Last updated: May 3rd, 2017 at 09:58 pm
The positive market sentiment that had been present in the last couple of weeks has just started to ebb away again. This comes as commodity prices have fallen back to multi-week lows and caution surrounds the latest meeting of the ECB. The oil price looks set to test key support levels whilst copper prices are also under pressure from oversupply as two important gauges of global sentiment are again flashing the warning lights. Today’s ECB meeting comes amid a debate over whether the ECB will extend is €1.1trillion QE program. Draghi is likely to continue to give off dovish signals in his press conference with the Eurozone again dipping back into deflation, however the outright announcement of a QE extension looks unlikely after signs on Tuesday that bank lending was beginning to pick up.
The US gave off another uninspiring session before closing towards the low of the day with the S&P 500 down 0.6%. Asian markets were also mixed to slightly weaker with the Nikkei 225 closing off 0.6%, whilst European markets have taken on board this downbeat sentiment and are trading weaker today.
In forex trading, there is little movement on the euro ahead of the ECB, whilst sterling is in similar mode. The yen has strengthened slightly but the main mover is the Kiwi which has unwound some of the recent weakness. In the absence of any real fundamental news this looks to be a technical rally and is likely to give another chance to sell if the dollar bulls are ready. The Canadian dollar has unwound a touch but is likely to remain under pressure after the BoC downgraded its growth forecasts for the next two years in a dovish policy statement. Gold and silver are slightly weaker, whilst the oil price has also unwound some of yesterday’s weakness but again exactly how long this rally lasts for in a downbeat macro outlook remains to be seen.
The ECB is the main event today with the policy announcement at 1245BST and then the press conference at 1330BST. Prior to that though the sterling traders will be watching for UK retail sales at 0930BST which are expected to improve to 4.6% adjusted YoY (3.5% last month). The weekly jobless claims are expected to pick up slightly from the record low at 255,000 last week to a still very low 265,000. The existing home sales are also announced at 15000BST with 5.38m which would be 1.4% growth expected.
After a three week slide in the pair as the Canadian Loonie has strengthened there has been a big turnaround in sentiment. The immediate move may have been driven by a dovish statement from the Bank of Canada but the technical indicators have also turned a corner. First of all there has been a price break above the resistance at $1.3080 which ends the sequence of lower highs. The RSI confirms the improvement but also there has been a confirmed buy signal on the Stochastics. The intraday hourly chart shows an uptrend has been constructed over the past 4 days and suggests that corrections are being bought into. There is now a good band of near term support between 1.3045/1.3080. There is an initial resistance that comes in at 1.3145/1.3175, but there is a definite improvement now underway and if this resistance can be breached then the rally should be able to continue with the subsequent resistance not really until 1.3320/1.3350. Look to use any intraday weakness today as a chance to buy.
In the wake of a slightly disappointing positive candle on the previous session, yesterday showed rather a neutral and indecisive candle. I spoke yesterday about the need to break and preferably close above the near term resistance at $1.1395 and this has yet to be seen on either basis. The indicators are reflecting the consolidation but remain positive on a medium term basis. I am still looking for another higher low above the $1.1100 pivot and likely to be between $1.1200/$1.1300, but the clear caveat will be the likely volatility surrounding today’s ECB meeting and (more likely) the press conference. If Draghi tries to jawbone (ie. talk of the prospect of further easing) then the euro is likely to fall, however I still see this as being temporary, especially if the positive medium term technicals are anything to go by. A close above $1.1395 opens $1.1465 again.
The second consecutive negative candle with a close again towards the low of the day is putting rather a bearish slant to the consolidation now. The support that has been coming in at $1.5413 was breached by a few pips yesterday but just held on at the close. However this support is under continued test today. The daily momentum indicators are rolling over now with the Stochastics probably the most concerning with a crossover, and I will again re-iterate the RSI failing around the 60 level. A decisive break below $1.5413 would imply a near term 90 pip downside target and a move back into the support band $1.5300/$1.5385 and this is increasingly looking like the next likely move. The intraday hourly momentum has taken on more of a corrective outlook, whilst Cable is also trading below all its hourly moving averages. Another confirmed lower high below $1.5477 would be a weak signal as the pressure mounts. For now it looks best to have a short time horizon on Cable trades as the technical outlook broadly remains balanced.
The rally on Dollar/Yen has added just over 200 pips in the past 5 sessions, however I would still argue that there is little from a technical perspective to be too bullish about. The series of candles are littered with fairly neutral looking candles that suggest a lack of real buying pressure. Today we have started with a slight correction as the pair rolls over at 120.10 (incidentally underneath the key near term resistance at 120.30. This is happening with the RSI turning lower around 50 and the MACD lines still under the neutral line. The decline in the past 12 hours has also shown the intraday hourly indicators deteriorating too. I have been saying for several days that I thought a rally was a chance to sell and yesterday my view was being seriously tested, however I still believe that another lower high below the 120.30 resistance will see that strategy come to fruition. The pivot support band at 119.60 could today have a big say as to whether I am proved to be right. Subsequent support is at 118.90.
The failure on Tuesday for the bulls to quite complete the bullish reversal seems to have cost the positive outlook as a strong bear candle was posted yesterday. This means that gold is now into a key phase. It is back into the support band that I have been contemplating at $1156/$1170. It is also a concern for me that a near term sell signal is now showing to confirm on the Stochastics. However I am not getting too carried away with this signal yet as the RSI and MACD lines are not too bad, for now. The intraday hourly chart shows the continued slide in the price over the past 5 days, but it was interesting watching gold yesterday as the big decline of around $10 came in the space of around 5/10 minutes amid no obvious fundamental data which would suggest a big order going through the market rather than sustained selling across multiple traders. For now this correction continues to play out, but I am still hopeful that it is a near term move, counter trend and the buyers will be ready to support. It Is though always important to remember not to anticipate support.
Aside from one positive day of trading, WTI has been under negative pressure on 7 of the past 8 sessions. I have discussed the deterioration in the outlook and the intraday breach of the support at $45.23 now puts the price under even further pressure. The momentum indicators on the daily chart are the concern for me now. The RSI has fallen below the 47 level I have been speaking about which now takes it to an 8 week low, and with the deterioration in the Stochastics also confirming this move, it suggests that pressure is seriously mounting on the $43.20 key support. The intraday hourly chart shows the bearish near term momentum and the resistance now forming at lower levels. Continue to watch $46.50 as the initial resistance, whilst the $47.50 rally high from Monday is the key near term barrier. Selling into intraday rallies seems to be the best way to play so perhaps look at the hourly RSI turning lower once having unwound back towards 50/60 as an opportunity to for a near term sell.
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.