Last updated: May 3rd, 2017 at 09:58 pm
If the falling oil price was such a drag on sentiment yesterday, perhaps today will be a turnaround story? After dropping to multi-year lows in the past couple of days, oil has started to rebound overnight. So after the weakness of Wall Street (S&P 500 down 0.7%) and Asian markets broadly weaker overnight, the European indices are eying some mild early gains. How long this lasts for remains to be seen. The release of China’s inflation data paints the difficulty the country is facing, with CPI (i.e consumers) better than expected at +1.4% but the PPI (i.e. producers) still under pressure with a decline of -5.9%. With the lack of demand for oil as much of an issue as the over-supply the conditions are not great for a higher oil price at this stage.
Forex markets are showing the US dollar coming under some corrective pressure again today as the euro continues to edge higher. However, it is taking sterling and the yen gradually higher too, with the yen helped by stronger than expected Japanese Machinery Orders. Additionally the Aussie and Canadian loonie have also found some support with the commodities finding support after yesterday’s selling pressure. The Kiwi is trading slightly weaker ahead of the RBNZ. The gold price is also reacting to the dollar weakness and pushing higher.
There is little on the economic calendar in the European session until the announcement of US crude oil inventories at 1530GMT which are expected to continue to add to supplies with +0.2m barrels (+1.2m barrels). The Reserve Bank of New Zealand is set to announce monetary policy tonight at 2000GMT and is expected to cut interest rates by 25 basis points to 2.5%, although the decision could be a close one, so there is likely to be a large amount of volatility around the decision.
The sharp rally of the euro against major currencies included the move on EUR/JPY above the old key floor at 133.00. This I see as a similar move to the break above $1.0810 on EUR/USD, both levels which I now see as key medium term pivot level supports for the euro. The key factor on EUR/JPY is now whether the euro can break higher from a downtrend channel that has been in place for the past 6 months. The rally has found a high at 134.50 which marks the top of the downtrend channel. Also of interest is that the RSI has unwound into the 60/65 level and started to stall. For the euro to turn more positive the RSI needs to push towards 70 and the downtrend being breached above 134.50. In the meantime though a consolidation between 133/134.50 will be a barometer for the near to medium term outlook for EUR/JPY.
The pivot at $1.0810 has again played a strong role, with a decently positive candle yesterday meaning that the euro has, for now, pulled higher off the support. The short squeeze on the euro appears to have changed the mind-set of traders with the dollar bulls not able to grasp control of the outlook for the time being. This means that the euro is now trading between the support at $1.0795 (on a brief move below $1.0810) and the post-ECB spike high at $1.0980. Yesterday’s move above $1.0885 has opened $1.0950 today and with the improvement has come an improvement in momentum on both the daily and hourly charts. If the daily RSI can push above 60 then this would be a positive sign, whilst if the hourly RSI can move above 70 it would suggest that the resistance at $1.0980 could come under pressure. The market is still finding its feet after the ECB but the euro recovery is holding its ground.
The chart in which the dollar bulls are certainly in control for is Cable. With three solid negative closes, much of the spike higher has been retraced. However analysis of yesterday’s candle would suggest that the bears are not having it all their own way, with a daily range of over 100 pips, the closing price was over 50 pips up off the day low. This comes as Cable has opened slightly higher again today. However, there is still a configuration of technical indicators that suggests rallies will still be seen as a chance to sell, with the RSI camped below 50, MACD lines and histogram negative and the Stochastics falling below 50. The intraday hourly chart shows the bearish drift of the past few days and that resistance starts to come in around $1.5050/60. Furthermore, the hourly momentum indicators are just unwinding from a near term oversold position. I would be looking to sell for the likely retest of yesterday’s low at $1.4955 in due course. There is further resistance at $1.5115 before the key level at $1.5150.
I continue to expect an upside break from the trading range 122.20/123.67. The momentum indicators are still positively configured, it is just that they are just drifting back towards neutral which I see as more of an unwinding move rather than any bearish indication. I am also interested in the correction over the past 24 hours. I said yesterday that there is a pivot around 122.70 which should act a the basis of support (something which happened almost to the pip yesterday) but this level is again under pressure. For now, I still see this as a buying area for Dollar/Yen but this outlook is being tested as a consistent breach to the downside would then re-open the 122.20 support of the range low again. I do not believe that the range will be breaking to the downside, so it is around this level I will be looking for the next buy signal within the range for a retest of the highs.
The gold bulls are fighting back once more after Monday’s sharp correction formed a low at $1067.25. The marginally positive candle that was posted yesterday has given the buyers a foothold once more. However there are big tests above with the overhead supply which begins to come in around $1077/$1080. The daily chat shows the RSI unwound to neutral and now comes the test of whether the bulls are ready to start building positive momentum. A move on the RSI above 50 would be a positive sign now, whilst the intraday hourly chart shows the resistance around $1080 needs to be breached too. Ultimately though, until Friday’s key reaction high at $1088.70 is breached then the outlook will be all rather uncertain. I feel that this is an uncertain period of trading gold and therefore this needs to be taken into consideration with regards to the time horizon on trades.
Volatility has been ramped up in the wake of the OPEC meeting last week and this has caused sharp moves which on the balance has been to the downside. The intraday breach of the August 2015 low at $37.75 continued to drag prices back to multi-year lows. However there could be a technical rally in the offing, with a “spinning top” candlestick yesterday (very small body in the middle of the daily range). This denotes an element of uncertainty with the prevailing trend and already today we are seeing WTI trading higher. However, the bearish momentum indicators and continued downside potential should ensure that any rallies that look to unwind overstretched momentum continue to be seen as a chance to sell. The intraday hourly chart shows a band of resistance now between $39/$40. There is little sign to suggest we have seen the low quite yet.
At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.