Last updated: May 3rd, 2017 at 09:58 pm
Talk about the oil price will again dominate the early part of the trading week as the news of the lifting of nuclear sanctions on Iran has threatened to send oil into a tail spin. Talk of an additional supply of 500,000 barrels a day is certainly not going to do anything for positive sentiment for oil. The trouble is that oil remains a key driver of market sentiment, so once more, with sanctions on Iran lifted we see a concerning outlook for traders. This comes in the wake of another negative session on Wall Street on Friday where the S&P 500 closed 2.2% lower. Asian markets have mostly reacted lower today with the Nikkei 225 down by 1.1%. European markets are mixed to lower but watch the direction of bond yields today to give an idea of the direction of sentiment for equities.
Forex trading shows that risk appetite is actually reasonably positive in early moves, with the euro and yen reversing gains, the commodity currencies positive and even sterling is higher. However, there are slight gains on gold (which is slightly market negative) and oil is also off again.
Today is Martin Luther King Day public holiday in the US, so volumes could be fairly light. There are also no real economic announcements either.
I am probably talking about this too early, but after 11 consecutive positive trading days, I am astounded by the overstretched position that the RSI has taken up on the chart of Dollar/Loonie. The RSI is now around the levels that it got to during the sharp run higher of early 2015 when it finally tipped out at 87. The amazing breakout has now hit the implied target of 1.4530 that was derived from a bull flag breakout during December. Does this now mean that the profit takers could be ready to pounce? It is interesting to see that we see early gains on Monday being sold into and the beginnings of a negative candle on the daily (it is important to realise this is very early in the session and it is also Martin Luther King public holiday in the US today). There is also a distinct difference between profit taking on a long position and going short though (history tells us that on this chart). However the daily Bollinger Bands do not suggest the move is too extreme, yet (although today this may be a different case. My assessment is that after such a strong run higher then long positions must have profits protected. The hourly chart shows initial support in the band 1.4400/1.4420, with Thursday’s low at 1.4330 more important near term.
The price action on Friday suggests that the bulls are now straining for an upside break. Friday’s strong candle may have lost upside impetus into the close however there a serious signs that the consolidation of the past week between $1.0810/$1.0950 may be ready to move higher. However, more needs to be done still to convince. Momentum indicators are not leading the breakout and are still relatively neutral. Also, once more on Friday there was an attempt to breakout which could not last. The intraday hourly chart shows that previous attempts above $1.0950 have been spike moves, very quick higher and then lower, whereas the price spent several hours on Friday above the resistance before drifting back inside. This suggests a new acceptance of the price at the new level. Will dips now be bought into? Watch the hourly momentum with the hourly RSI maintaining a positive configuration, and the MACD lines above neutral. Initial support is $1.0860 with the key pivot line still $1.0810.
Another significantly bearish candle on Friday was seen as Cable continues its incredible decline. The RSI is now at its lowest level (below 20) than at any time since September 2014 (just prior to the Scottish Independence referendum). The other main factor in this chart is that the key 2010 support at $1.4230 is now ready to be tested. The trouble is that the price is now accelerating away from the downtrend and becoming increasingly stretched, and just like an elastic band, stretched prices tend to have a snap back. For now we must stick with the sell-off as it is fairly uniform and well defined. The hourly chart shows the stepped decline where old support becomes new resistance, with the latest low at $1.4350 the new resistance. So we must watch the hourly indicators for signs of a snap back or technical rally. As yet there is nothing but watch the hourly RSI moving above 60 and the MACD moving above neutral, to act as early signs. There is further resistance at $1.4450. Below $1.4230 then the next level is $1.4000.
The August spike low at 116.46 has now been all but hit as Friday’s low at 116.50 was within a few pips before a bounce. A second attempt at it today has also bounced, so currently this looks to be the level to watch as key support. The momentum indicators are very slightly off their worst but that does not mean that this is going to be a recovery quite yet. There is a long way to go before we can call a rally and in the meantime the most likely course will be a continued track lower and a breach of 116.46. The intraday chart is showing through as a small double bottom but the overhead resistance around 117.20 which was previously support is now becoming a barrier to gains today. If this resistance can be cleared then there could be a rally towards 118.35 which is the next resistance and which is key near term. A breach of 116.46 opens 115.35 the January 2015 low.
The bulls have fought back but I now see this as a chance now very much in the balance. The swings in the past couple of weeks suggest to me that there is no side in overall control now. The outlook is more neutral now with momentum indicators now around the neutral line. The formation of support again around the pivot at $1077 means that the bears are still kept at bay but there is no conviction behind the bulls right now. The hourly chart shows the resistance around $1093 from last week is again holding back a recovery and the concern is that the MACD lines are just crossing over to give another corrective signal which could put the pressure back on to the downside. It now needs a move above the resistance at $1098 to reinstate bull control. Subsequently continued trading between $1077/$1098 I see a neutral rangebound outlook.
The bears remain in complete control as the price of WTI has closed below the next psychological level of $30 for the first time since 1st December 2003. Also, after the announcement of the release of Iranian sanctions over the weekend, the price has continued to fall today. Any consolidations are simply just being sold into, let alone intraday rally now. The momentum indicators simply have a bearish configuration and as yet show little or no sign of any oversold condition that might give rise to a technical rally. The resistance is now in place at Thursday’s reaction high of $31.75 but that is a fair way away now, with the intraday chart showing that the $30 level is initially becoming a barrier to gains. Continue to use any rallies as a chance to sell, with the 100% Fib projection of the summer sell-off and subsequent rebound coming in around $27.15 as the next target area.
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