Last updated: May 3rd, 2017 at 09:58 pm
The turnaround in market sentiment as the oil price rallied yesterday was incredible. The suggestion for potential production limits both within OPEC and outside caused the oil price to jump by over 10% intraday. However the big issue is exactly how to persuade all these competing countries to agree. Despite this though, risk appetite improved strongly with equity markets bouncing, Treasury yields well off their lows and commodity currencies also benefitting. The mood has been tempered slightly today with a retracement on the oil price, however the longer oil builds back above $30, the more that confidence can build once more. Volatility has been a huge feature of trading recently, and although there may be a slight hiatus whilst the market considers the FOMC tonight, expect the volatility to resume in due course. The oil price remains the driver of sentiment on markets, but there will be due consideration given to the FOMC which is also key.
Wall Street was strong on the back of yesterday’s oil price jump, with the S&P 500 up 1.4%. This filtered into the Asian markets which were broadly strong (other than Chinese equities) with the Nikkei up 2.7%. European markets are a little more cautious in early moves today as once more a dip in oil has traders a touch wary again. Forex markets are rather mixed ahead of the Fed this evening, with the Aussie outperforming after Australian CPI was higher than expected. The FOMC is not expected to hike rates, and attention will be paid to the wording of the statement for any clues over a possible dovish shift in outlook amidst the recent market turmoil and slide in oil prices. The gold price has drifted back a touch today but once more a 2% decline on oil is a driver of sentiment.
The FOMC announcement and statement at 1900GMT is the main event for the day, however attention will also be paid to the New Home Sales at 1500GMT which are expected to improve by around 2% to 501,000. The weekly oil inventories report by the EIA at 1530GMT will add volatility to oil, with another expected build of around 3.8m barrels of crude.
Is FTSE about to complete a near term base pattern? Although it is not so clear on the daily chart, the hourly chart shows the formation of a head and shoulders reversal which would complete on a confirmed break above 5933. The implied target of the reversal would be 6190. This comes in the wake of an incredible intraday recovery yesterday which has left a candle very much resembling a bull hammer. This reflects a significant improvement in near term sentiment (even if it has not come at the bottom of a downtrend). The prospects of a near term recovery are decent now, with the momentum indicators on the daily chart also sharply improving again. The RSI around the mid-40s tends to peak out around 60 so there is plenty of room for a recovery. Although the early moves today are slightly lower on FTSE (well the oil price is off again, so what do you expect?), the bulls will still be hoping for a chance to test the 5933 neckline. The initial resistance subsequently would be the minor reaction high at 6011. Just as an aside also, I am also increasingly impressed by the consistent use of the pivot around 5770 which is around the old August low at 5768 which strengthens the support.
The euro maintained the minor recovery off the support around $1.0810 yesterday as a small bullish candle held on to push higher again. The outlook on the euro over the medium term basis remains one of a slight bearish bias with a sequence of lower highs over the past 7 weeks which are gradually adding more and more pressure on the old pivot support at $1.0810. The fact that intraday moves below the support have been made on several occasions in the past week suggest the bears are testing the water. The pair is highly likely to consolidate during today’s trading as traders may be unwilling to take a position ahead of the FOMC tonight. The hourly chart shows the near term resistance in the range $1.0860/$1.0900 is currently holding back the recovery, whilst yesterday’s low at $1.0817 adds to support. I remain on the fence with the euro and perhaps the FOMC will provide us with some direction tonight. Sub $1.0777 opens $1.0710.
With the turnaround in market sentiment yesterday (driven by an oil price rebound) the six week downtrend is now being seriously tested. The significant bullish candle (which was a bullish engulfing) has also impacted on momentum, with a series of positive signals now on the RSI (basic buy signal), MACD bull crossover and Stochastics rising. Is this a serious recovery? Looking at the hourly chart there is a large head and shoulders reversal base pattern formation on the brink of being completed. I have said previously that if the olf pivot resistance at $1.4350 can be breached then this would significantly improve the near term outlook. This is also now the neckline of the base pattern, whilst a confirmed breakout would imply $1.4620. This would need to trade clear of the resistance on an hourly candle basis. The support is also now in place at $1.4235 with $1.4170 now key. I would also like to see more positive hourly momentum which is still fairly rangebound. Next resistance is $1.4455 with $1.4490 key.
Dollar/Yen is just beginning to form some consolidation over the past few days (not to necessarily be unexpected with the FOMC decision tonight). The crux of the matter is that there has been an improvement in the past week and the prospect of a serious recovery is still there. The recovery in the momentum indicators continues but needs to go further, with the RSI just consolidating around the 50 mark. The bulls will certainly be hoping that this consolidation turns into something more like a bullish flag pattern on the price. The support of yesterday’s reaction low at 117.63 now looks to be key as if this can be used as a basis of support then the bulls can build towards a serious breach of the old key pivot at 118.75. A move above 118.75 would be a bullish breakout and complete the flag pattern. We wait for the FOMC to break the consolidation.
The recovery in the gold price continues to improve. Yesterday’s bull candle was a second in a row and the price is now clear of the old resistance at $1112. The momentum indicators continue to improve with the Stochastics rising strongly, however I would still like to see the MACD in a stronger advance and the RSI pushing above 70. On a medium term basis, the 21 day moving average is becoming a basis of support and is rising at around $1091 today. However, it is the price action on an intraday basis that was the real positive. The initial breakout subsequently returned to build support around $1110 before pushing back higher again. The chart also shows an uptrend support coming in at $1105 today as corrections continue to be bought into. The daily chart shows the next resistance coming in around $1136.50 and $1142.00.
The wind has changed again and so has the direction of the oil price. Volatility remains high and this drove an incredible intraday turnaround yesterday of more than 10% from the low of the day at one point, to close with sharp gains, and with it the accompanying improvement in general market sentiment. The move came amid suggestions of production agreements with OPEC and Russia. How likely this is remains to be seen (but without the US agreement it is difficult to see too much to be gained from doing this). This is a stage at which technical become incredibly difficult to gauge as the market is so jumpy. The resistance of the initial technical rally at $32.75 is once more back in view, however it is still difficult to trust this as serious rally as all medium term technical indicators suggest this is a bear market rally that will be sold into. Overnight we have seen the oil price dipping lower again so it is clearly a very volatile time. The daily chart shows the falling 21 day ma at $32.90 is the basis of resistance, whilst the RSI unwinding towards 50 is seen as renewing downside potential. The Fibonacci retracements of the January sell-off from $38.40 to $26.20 are interesting pivot points now. A breach of the 50% Fib retracement at $32.30 opens $33.74 which is just under the next key overhead resistance at $34.00. If the bulls can keep going, this is the next level to watch. A break back below $30 would be negative with $29.25 now key support.
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