It is quite apt that as we approach the end of a tumultuous year, trading sentiment on the final day of 2015 looks to be still be reasonably negative, with markets again reacting to the weakness on oil prices. The 3% decline in oil has traders nervous as we move into the New Year, however with volumes uninspiring there is a lack of appetite to rake a view. The weakness on Wall Street yesterday which saw the S&P 500 drop 0.7% inspired a rather mixed session in Asia (Nikkei 225 up 0.3%) however European indices look to be closing the year on the back foot. Don’t forget the shortened session for the New Year holiday.
Forex markets have become rather subdued over the past few days (as often is the case between Christmas and New Year), and are lacking direction somewhat amid lower volumes. Commodity prices took a hit again yesterday with gold finding some direction lower and oil also strongly off, and whilst there has been an element of support in early trading today it will be interesting to see if this can last.
Once more it is a very quiet day for economic announcements to drive sentiment, however the weekly jobless claims in the US are at 1330GMT (274,000 exp) whilst the Chicago PMI at 1445GMT (50.4 exp) could be an early indicator for the US PMI.
Chart of the Day – DAX Xetra
Although the DAX is closed for the New Year’s Eve holiday today, one question to ponder is whether the Santa Claus rally has run out of steam? I find the frequency of the Fibonacci retracement levels of the 8355/12390 bull run acting as near term consolidation or often even reversal levels is astounding. Once more this seems to be the case as the rally over the past two weeks on the DAX has hit the resistance around the 38.2% Fib at 10,850 and is now consolidating. The original sharp post-FOMC rally also hit around this level and now the resistance in the band 10,830/10,860 is strengthening. Momentum indicators have a very slight positive bias but the sensitive Stochastics are approaching stretched levels, whilst both the RSI and MACD indicators are around neutral and the bulls have more work to do to suggest this is a sustainable medium term move. Unless the bulls can regain the initiative and pushing back above 10,850 then this rally will be short-lived. The hourly chart shows initial support at 10,730 and 10,700 whilst the bulls would have lost near term control again on a move below 10,625. The DAX is closed for the New Year’s Eve holiday today.
The euro is once more settling down ahead of the New Year public holiday. Yesterday’s 44 pip traded range and a spinning top neutral candlestick suggest that the previous threatened drift lower has been averted for now and we are likely to have another low volume tight range day. The euro subsequently looks to be entering 2016 with a continuation of the neutral outlook between the $1.0810/$1.1050 medium term range. The hourly chart shows initial support around $1.0900 with resistance around $1.0990.
Cable managed to stop to rot to a certain extent yesterday as a doji candlestick formation prevented a continuation of the decline. However, there is as yet there is little reason to see this as anything more than a delay to the selling pressure. The momentum indicators remain negatively configured and although there is a slight bounce in place since the $1.4783 multi-month low from Tuesday, this is still likely to be used as a chance to sell once the market gets back to full speed after the Christmas break. As I said yesterday, I expect to see the resistance band $1.4850/$1.4915 as shown on the hourly chart to be seen as an area for the next selling opportunity. Hourly momentum has now unwound and this opportunity could be ready to present itself in the next day or so. A break above key near term resistance at $1.4975 would improve the near term outlook.
The tight consolidation that is often seen around this time of year continues on Dollar/Yen after yesterday’s doji candle of just 33 pips showed how the market is lacking direction of late. This is coming as the support around the 61.8% Fib retracement at 120.20 seems to continue to hold up the pair. However there is still a slight negative bias to momentum which suggests that the pressure on the support will continue. Rallies on the pair remain a chance to sell, with the Fibonacci retracements at 50% (around 120.85) and 38.2% (around 121.50) being levels to watch. The hourly chart has a neutral look to it now after the pair has settled sideways for the past few days. Initial price resistance is at 120.70/121.10. A break below 120 support would open 119.60 and the 76.4% Fib level at 119.35 is also supportive.
One major market that has had some direction is gold as a bearish candle seems to be once more dragging the price back away from the key medium term resistance band at $1077/$1098. This more comes after several days of consolidation and re-opens the possibility of a test of the key lows $1045.85/$1047.25. The momentum indicators are also now beginning to roll over once more and the negative medium term configuration that is characterised on the RSI and MACD lines reflect the problem that the gold bugs have in trying to form a recovery. I think that the early trading of 2016 will be important for the outlook and the current moves suggest that the multi-year lows will once more come under pressure. Will the selling pressure resume as the market gets back to full speed after New Year? The hourly chart shows initial resistance today comes in at $1066/$1072.
With a recovery in sight could it be that the bulls are faltering once more? A disappointing session all round saw a decline of 3% which completely unwound all the good work of the previous session. Not only that the initial support of Tuesday’s low at $36.60 was also breached on the way to an intraday low at $36.40. This has also had an impact on the momentum which is no longer looking as positive. All is not yet lost for the bulls as there could still be a base pattern in formation, however a second consecutive bearish candle today will have the bulls feeling nervous again and also would negatively impact on momentum. The hourly chart has not yet turned the near term outlook negative, but a confirmed breach of $36.60 would not be great. Yesterday’s close bang on $36.60 suggests there is a tight balance now. Key near term support is now at $35.65 and below there would certainly confirm the bear control again.