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Oil still driving market sentiment

Last updated: May 3rd, 2017 at 09:58 pm

Market Overview

In this quiet period of trading between Christmas and New Year, volumes are reduced and traders are often reluctant to take a view. This is once more the outlook across many of the major forex pairs, however many of the pre-Christmas trends remain prevalent. This means that there is still a lack of dollar strength (apart from against sterling) whilst gold is also holding up. However once again today it seems as though a turn lower in the oil price (on slightly higher than expected inventory data) is driving sentiment lower on equity markets. The general mood of a belated Santa Claus rally helped by a robust few days for oil, is just being pegged back early in the European session with DAX and FTSE 100 slightly lower. The oil price is again driving sentiment for markets.

Forex majors show a consolidation as a general trend, however early this morning there is a slight move against the dollar, with gold also supported. The weakness on oil is seeing WTI 1.7% lower in early trading. Once more there is little major data due, however there is still Pending Home Sales for the US at 1500GMT (+0.6% exp), with the EIA oil inventories also likely to drive oil at 1530GMT (-1.8m exp).

Chart of the Day – USD/CAD

Are we on the brink of a Canadian Loonie rebound? Well, it is very difficult to see past the persistent dollar strength over not only the medium but also the long term, but the prospect of a near term bear move on USD/CAD to at least unwind the pair within the big uptrend it possible. For the potential trigger, look towards the deterioration of the momentum indicators which have given a series of near term sell signals, with the RSI classic crossover, the MACD lines turning negative and the Stochastics lower. The resistance now in place from yesterday’s high at 1.3940 will now be an important marker, whilst the 1.4000 high from the 18th December could now be a key near term high. However there is no real sign yet of any topping signal on the price, however 1.3793 is a two week low. A correction back towards the 1.3435/55 support band could easily be seen, which would be a corrective move still within the medium/longer term bull trend.

USDCAD   30122015


The euro continues to consolidate in its range between $1.0810/$1.1050. The latest outlook of which way the the euro will break has taken a slight turn negative with yesterday’s negative candle which followed a doji at the top of a small trend higher. The other factor is that the deterioration in momentum such as the Stochastics. I am broadly neutral on the euro for now but there is a very slight bearish bias forming which may result in a drift back towards $1.0810 again. The hourly chart also shows that the near term dip below $1.0940/60 support could now turn into resistance as the euro trades below all the hourly moving averages. This could result in a test of initial support at $1.0870. Trading remains light due to the holiday period.

EURUSD   30122015


Sterling remains under pressure with a continuation of the move lower that leaves open the prospect of a retest of the April low of $1.4563. All moving averages and momentum indicators are bearish on the daily chart, which suggests rallies continue to be seen as a chance to sell. The latest reaction high at $1.4947 has added to the overhead supply in the band that left the early December lows at $1.4893/$1.4955. The overnight rebound has just left initial support in at $1.4783 however there is little reason to believe that the bounce will be sustainable. The hourly moving averages are also all falling in bearish sequence and the hourly RSI has unwound which means that the resistance band $1.4850/$1.4915 looks to be a good area to look for the next sell signal for a retest of $1.4783 and further downside in due course.

GBPUSD   30122015


Since the 24th December the pair has settled into a very quiet period of trading which has resulted in a consolidation once more around a Fibonacci retracement level. The 61.8% Fib around 120.20 has been the basis of the consolidation which has helped to bolster support around 120.00. The yen continues to be seen as the stronger component of the pair and pressure remains to the downside. This would suggest that there is still a downside bias and the hourly chart shows initial resistance between 120.70/121.00. I would certainly rather be short than long but the small and indecisive look to the daily candles tell me that the latest signals perhaps should be taken with a pinch of salt and the sidelines are the best place to be for the time being. Below 120.00 opens 119.60, the 76.4% Fib at 119.35 and perhaps even a full retracement to 118.04.

USDJPY   30122015


Along with many of the major markets that I follow, gold has also settled in a very tight sideways trading range over the past few sessions. We continue to see any move up towards $1077 being the limit of the bulls ambition, whilst there is also little real desire to sell gold off too. This is resulting in the daily indicators becoming increasingly neutral, with a flat 21 day moving average and momentum signals also neutral. The hourly chart shows initial support between $1060/$1065 is holding, whilst the key December lows at $1045.85/$1047.25 remain safely intact for now.

Gold   30122015


The bulls are fighting against the overhead supply that has been preventing a recovery on WTI in the past few sessions. The old floor around $37.75 which was the August low has resulted in a couple of failed rallies in mid and late December which has left resistance in place between $37.75/£38.30. However the momentum indicators are really picking up now and reflect the kind of improvement that could come with a base. Furthermore, a close now above $38.20 would also complete a head and shoulders bottom which would imply a recovery target of $42.50. As ever though, after such a bearish decline there certainly needs to be confirmation of the move, so I would not recommend moving too early to play the upside. Furthermore, once again today the oil price is under early pressure again. The hourly chart shows $36.60 as key near term support now.

WTI   30122015

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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.