Market sentiment is again starting to come under pressure once more as the oil price slide has gathered pace. The lower close on Wall Street last night came as oil fell by another 3% hitting risk appetite across the asset classes from equities to forex and driving investors into safe havens. In this environment the yen is a key barometer and with the Japanese classic safe haven moving stronger again this does not bode especially well for trading confidence. With the S&P 500 closing 0.3% lower, Asian markets have been weaker across the board. The Nikkei was down 2.4% amidst the pressure from a stronger yen. This is driving weakness in the early European session. It is the turn of the service sector PMIs (and also composite PMIs) today and focus will be on whether the recent improvements in Europe and the US can be sustained.
In forex markets the dollar has started to claw back some of its poise, with the weakness in the oil price hitting risk sentiment and meaning that the commodity currencies are under a bit of corrective pressure. The RBA holding rates at 2.0% and refraining from talking the currency lower has helped the Aussie to perform well early today. The big signal here though is the strengthening yen which now means that Dollar/Yen is back below 111. The gold price has jumped by over $10 in the Asian session but again it will be interesting to see if the move can be sustained.
An array of PMI data from the Eurozone will be announced early in the session with the composite PMI for the region at 0900GMT expected to improve to 53.7 (from 53.0). The UK services PMI is at 0930GMT and is expected to improve to 53.7 (from 52.7), whilst the ISM Non-Manufacturing is at 1500GMT and is expected to read at 54.0 from 53.4). The US trade balance is at 1330GMT and is expected to deteriorate to -$46.2bn (from -$45.7bn). Finally there are also the JOLTS jobs openings at 1500GMT which are expected to dip slightly to 5.50m (from 5.54m).
Chart of the Day – German DAX Xetra
Equity markets are coming under pressure again and the DAX is showing a series of concerning corrective signs that suggest that the February/March rally has lost upside impetus and a downside move is developing. With a consistent failure to really break away from the resistance band that had built up between the key 61.8% Fib retracement at 9897 and the old key pivot at 10,122, the bulls have just lost the momentum. Until today there had been no explicit price breakdown, but the early move has confirmed a breach of not only the 9760 late March low but also the low of 9675 from Friday. The uptrend has now been decisively broken and the momentum indicators are throwing off negative signals, with the Stochastics falling at a six week low and the MACD lines also having crossed lower. The intraday hourly chart shows the uptrend has rolled over and the 61.8% Fib level has once again capped the rally yesterday around 9900. Between Friday’s reaction low at 9675 and yesterday’s low at 9732 now becomes the initial band resistance and a new trend is beginning to form. Expect pressure to grow on 9500 which is the key mid-March low. Initial support to watch out for today is a minor pivot at 9580.
The euro just seems to be coming up a little shy of the long term range high around $1.1465 as the impetus in the latest bull run begins to run out of steam. Over the last five completed sessions the candles have been getting progressively less potent. Friday’s high at $1.1437 which came amidst the Non-farm Payrolls volatility, has not been breached since and with yesterday’s “doji” candle the uncertainty with the run higher is mounting. The RSI hit 69, just as it did in mid-March before just plateauing, whilst the Stochastics have also crossed lower. This all suggests that the upside potential looks rather limited up around here, and with the long term resistance so close it may not come as such a surprise that the bulls are having to question the potential for a breakout. The near term support is $1.1332 and a breach would complete a small top pattern and imply around 100 pips of correction. The near term momentum on the hourly chart also shows far more neutral momentum now with the bulls no longer driving.
Once more it seems that sterling is an underperformer of the major currency pairs. Following on from Friday’s Non-farm Payrolls, the candle formed was sharply bearish, and one that has only partially been unwound by a small rebound yesterday. This leaves the chart with the formation over the past four weeks of a pattern that is threatening to turn into a head and shoulders around a neckline of $1.4050. The daily momentum indicators are relatively neutral with the RSI and MACD lines flat and around their respective mid-points, but the Stochastics are falling and reflect a bearish bias. With the consistent line of lower highs in the past couple of months this could put pressure on the $1.4050 support in the coming days. The hourly chart shows yesterday’s rally has rolled over and the renewed downside momentum could add to the sell pressure. The resistance comes in at $1.4320, with $1.4280 still a pivot that the market is paying some minor regard to. Initial support at $1.4170/90 could come under pressure today.
With the US dollar beginning to find more of a solid performance against its major peers, the fact that the yen continues to strengthen is not a positive sign for general market sentiment. This comes with Dollar/Yen having fallen now for four of the past five completed sessions and once more down again today. The downside pressure is mounting again too as today’s early moves in the Asian session have once again seen the key support around 111 being breached. Despite the intraday breaches a couple of weeks ago. There has not been a close below 111 since October 2014 and the bears are really beginning to push for a downside break from the trading range that has been in place since early February. A close below 111 would complete the pattern and with the intraday breach of 111.65 this looks highly likely now. This would then imply almost 500 pips of downside target that could be seen over the next couple of months. The intraday hourly chart shows that any near term technical rally will be seen as a chance to sell, with the initial resistance in at 111.35 and 111.80, with 112.20 as a near term pivot.
The downtrend channel that has been forming over the past three weeks continues to drag the gold price lower over a near to medium term basis. In this channel, rallies continue to be seen as a chance to sell. The momentum indicators continue to all point lower and whilst the negative momentum has begun to just reduce slightly, it is still pointing towards a continuation of this near to medium term slide in gold. The support comes in just above $1208 which has been a level seen on a couple of occasions, the latest of which was in the wake of the Non-farm Payrolls report. The market is now testing $1225 which was a feature of support throughout March and is now becoming a near term pivot level of note. So a move above $1225 today would add more of an improved complexion, however whilst trading in the trend channel it is difficult to see any rally without it being a chance to sell. The trend channel high comes in today at $1237. A move above the late March high at $1243 would signal an improvement in the outlook.
The legacy of the small top pattern completed last week continues to drag the oil price lower. The concern is that the momentum is building strongly to the downside now and the correction is in full swing. There have now been seven bearish/corrective candles in the past eight sessions. The momentum indicators are accelerating lower with the Stochastics in bearish configuration and the RSI now back below 50 and the lowest in seven weeks. A close below the mid-March low of $36.35 has exacerbated the negative outlook now and the neckline of the old base pattern breakout in at $34.80 is the next basis of support, which is also the downside projection target from the top pattern. However, if there is a decisive breach of the 38.2% Fibonacci retracement of $26.05/$41.90 (at $35.85) would open the 50% Fib level around $34.00. The hourly chart shows that rallies are failing at lower and lower levels on an intraday basis, meaning that the initial key resistance becomes yesterday’s high at $37.20 and this is just under the $37.35 pivot.