There has been a sense of calm that has started to come over financial markets as traders begin to look ahead to the Jackson Hole Economic Symposium at the end of the week. With little economic data of any real significance to drive market sentiment, the total eclipse of the sun seems to have drawn focus away from President Trump’s crumbling administration. The indicators of market stress have started to suggest a mild improvement in risk appetite, as the VIX volatility has started to drop back, whilst safe haven plays such as gold and the yen have lost ground and US Treasury yields have ticked higher. The US dollar has started to stabilise this morning, whilst equities are also finding support. It could easily now become a case of markets in summer mode, waiting for signals out of Jackson Hole and unwilling to take any major view.
Wall Street closed marginally higher yesterday to break the momentum of Friday’s sell-off, with the S&P 500 +0.1% at 2428. Asian markets were also broadly higher although the Nikkei was all but flat. European indices are taking the support from Wall Street and better sentiment overnight and are trading higher in early moves. In forex, after yesterday’s weakness, the dollar is rebounding against the euro, sterling and the yen. In commodities, gold has dropped back by $4, whilst the oil price has stabilised after yesterday’s sharp move back to the downside.
The economic data today is restricted to some of the more minor releases. The UK Public Sector Net Borrowing is at 0930BST and is expected to be just +£0.4bn which would be worse than the -£2.4bn from July, 12 months ago and would be the first month of net borrowing for July since 2010, sterling and Gilt traders will be interested. German ZEW Economic Sentiment is at 1000BST and is expected to drop back slightly to 15.0 (from 17.5 last month). There are positive correlations with German growth, so Bund yields and the euro will be reactive. Into the afternoon the market will be looking out for the Richmond Fed manufacturing index at 1400BST which is expected to drop slightly to 12 (from 14) and would still be seen as a positive number.
Chart of the Day – Silver
It had previously looked as though the rally on silver was failing but the bulls have stabilised the selling pressure in the past couple of weeks and the market has formed a broader uptrend channel. For the bulls, there is an interesting development in that the market found support on the old broken downtrend with the low at $16.55, a level that now takes on an added importance. However, there is a feeling that the corrective signals are beginning to creep back into the market. Friday’s “shooting star” candle (similar to the one posted on gold) puts in a mild bearish bias now and means that the resistance at also $17.31 takes on added significance. This needs to be breached to abort the corrective impact. The bulls failed to regain the initiative yesterday and although the uptrend is intact, the legacy of the shooting star remains for now. It is interesting to see the momentum indicators beginning to start to lose impetus and a failure of the RSI under 60, Stochastics under 80 will now be signals to watch for the bears. The support of the six week uptrend comes in today at $16.75 today. The hourly chart shows the resistance between $17.17/$17.31 has continually capped the gains in the past couple of weeks. Below $16.80 opens $16.55.
After a week of consolidation the euro has started to pick up again. A second consecutive positive candle has seen EUR/USD start to pull away from the support that has been in place between $1.1660/$1.1711 and is now looking at a test of the lower high of $1.1845. Momentum indicators have ticked higher too, with the RSI picking up from the mid-50s, and Stochastics crossing higher. This is all coming at the beginning of a quiet week of economic data but ahead of potentially crucial speeches by both Fed chair Yellen and ECB President Draghi. Although neither are expected to rock the boat and give any hawkish hints, the strengthening of the euro suggests that the positive euro strategy is once more back in play. Buying into weakness on the euro has been a key strategy for months now and remains so whilst the four month uptrend is intact, currently at $1.1595. The $1.1909 high is preventing a move back towards $1.2000.
Cable remains stuck under the neckline resistance of the breakdown at $1.2930, with the old support now having become new resistance. The market has developed a consolidation in the past week but in a similar move to what was seen earlier in August, the corrective momentum build up under the resistance band $1.2930/$1.3030 points towards further downside. The support at $1.2808 and the long term breakout at $1.2775 could easily come back into play now with rallies seen as a chance to sell. Yesterday’s positive candle added just under 30 pips but again is failing under $1.2930. Perhaps with the lack of major market moving data in the coming days (perhaps with the exception of UK GDP) the market is in consolidation for Yellen at Jackson Hole. However the bias still remains corrective.
Will the market break through the key support of 108.11, the April 2017 low? For a second time in August there has been a fleeting thought of a test only for the bulls to come back in. It is interesting to see that the bear candles of the past two sessions have closed well off the lows as the buyers seem to be happy to still support Dollar/Yen as the market dips below 109.00. With yesterday’s session posting a higher low, does this mean that the bear momentum is waning? Again this morning, there has been a positive reaction and it is interesting to see the configuration of the momentum indicators is potentially bottoming. The RSI has not gone below 30 and has started to settle again, whilst the MACD lines look to be plateauing too. The hourly chart shows a broken four day downtrend, but also the importance for the bulls to hold on to this morning’s rally. The hourly RSI is up to 60 and MACD lines at neutral, suggesting a failure of the rebound now would be a concern for the bulls. The resistance at 109.60 needs to be broken to continue the recovery and begin to leave the recent lows at 108.60 in place as potential higher lows above 108.11. The next resistance above 109.60 is 110.35 with 111.00 being key.
The market is getting some conflicting candlesticks now being posted as a solid positive candle has looked to maintain the sense of bull control. A key rule in technical is that the “trend is your friend” and the trend remains positive in the past six weeks. However the shooting star candle from Friday is now a prominent near term feature and with the market dropping back again today is still a valid corrective signal. Furthermore, coming at the key resistance of $1300 suggests that the barrier to gains remains high at these levels. Momentum indicators are positively configured still but could begin to look somewhat tired, especially if the market starts to drift in front of Jackson Hole (which is perfectly possible). Under Friday’s peak at $1300.80, yesterday’s high at $1293.20 is initial resistance, whilst the hourly chart shows a drop below $1280.20 would complete a small top pattern. Hourly momentum is also beginning to wane.
The oil market is clearly still very choppy as WTI has posted a corrective session to unwind most of Friday’s strong bull candle. This has posted resistance at $48.75 and with a close back well below the old near term breakdown at $48.37. The moves of the past couple of weeks shows how this is an increasingly difficult market to call, however the failure to follow up Friday’s positive rebound is a concern for the bulls. Momentum indicators are mixed over the medium term now as they gravitate back towards neutral configuration. The daily chart shows a run of higher daily lows is forming, meaning that $47.05 is initial support today, however there is little real trend of any note. With the volatility of recent days, it may be a case of trading oil on a very near term basis now, and sticking stop losses close to positions.
Dow Jones Industrial Average
Posting a positive session has ended a run of corrective candlesticks, however with momentum indicators still decisively in decline, that the sellers remain in control for the near term move on the Dow. Breaching 21,681 support on Friday opened 21,471 as the next line of support whilst the support of an 8 month uptrend comes in at 21,320 today and is now a realistic corrective area if the selling pressure remains in the coming days. The bears will point to increasingly negatively biased momentum indicators with the Stochastics and MACD lines accelerating lower whilst the RSI is falling at a three month low below 50. The hourly chart suggests that the early moves today will be interesting as there is a slight positive divergence on hourly RSI and Stochastics. A failure under the 50 tick band of resistance between 21,793/21,84321,793 would maintain the sense of selling into strength. Yesterday’s low at 21,600 is initially supportive.