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Trading sentiment shifts a little more positive as equities bounce

Last updated: May 3rd, 2017 at 09:55 pm

Market Overview

The meeting between President Trump and President Xi of China has been weighing on sentiment, however Trump also took time to give markets a boost yesterday as he talked about giving US banking regulation (known as Dodd-Frank) a “major haircut”. Whilst protectionist policies have been concerning traders, this was a reminder that his domestic policy rhetoric can still be a potential boost for the markets. This has shifted trading sentiment a little bit more positive, with US Treasury yields pulling higher again, equities on Wall Street bouncing and gold just paring some recent gains. The shift is just subtle at the moment, but has helped to stem the tide and stabilise markets again. There is subsequently something of a consolidation look to several major forex markets, whilst equities are starting to show signs of tentative gains again. However, with North Korea testing another missile overnight it will be interesting to see whether Trump responds with his traditional belligerence, which could scupper the improvement in sentiment. The second debate for the French Presidential race has done little to impact on markets today.

North Korean missile test

Wall Street closed marginally higher with the S&P 500 +0.1%, whilst the Nikkei was also +0.3% higher with Asian markets holding a positive bias. European markets are following a similar vein within marginal gains in early moves. Forex markets show almost no direction across the majors, whilst gold and silver are slightly lower. Meanwhile the oil price continues its recent recovery and is again showing solid gains.

Traders will be looking out for the services PMIs and Fed minutes today. The services PMIs dominate the morning, with the final Eurozone Composite PMI at 0900BST expected to be 56.7. UK Services PMI is at 0930BST and is expected to improve slightly to 53.5 (from 53.3 last month) however with both Manufacturing and Construction PMIs both disappointing earlier this week there could easily be a downside risk to this. The US ISM Non-manufacturing PMI is at 1500BST is expected to dip slightly to 57.0 (from 57.6) but this would still be another strong read. The EIA oil inventories at 1530BST always drive volatility through the oil price and it is interesting to see after last week’s downside surprise of +0.9% in the crude oil inventories that the expectation is for a drawdown of +1.5m barrels this week. Distillate stocks are expected to also show a drawdown of -1.1m barrels with gasoline stocks expected to show a drawdown of -1.6m barrels. The FOMC minutes for the March meeting will be at 1900BST and the market will be looking for further reasons behind the cautious “dovish hike”.


Chart of the Day – AUD/USD

The RBA held rates at 1.50% but was somewhat downbeat over the prospects of the labour market and inflation and this has driven a continuation of the corrective move that has been developing on AUD/USD over the past few weeks. The Aussie has been in a sideways range between $0.7500/$0.7750 since the middle of January and the bottom of the range now looks set to be tested again. The RBA may have driven Aussie weakness yesterday but technically the breach of the mid-range pivot around $0.7600 has once more put a bear bias to the outlook as the market has formed a near term downtrend channel. The support of last week’s low at $0.7585 has also been broken on a closing basis with another strong bear candle. The daily momentum indicators are increasingly negatively configured with the RSI falling below 50 and the MACD lines. The hourly chart shows a run of lower highs which has formed a downtrend in the past few days, whilst with negatively configured momentum the suggestion is that rallies are a chance to sell. There is a range of resistance now between $0.7585/$0.7625 which is now a near term “sell-zone” today.


The consolidation of the recent decline continues with a second consecutive neutral looking candle. It was interesting to see that despite moving below $1.0650 support, the sellers failed to get the downside traction yesterday and the intraday rebound meant that the market has now closed higher on both of the last two sessions. There is also an initial positive move again today. However, the bulls will still need to overcome the resistance at the old pivot around $1.0710 in order to turn the outlook more positive again. Until this is seen then it is difficult to sustainably look towards the bull control. Despite this though momentum indicators are looking far less bearish now and the hourly chart reflects this more benign outlook that has formed. The last two sessions has been spent trading between support around $1.0640 and overhead supply around $1.0680. Short positions are still favoured but conviction would be far greater on a breach of $1.0640 that would open the lows at $1.0600 and $1.0492. A close above $1.0710 would improve the outlook.


The market has formed a tight range in the past couple of weeks as the support has formed at $1,2375 above the old floor at $1.2345 and up towards the resistance at $1.2615. The last two completed candles were bearish and have cancelled out the previous two bullish candles and with the daily moving averages all converging (all now within 40 pips) the market is looking for direction. There is a slight corrective bias on the Stochastics (which are the most sensitive of the momentum indicators) however the RSI and MACD lines are all rather benign. This is becoming a market in need of direction. The hourly chart shows that support is now building above $1.2420 and a band of resistance $1.2465/$1.2495 is just holding back another near term pop to the upside. Further resistance comes in at $1.2557.


The safe haven bid that has returned in the past few days has pulled the pair back to test the uptrend that has been in place since September. A third consecutive bearish candle is really now pressuring the key support of the March low at 110.09 and with momentum indicators turning lower there is a negative bias to the outlook. This is reflected in the hourly chart where an overnight rally failed in the 110.70/111.10 resistance band and now threatens to test yesterday’s low at 110.24. The hourly RSI has again failed in the mid-50s, whilst the hourly MACD lines have turned lower around neutral, both of which are hallmarks of a bear rally. Expect continued resistance in the 110.70/111.10 band of near term overhead supply for what looks to be a test of 110.09. A breach of the support would open the 50% Fibonacci retracement of 100.07/118.65. The big resistance remains the long term pivot at 111.60.


Can the bulls breakout? The initial attempt to move above the resistance of the March high at $1261 failed yesterday and subsequently formed a somewhat disappointing candle that despite showing a gain on the day, closed only just above the low of the session. Today’s early move reflects the uncertainty that the bulls are facing. This is all coming with the key multi-month high of the February peak at $1263.80 and long term downtrend (currently around $1270) all looming overhead. Momentum indicators retain a positive configuration but also have a lack of real drive that might be needed to push gold through this key resistance. The hourly chart shows a near term pivot has formed around $1254 which could be a determining factor behind whether the bulls just begin to lose their way again. The hourly momentum could also be signals too with the hourly MACD lines back at neutral and the RSI into the mid-40s. Below $1254 re-opens another near term pivot at $1251 and then $1244, with $1240 still a basis of key support.


The perfect response to Monday’s corrective candle was seen in a bullish outside day and a move up through to a four week high. The market is also pushing through the $51.22 resistance. A closing breach of $51.22 today would clear the old lows of January/February and start to clear the overhead supply. Coming with the improvement in the momentum indicators, the near to medium term outlook is now decisively improving again. The strength of the bull candle yesterday has also left key support at $49.90 which is above the $49.60 neckline of the base pattern. The base also continues to target $52.20 which is coming closer into view now. On the daily chart the next resistance is the early March resistance band $52.50/$53.80.

Dow Jones Industrial Average

The reaction of the bulls in the past couple of sessions suggests that the market is in a sideways consolidation for the time being. The resistance remains in place between 20,757/20,777 over the past couple of weeks and with momentum indicators increasingly neutral there is a struggle for real direction now. The daily RSI is bang on 50, the Stochastics have plateaued just below neutral, and the MACD lines are settling just above neutral. The resistance of a 5 week downtrend continues to weigh but the market is still trading above the rising 55 day moving average (around 20,497). Also yesterday’s support at 20,518 comes in above the key recent low at 20,412. We are still no nearer a decisive move on the Dow.

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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.