The caution being felt in the markets has continued in the wake of a lack of action from the ECB monetary policy meeting yesterday. With the European Central Bank choosing to leave current monetary policy measures in place, markets are questioning once more whether the major central banks are increasingly running on fumes with their attempts to stimulate growth through monetary policy. In his press conference, ECB President Mario Draghi noted that the ECB had all the tools and willingness to further ease monetary policy it was just that they did not want to do it. With the QE programme currently due to end in March 2017, some had expected this to be extended further. Perhaps in December now. However, market reaction has subsequently been to buy the euro and put pressure on equities. However there was added volatility yesterday with a record drawdown in US oil inventories with the announcement of the EIA crude oil stocks falling by around 14m barrels. This impacted across markets with the dollar strengthening on increased inflation expectations, which resonated across forex and commodities markets. The markets are still trying to settle down this morning but the move is unlikely to change any view that the Fed will not move on interest rates in September. Overnight, a surprise drop in China’s CPI inflation to 1.3% (1.7% exp) will give the People’s Bank of China room for further easing, whilst China’s factory gate inflation, the PPI improved to -0.8% (-0.9% exp) in a move that should help to improve the profits of corporates.
Wall Street closed slightly lower as the negative impact of the lack of easing from the ECB and despite the EIA crude oil drawdown, with the S&P 500 -0.2%. Asian markets were mixed overnight with the Nikkei +0.1%, whilst European markets are slightly weaker at the open. Forex majors show that the US dollar is giving back some of its late gains from yesterday, with the yen being the biggest outperformer. Gold and silver are basically flat, whilst oil is unwinding by just under 1% after gains of over 4% yesterday.
There is very little on the economic calendar today, however UK Trade Balance is at 0930BST (-£11.7bn exp) and Canadian unemployment at 1500BST which is expected to stay around 6.9%, but watch out for the employment change which is expected to rise by 15,000.
Chart of the Day – EUR/GBP
Having been corrective for the past three weeks the euro has driven an upside break from a downtrend channel. The move comes as a second consecutive bullish candle completed yesterday and closed outside the trend channel. The next key move will be a challenge of a medium term pivot level at £0.8490. The pivot is currently resistance but if the bulls can sustain momentum in the recovery then the outlook will turn positive again. To back this prospective improvement, the daily Stochastics look to be ready to confirm the improvement with a completed crossover buy signal. The RSI has turned higher from around 40 which is similar to the move in June and is around 50 now, with the MACD lines looking to bottom around neutral. The move in the past few days has left key support now at £0.8330, whilst the hourly chart shows there is a breakout band that is now supportive at £0.8400/£0.8420. The hourly chart also shows there is now a band of resistance to overcome at £0.8515/£0.8565, however the momentum indicators are far more positively configured, with the bulls now looking to use corrections as a chance to buy.
The ECB monetary policy meeting was always the big risk event of the week and there was increased volatility around the announcement that the ECB would not be easing monetary policy. However there has been little real change to the technicals which retain a mildly bullish outlook. The run higher on Tuesday left a strong bull candle and this has been retained. Intraday volatility yesterday formed another positive candle albeit slightly disappointing with the 80 pip retracement from the high of $1.1325. However the momentum indicators are continuing to improve with the Stochastics rising and the RSI now holding consistently above 50. The hourly chart shows how the old pivot band around $1.1233 is now supportive and the market has picked up again this morning. Hourly momentum suggests that corrections are now being seen as a chance to buy again. Initial resistance is at $1.1325/$1.1340 and could come under further pressure. The bulls will now look to build from the support around $1.1233 again. Support at $1.1120 remains key.
Is Cable rolling over again? The sequence of high lows and higher highs that marked the rally phase of the past couple of weeks has come to an end with a couple of days of bear candles. Is this a consolidation or could this move turn out to be something more corrective? The daily indicators are losing momentum and the sensitive Stochastics have crossed lower (not quite a confirmed near term sell signal yet). However the resistance seems to have been left at $1.3445 and having posted what could now be a lower high at $1.3375 (which interestingly was also a high from the 5th September), pressure is mounting on key near term support at $1.3250. The hourly momentum indicators are also far more correctively configured now and hourly moving averages rolling over. The bulls have lost control but it would still need a move below $1.3250 to confirm a corrective move now. Sub $1.3250 opens $1.3160 and $1.3060 which is key medium term now. Above $1.3375 would improve the outlook but the key resistance is now $1.3445.
Markets will rarely move consistently in one direction without some sort of a counter trend move at some stage. Yesterday we saw a rally on Dollar/Yen (in the wake of the big crude oil inventory drawdown which is seen as oil positive and increases expectation of inflation and therefore tighter Fed policy). However this is not yet a move that the bears need to get overly concerned about, and likely to be near term noise. The configuration of the daily chart is negative for the momentum indicators longer term, and as such minor near term rallies will be seen as a chance to sell. The hourly chart shows a band of resistance at 102.80 which is now the basis of resistance being an old neckline of a near term top. Yesterday’s rally petered out at 102.60. Hourly momentum has rolled over and the bears will see this as another chance to sell. There is a near term band of support now 101.18/101.90 which I expect to come under further pressure now before the pair pulls lower towards the more considerable support band 99.53/100.95.
Gold is a range play until it breaks out above $1375 or below $1300. Within that range there will be fluctuations in the price but there is a pivot band around $1330 now which is a gauge of how bullish or bearish the market is within the range. Right now, gold is trading above $1330 so is positive within the range. However, yesterday’s corrective candle (again after the EIA oil inventories) means a couple of consecutive negative candles. The hourly chart shows how a five day uptrend has been broken and the near term bulls just lost the initiative. This could now put pressure on the $1330 pivot. However, despite yesterday’s dip I still remain positive near term and see corrections as a chance to buy. I continue to expect a retest of the $1357 resistance in due course. Below $1325 support would confirm the pivot has been broken.
Oil prices got a significant boost yesterday in the wake of the EIA oil inventories report which showed a record drawdown in crude oil stocks and also a drop in the US oil production levels. The EIA report always drives volatility, and this surprise was a strong positive impact on the price which has burst through the resistance that had been building at $46.50. The daily chart now shows four consecutive strong positive candles and the improvement in the Stochastics and RSI shows that intraday dips are now being bought into consistently. There is little reason to suggest now that oil is not going to continue higher and test the August resistance $48.45/$48.75. The hourly chart shows strong configuration and a band of support now between $45.75/$46.50. I would be looking to use any intraday weakness as a chance to buy. Initial resistance is with yesterday’s high at $47.75.