The latest trade data out of China does not make for good reading. The world’s second largest economy saw its exports drop by 5.5% and imports down by a whopping 13.8%. The exports were a slight beat of expectations (of -6.0%) whilst the imports were a big miss (of -8.2%). Last month the disappointing exports data created a massive shift towards safe haven plays so perhaps with the exports in ahead of expectations, the market is a touch more relaxed this time around. Traders seems to be looking on the brighter side of the Chinese trade data. China Shanghai equities are closing higher, although Asian markets are generally mixed as the Nikkei 225 is down by 2.4%. Clearly, traders in Europe are looking on the Chinese data as a glass half full and indices are slightly higher in early trading, but it will be interesting to see if this lasts.
In forex trading there is a decent bout of risk appetite today, as so far traders seem to be focusing on the better than expected China exports decline, although there could also be an element of there being a view that the China data will impact negatively on the chances of a US rate hike. Sterling is the sharpest climber up 0.5% on Cable, whilst the euro is also stronger, and interestingly also the commodity currencies are also strongly higher too. Gold is holding steady once again.
Traders have not got too much data to focus on today, other than the revision of Q2 Eurozone GDP at 1000BST which is expected to be slightly reduced to +0.3%.
The sell-off on Euro/Yen in the past couple of weeks has turned the outlook completely around. Having previously looked to be breaking higher with a euro recovery, selling pressure has resumed on the euro and a drive of the safer haven of the Japanese yen has resulted in a sharp drop in EUR/JPY. Friday’s close below the key multi-month support looks to have been a key move which could be the start of a deeper correction. This was a 4 month low on the pair and now suggests that selling into strength is the medium term strategy. Ideally there would be a two day close below the support to help confirm the breach of such a key level. Currently, there seems to be a technical rally underway, with the RSI turning up from 30 and the Stochastics are crossing positively too. However, with a downtrend in place over the past two weeks it seems as though this move looks to merely be counter trend, which today comes in around 134.00. If the rally does take hold, it could be that the key indicator could now be how traders react to the near term resistance band at 134.30 towards 135.00 as a sustained move through here would be a significant turnaround once more.
With the support around the $1.1050/$1.1100 pivot level holding firm the euro has started to engage a rally once again. This move is helping to improve momentum once more with only the Stochastics now in any really negative formation (RSI and MACD look neutral at worst). However, although the pace of selling has slowed, on the daily chart you would say that nothing would have really been achieved until a recovery above the $1.1330 reaction high. This is though a good start. The hourly chart shows a break above the initial support band $1.1155/$1.1205 has been seen overnight, with the next hurdle the resistance around $1.1250. Hourly momentum indicators are improving now and there is support initially around $1.1150/$1.1180 to build from. This is the very early stages of the recovery and there is further to go, but it is a good start for the bulls.
For several days I have been talking about whether this was going to be the continuation of a range play or whether there would be a downside break, and finally, pretty much at the last minute, the bulls returned to support Cable at the limit of the support of the June low at $15168. The sharp positive candle yesterday broke a sequence of nine negative sessions and this rebound looks to be continuing. The momentum indicators have picked up, with a buy signal on the RSI and the Stochastics having crossed higher (not confirmed as a buy signal quite yet). The rebound is already testing the initial resistance at $1.5330, whilst the intraday hourly chart suggests that momentum is beginning to look far more positive and further gains are possible now. A move above $1.5330 would open $1.5400 and then the important near term resistance at $1.5440. There is support now in a band $1.5245/$1.5290.
The outlook seems to be turning around once more as the bulls bounce back. A sharp rally as the European session has begun today has broken a downtrend that has been forming over the past week. As things stand now, the daily chart shows a second strong candle in a row. There is more that needs to be done, as the daily momentum indicators are still on the weak side, with the Stochastics in consistent decline, the RSI is still below 50 and the MACD lines negative. However, the intraday hourly chart shows a sharp move above the initial resistance at 119.60 which has now opened 120.20. However, the bulls would not really feel comfortable until a move above 120.70. The old resistance at 119.60 is now supportive today whilst the support at 118.72 becomes key now.
Gold continues to stand of the brink of a deeper correction, however in the last couple of days the selling pressure has slowed somewhat. The momentum indicators continue to suggest weakness, with the Stochastics in decline and RSI at a one month low. But the bulls are hanging on, for now. The hourly chart shows the creep lower on the price without there being that decisive break. I am still tending towards a downside break however, keep an eye on any rebounds. A move above the old support at $1125.50 would begin to improve the outlook with real improvement coming above $1131.85. Despite the intraday minor tests there has been no decisive breach of the support at $1117.30, so a close below this could be required for conviction. That would then open the key near term level at $1109.10.
After a day of closure for the Labor Day holiday in the US, WTI is opening under some pressure. Although there was a rather restrained band of trading on Friday (just over 3% and this despite being a Non-farm Payrolls Friday), it is far too early to suggest that the market is beginning to settle down (China is trading again this week, so expect the volatility to ramp up once more). So, the support of the low in place at $43.20 could now come under threat, coming around the 23.6% Fibonacci retracement of the big $61.50/$337.75 bear run at $43.36. The support grows even more on the intraday hourly chart as this is also around the 50% Fibonacci retracement of the $37.75/$49.33 rebound at $43.54. These Fibonacci retracement levels are taking on an important role now as the 23.6% retracement of $37.75/$49.33 at $46.60 is now being seen as a consolidation level near term. The hourly momentum is beginning to show signs of weakness again, with resistance coming in around $46.
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.