators are positively configured with the Stochastics rising and the MACD lines still above neutral, whilst the RSI is also back towards 60. With the potentially crucial meeting of OPEC/Non-OPEC in Doha on Sunday the market will clearly be looking towards this and there will be a reaction to any suggestions of potential outcomes from this meeting in the coming days. Currently the outlook is positive and despite pulling back from the intraday high at $40.75 yesterday, with resistance at $39.85/$40.15 having been cleared the old high is now open. Perhaps there is a hint of a bearish divergence on the hourly momentum indicators (RSI, MACD and Stochastics) which could induce a near term retreat. There is near term support at $39.25 with subsequent support between $38.30/$39.00. The hourly chart does though show that unwinding moves have been seen as a chance to buy.