Last updated: May 3rd, 2017 at 09:58 pm
Despite a cautious close from Wall Street last night, and mixed trading in Asia early today, sentiment is mixed to positive as the European session take over. Whether this will last, remains to be seen. The first look at US Q3 GDP was mildly disappointing at 1.5% annualised (1.6% expected) but whether this is something that will sway the Fed either way on monetary policy in December is uncertain. The reaction overnight has been to the Bank of Japan (BoJ) which has kept steady on the tiller of monetary policy, with the US dollar now looking to correct. There had been debate over a possible extension of the BoJ’s asset purchase program, but the BoJ has chosen not to move this month. This has created volatility in the yen, but the Nikkei has closed up 0.8% which is a reasonably positive reaction.
In fore markets there is a bit of a dollar correction going on today as markets just give back some more of those Fed related dollar gains. The interesting moves have again come with the Aussie and Kiwi, with the Aussie gaining by 0.6% on the back of a surprise uptick and beat of expectations on Australian PPI. The gold price has been slightly supported today, but coming after 2 days of solid weakness the reaction is fairly disappointing. The oil price has dipped back again slightly this morning.
Traders will be watching the Eurozone flash inflation data at 1000GMT which is expected to tick higher to zero (from -0.1% last month. Then at 1230GMT the announcement of the Fed’s preferred inflation data, the core Personal Consumption Expenditure which came in last month at 1.3% (YoY) but is expected to pick up to 1.4%. The final Michigan Consumer Sentiment is at 150GMT and is expected to improve slightly to 92.6 from 92.1.
The DAX has rallied sharply over the past four weeks, however there are increasingly signs of limited upside potential and there could be a correction set to come through. The Fibonacci retracements of the big 8355/12390 rally have acted as excellent consolidation and turning points throughout 2015 and once more a bi level is being tested. The 38.2% Fib retracement around 10,850 has been tested throughout the past week and the DAX has been unable to make the break. This is beginning to become a bit of a concern, and there are signs of fatigue on the daily momentum indicators. the RSI reaching 70 and the Stochastics which have rolled over. This could turn out to be merely a consolidation at the 8.2% Fib level but I am more inclined to believe that the DAX is running out of steam near term. There is a gap still open from the breakout above 10,512 and this still needs to be at least filled. The intraday hourly chart shows the initial support from Tuesday’s low comes in around 10,700 with the intraday hourly chart showing a small range over the past few days with hourly momentum which has deteriorated. A break of 10,695 opens a near term correction which would imply a move back to the breakout support at 10,512.
The euro has bounced, but is it merely a dead cat bounce? The rally off the reaction low at $1.0894 spent much of yesterday unwinding the Fed related selling pressure. However the move is now encroaching into a large bulk of near term overhead supply. The resistance starts at the previous low at $1.0987 and covers over 100 pips towards $1.1100. This is a key level that remains the pivot for the medium term range play. The fact that the rally high prior to the FOMC statement was at $1.1095 should not go unnoticed as this is the top of the 50 pip pivot band $1.1050/$1.1100 that will now weigh on technical rallies. The intraday hourly chart is interesting as the oversold momentum indicators have unwound with the move and are now back at levels that would be considered to be selling zones for a technical rally, with the hourly RI up around 60, the hourly MACD lines seeming to cross over around the neutral point. The is the stage at which we should now be looking out for the next near term sell signal. There is minor support at $1.0923 but the main support is now in at $1.894 which is protecting the range low at $1.0810 now.
I have been talking recently about the fact that I did not see the downside pressure as too overpowering to the downside and it seems as though there are now tentative signs of support. The green positive candle on the daily chart is an improvement and now it needs to be followed up by a second bull candle, something not seen since early October. The momentum indicators have also quickly turned more positive, with the Stochastics turning higher (and on the brink of a cross) and the more benign RSI also ticking higher. I am not at this stage saying this is another bottom (as we need more confirmation for that) but suddenly overhead resistance is under threat. The intraday hourly chart shows $1.5345 as the initial resistance prior to $1.5380. However in all honesty there needs to be a move above $1.5415 (which is the key near term resistance) in order to really improve the chart. Watch also for the formation of a higher low above $1.5240. Another interesting signal would be the hourly RSI moving above 70 which would reflect strong and positive near term momentum.
The consolidation on the daily chart continues, but it is rather a messy one. Over the course of the past week there has been an amount of uncertainty in the daily moves, with a lack of trend and intraday chop. However the momentum within the range (118.00/121.70) remains with a positive bias as the Stochastics are still looking positive and the RSI is also above 50. The intraday hourly chart show the volatility that has been driven overnight from the BoJ announcement to stand pat on monetary policy and as the European session starts to take over there is a degree of yen strengthening. There is still a band of support 120.00/120.20 above which the pair remains positive. A move back towards the 119.60 pivot would mean a more neutral outlook forming.
At yesterday’s nadir, the gold price had fallen around $38 in less than two days in the wake of the Fed statement which has driven dollar strength once more. However, the move has now changed the outlook of gold once again. Two sharply bearish candles have taken the gold price back below the 144 day moving average, and the price has dropped below the breakout support at $1156 and is now possibly coming back to test the historic support band around $1140. The momentum indicators are increasingly corrective too, with the long uptrend on the RSI having now been broken and the Stochastics in bearish decline. The intraday hourly chart shows that the support at $1151 has been broken too and this is a higher low within the uptrend that now confirms the bulls have lost control, with this level also an initial resistance. The old support at $1158.50 which had been providing a floor also now becomes a basis of resistance with yesterday’s high at $1162.40 meaning there is around $5 of key overhead supply now. The intraday momentum indicators are unwinding from oversold but this is likely to provide a chance to sell. A move below $1136.50 put the medium term bears back in control.
In the wake of such a huge move, the volatility in the daily price range remains high and once more there has been a significant fluctuation throughout the day. This has resulted in rather an indecisive looking spinning top candle on the daily chart. Interestingly as well, the recent rally has now resulted in a confirmed buy signal on the daily Stochastics too. With the pick up in the RSI also, the technical outlook has improved significantly. Looking at the hourly chart and the considerable choppy trading in the past 36 hours, it would be extremely brave (or foolhardy) of me to make a conviction near term call. What I can say though is that there is now a reaction low in place at $45.20 which has then driven a rally through the resistance around $46.00, with the subsequent level at $46.50 also coming under pressure, which is positive. The big near term resistance to overcome on a recovery comes in at $47.50 and a move above there would be a real statement of intent by the bulls. The support at $45.20 needs to hold on otherwise the rebound will have lost momentum and a small top pattern would be formed. The outlook has improved but there is still a volatile lack of conviction to the trading.
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