Last updated: May 3rd, 2017 at 09:58 pm
Markets have been effectively looking ahead to Janet Yellen’s speech at Jackson Hole now for several days. There may have been some minor moves back and forth in the markets in recent days but as we get closer to the event there is a degree of consolidation that has taken over. Mild dollar strength of the earlier part of the week is being pared with uncertainty over how Yellen will approach her speech on monetary policy at 1500BST. Traders looking for an explicit point towards September for the Fed’s next rate hike are likely to be disappointed. Yellen does not like to rock the boat and with the Fed having been so split in recent months, she is more likely to play with a straight bat and perhaps set up the market for a future path of gradual rate hikes, but possibly also point towards lower growth and inflation targets. Thus is would be setting the market up for a “dovish hike” probably in December.
Markets look reasonably settled ahead of Yellen, with the Wall Street sliding back a touch with the S&P 500 -0.1%. Asian markets were also slightly weaker overnight with the Nikkei -1.2%, whilst European have also opened on the weaker side of flat. In forex markets, the dollar has just given back some of its recent gains but there is little expectation of direction ahead of Yellen. The yen has strengthened marginally against the dollar despite the continued slowdown in Japanese core inflation to -0.5% (from -0.4% last month). Gold and silver have bounced slightly with the slip on the dollar, whilst oil has just dipped back marginally.
There is though a bit of data to get through before Yellen speaks at Jackson Hole at 1500BST. The announcement of the second reading of UK Q2 GDP at 0930BST with no revision from the +0.6% of the preliminary reading. The second reading of US Q2 GDP (Prelim) is then at 1330BST with an expected slight downward revision to +1.1% (from +1.2% in the Advance reading).
Chart of the Day – Silver
Has the breakdown on silver now heralded a new corrective move? The recent stronger dollar pulled corrective pressure on silver which has since completed a breakdown below $19.20 to imply a correction of around $1.60 back towards $17.60. However, I still see this as a bull market correction and as such the move is unlikely to get that far. There is a series of bull market signals that would suggest the buyers will be looking for support in the region between $17.80 (the key May 2015) old breakout and $18.00 which was the May 2016 breakout level, meaning there is around 1% of strong price support. Furthermore, the rising 89 day moving average is at $18.32 and this has provided the support for the three big corrections in 2016 (of February, April and June). The momentum indicators are corrective on a near term basis, but on a medium to longer term basis, have dropped back to areas where the previous major corrections have also been supported, with the RSI in the mid-30s and the MACD lines back to neutral. The hourly chart though shows that the bulls have got some work to do to get back on track with negative configuration on the hourly RSI, MACD lines, whilst a near term resistance band $18.80/$19.20 is also an area of overhead supply.
Despite a mild bout of dollar strength in the early part of the week, the euro has started to form support once more and has held on to the medium term breakout at $1.1233. This comes as the uptrend of the past four weeks is also providing a basis of support, which means that the bulls are retaining control moving into Janet Yellen’s speech at Jackson Hole. The hourly chart shows that there is a consolidation that has taken hold now and the market is likely to be fairly settled until this afternoon. However Yellen’s speech has the potential to define market direction in the coming days, weeks or even months, and this is why traders have seemed so reluctant to take a significant view ahead of it. Key support is initially at $1.1233 whilst $1.1050/$1.1100 remains the long term picot band support area. Resistance is at $1.1365 before the major resistance starts to kick in with the pre-Brexit high at $1.1432.
The prospect that the rally which has been just over 400 pips at the recent high at $1.3272 is likely to be just another chance to sell, remains high. Yesterday’s negative candle was posted again around the resistance of a shallow downtrend which has linked the rally highs since Brexit and will once more be seen as an area for a potential sell. The momentum indicators also have a configuration of simply unwinding a bear market, with the RSI around 50 and the MACD lines having drifted back to neutral. The intraday hourly chart is still in the recovery uptrend and once more used the support to sustain the move. The support around $1.3160 is increasingly interesting as this is around the bottom of the trend currently and also the support from Tuesday and Thursday. A breach would complete a small head and shoulders top and imply around 110 pips of downside. The truth is though that the market is likely to be rather subdued in front of Yellen’s speech and then take direction in the wake. The support band $1.3020/$1.3050 is protecting a move back towards the lows. Above $1.3272 the resistance is at $1.3370.
Whilst other markets have been keeping one eye on Yellen’s speech, it is almost as though Dollar/Yen traders have decided to take the whole week off. There has been almost no discernible price action of any note for several days and the technical indicators are increasingly plateaued. There has been a traded range of 102 pips for the whole week up to this point. This stagnant price action is the case not only on the daily but also on the hourly time frame indicators too. I am though expecting some key direction from Yellen’s speech, but it is difficult to know which way. Resistance is at 101, with support at 99.53. With the old long term downtrend around 104.00 there is room for a technical rally on a hawkish Yellen, however I would still expect this to be ultimately sold into.
The move on gold below $1330 was a near term break which opened a retest of the lows around $1312 but also the old key breakout around $1306. This is an area that I continue to see as a medium to longer term buying zone. The drift lower yesterday pulled the price lower by another couple of dollars but the candle lacked any real conviction. This comes ahead of what could be a trend defining speech from Janet Yellen today and the market is in consolidation mode in anticipation. The daily momentum indicators show more of a bull market correction than a gather of the selling momentum. The Stochastics are starting to bottom, whilst the MACD lines have used this drift back from $1375 in the past 6 weeks to unwind back to neutral again. The hourly chart shows a near term resistance band of the old support around $1330/$1333.50, before resistance at $1344.70 and the more important resistance at $1358. There is major uptrend support around $1289.
The corrective move on oil is now at an important stage. The positive candle of yesterday has once more held on to the basis of the key near term supports of the 61.8% Fibonacci retracement of the June/July sell-off from $51.67/$39.20 around $46.80/$46.90. The momentum indicators are also around important levels with the RSI now dropping back below 60 and the Stochastics threatening to confirm a near term sell signal. The concern for the bulls is that there is still a sequence of lower daily highs, whilst the intraday hourly chart shows the lower high at $48.32 and Wednesday’s resistance in the wake of the EIA inventories report at $47.70. Furthermore, the hourly chart shows the recent moves have in effect been consolidation with little real direction on the hourly momentum indicators. A close back below the intraday support at $46.45 would confirm the breakdown of the bull move and open the 50% Fib level at $45.43. The bulls will be back in control on a break above $48.32.
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