An uninspiring session on Wall Street and selling pressure in Asia has once more resulted in slightly negative sentiment into the European session. Gold is trading higher, the yen has gained a little ground and equities are under pressure once more, but interestingly the US dollar has started to give back some of the gains of recent days. Mario Draghi and the ECB struck a fairly neutral tone yesterday and done little to rock the boat with the testimony to the European Parliament but the interesting speaker today is Janet Yellen. In the wake of the decision last week to hold off from raising interest rates amid the concerns over international developments, Janet Yellen could have more of a driving force on sentiment today, especially if she tones down a touch the Fed’s fears of the international impact on the US economy.
In forex markets, after the dollar strength of previous days there is a slight unwinding underway, with the euro, sterling, Japanese yen and also the Kiwi dollar all gaining ground. The commodities are also benefitting with oil bouncing after a significant sell-off yesterday and precious metals also trading higher.
Traders will be looking towards the German Ifo Business Climate for signs of stability at 0900BST, which is meant to dip slightly to 108.0 (from 108.3) but has beaten expectations in five of the past six months. The US Durable Goods Orders are at 1330BST and whilst the numbers are notoriously spikey they do have an influence on the dollar. The expectation for the core Durable Goods is for a month on month improvement of +0.1%. The New Home Sales are at 1500BST and are expected to improve slightly to 0.52m. Janet Yellen speaks at 2200BST.
Having broken below the support at 9928 the outlook for the DAX is under big pressure near to medium term. The DAX is in trouble now and completing a range breakdown of 9928/10,512 implies a move that would suggest the big August sell-off low at 9338 could easily come under pressure in the coming days. The daily momentum indicators are negatively configured and there is still further downside potential near term, with the RSI and Stochastics both weak. I have been looking at the Fibonacci retracements of the October to April rally (from 8355/12,390). The 76.4% Fib retracement at 9304 was very close to catching the August low, whilst the 61.8% level at 9894 was a basis of support for the recent range and a 50% Fib at 10,370 was the basis of the range resistance. So these levels are clearly important, meaning that the resistance overhead at 9928 is important as a source of overhead supply which will make it difficult for a rally to take hold. Yesterday’s rally has again done little to improve the overall outlook and rallies are seen as a chance to sell now. The hourly chart shows key overhead resistance at 9712 (yesterday’s high, at 9785 and also 10,000. Today’s slight gain at the open still implies that the recovery bulls remain few in number and is likely to be seen as a chance to sell for a retest of yesterday’s low at 9492 before the full retracement to 9338.
The strength and significance of the $1.1050/$1.1100 pivot continues to grow as the euro has for the second time in September bounced from the key medium term support. The battle for near term control continues as for two consecutive days now the $1.1100 pivot has provided the support but also of note is that the old pivot at $1.1215 is also now providing the resistance. With the strong trading day yesterday the bulls will be confident and a move back above $1.1215 would be a positive development. The daily chart is not showing any decisive momentum signals now and it will probably take a closing breach of either of these two near term levels to generate direction near term. The intraday hourly chart shows that the sellers have just lost their way now and a prospective base pattern could be forming. A decisive breach of $1.1215 would open the next resistance band at $1.1260 and also arguably form a base pattern that would imply an upside target of $1.1320. The rebound yesterday has been rather messy and there is support down to $1.1100 without any significant levels to watch for.
The dollar strength of the past few days has resulted in some big bearish candles forming. This has meant that the momentum indicators have become corrective, with the Stochastics leading the charge and the RSI also weaker. Yesterday’s breakdown below $1.5330 was an important break near term as this has previously acted as a good level of support, whilst with Cable trading below all its moving averages the outlook within the range is under pressure again. There has been a degree of minor support overnight at $1.5222 but the real test will come on a rebound that tests the old support which is now new resistance at $1.5330. The hourly momentum indicators are now negatively configured and suggest that rallies will be sold into, interestingly with attempted rebounds on Monday and Tuesday both failing around the low 50s on the hourly RSI. The breakdown of the $1.5330 support now implies a test of the $1.5170 support is now a real possibility once more. It would now need a reaction above the resistance at $1.5380 to turn the corrective outlook round once more.
Any hopes that a particularly messy near term chart will result in a clean and decisive outlook look remote for now as another indecisive candle was left yesterday (small body with reasonable length shadows either side). Dollar/Yen goes through these stages every now and again where there is absolutely no real direction to be determined. It can last for weeks and maybe even months. We are now into a third week of this choppy range between the support band 118.30/118.50 up towards the resistance t 121.70. There is a slight bearish bias with the momentum indicators, although for the most they are broadly neutral. The hourly chart reflects the ranging consolidation with the hourly moving averages all converged and flat, whilst the momentum indicators are giving little away. There is a near term support that has formed at 119.70 so a decisive breach of that would be interesting. O the upside, resistance comes in at 120.65 and then 121.00. If anything, the FOMC has becalmed the outlook, which is badly in need of the next catalyst now.
I am a touch surprised that the gold price has started to pick up again as it looked as though the bulls had lost their way. However I am still of the belief that this is part of a topping process and gold will be setting up for the next leg lower. The huge downtrend which actually can be traced back to the October 2012 high comes in just above $1247 today, and I expect the next top to come below it. In fact we may have already had the top in place with the $1141.50 high. Since March, the RSI has continually failed around the 60 point (aside from the August spike higher when it got to 70) and I would say that any move on the RSI back towards 60 would be difficult for the bulls to continue without a real effort. The hourly chart shows support has been left at $1121 and the first line of resistance being challenged is at $1136.40. Hourly momentum has unwound and this resistance at $1136.40 could be an interesting near term test. The hourly RSI has hit 70 and a consistent failure under there would suggest that the bulls may be running out of steam in this mini rally.
Having spent much of the early part of yesterday’s session trading positively, the price of WTI has once more reversed course and fallen sharply away, subsequently closing down 4%, this coming despite another decline in US oil inventories. Yesterday’s sell-off has left us with a bearish candle, which has also breached the rising 21 day moving average (currently around $45.25) which had been providing a nice floor in recent sessions. However, despite the minor support of Tuesday’s low at $45.15 being breached, more importantly the potential higher reaction low within the range at $44.25 is still intact, and remains so today. This is what the near term bulls will be hanging to. However the general improvement in the near term outlook over the past few days has taken a hit as a 7 day uptrend has been breached and the range lows at $43.20 are coming back into view. As part of the volatile consolidation of the past few weeks this is not to be unexpected but the bears are gaining control once more.