Last updated: May 3rd, 2017 at 09:58 pm
It certainly does seem as though market sentiment continues to be driven by whether the oil price is in decline or not. Yesterday’s rebound on Wall Street may be viewed as the makings of a late Santa Claus rally, but the direction of oil is likely to be the determining factor. Today we get the OPEC outlook for oil in 2016 and this is likely to provide some volatility on oil and also some direction on sentiment for equity markets. Wall Street closed higher with the S&P 500 up 0.9%, whilst Asian markets were broadly supported (although the Nikkei 225 was 0.2% lower). European markets making gains at the open.
For markets continue to trade mixed with little real direction, although sterling which has been under pressure is getting a little respite in early moves. The gold price is looking to consolidate after yesterday’s dip back. The rally on oil also continues.
Today is seen as tying up a few loose ends on the economic data front in the run up to the end of the year. The UK data all at 0930GMT includes the current account which is set to see the deficit increase to -£21.3bn (from -£16.8bn; whilst the final reading of Q3 GDP is expected to remain flat at +0.5%. Then a clutch of US data points, starting with the 1330GMT batch and the core Personal Consumption Expenditure which is forecast to remain flat at +1.3% for the year and +0.1% month on month. There is also Durable Goods Orders at 1330GMT which are expected to come in at zero (-0.5% month on month last time). Then at 1500GMT there are the New Home Sales (507k exp) and the revised Michigan Sentiment which is expected to tick slightly higher to 92.1 from the prelim of 91.8. US crude oil inventories at 1530GMT are also expected to add another 1.4m barrels.
I often talk about the price of silver being a strong confirmation indicator of moves on gold and it seems that this is once more the case, that with the improvement in gold and a possible base pattern, we see a similar story on Silver. The base potential is not as well-defined as it is on gold (where it seems to be a well-constructed potential double bottom), but there is still a big improvement in the past couple of weeks. Now for the big test. I have spoken previously about the bit overhead resistance band between $14.00/$14.40 (silver’s equivalent of $1077/$1098 on gold) and yesterday the $14.40 resistance was tested intraday. The move found intraday resistance and the bulls have so far been rebuffed, whilst the completion of a “doji” candle yesterday (reflecting uncertainty with the prevailing trend) was also not what the bulls wanted. However the momentum indicators are certainly now improving and this test could continue now today. The key resistance is the $14.64 early December high (the post ECB move) and a push above here would certainly be a key near to medium term breakout. Look for the RSI pushing into an 8 week high as signalling towards a reversal completion. The intraday hourly chart shows how the support is now forming above $14.00 which is also encouraging for the bulls. If this continues then 2016 could start on the front foot for silver.
The rebound on the euro has resulted in three completed bull candles to maintain the range pattern between $1.0810/$1.1050. The slight dip back in Asian trading overnight does little to change this and, if anything, reinforces this outlook. The momentum indicators are increasingly neutrally configured. The intraday hourly chart shows the upside target of $1.0960 from the small base pattern has been achieved however the euro still has the sequence of higher lows over the past few days with the support coming in at $1.0900 and then $1.0880 and $1.0850. Yesterday’s peak at $1.0984 is now the near term resistance but the euro should be played with a short term time horizon now as thin Christmas trading can do some strange things to the charts.
The weakness on Cable continues as Sterling has been dragged lower for a seventh consecutive bearish candle. I had previously thought that there was some consolidation beginning to set in but this was dealt with fairly decisively by US traders yesterday afternoon and the momentum remains starkly negative. Once more we see an intraday rebound that has formed during the Asian session but there is little reason to believe that this will not again be treated as another chance to sell. The hourly chart shows the resistance now in place of the old lows $1.4860/$1.4885 which will now be seen as an area of overhead supply. The hourly momentum is already quickly unwinding with the hourly RSI and Stochastics already back towards levels which the sellers have tended to return. The bulls need a move above the reaction high at $1.4950 to be interested in any sustainable recovery.
As I pointed out during my analysis video of Dollar/Yen yesterday, the outlook is becoming something of a bearish drift now as the momentum indicators pull back into negative configuration. Furthermore, the pair is also trading just below all the moving averages too, so there is certainly a bearish bias. I am still interested in the near term properties of the Fibonacci retracements of the 118.04/123.67 rally. The 50% Fib at 120.85 is acting as an interesting consolidation point, however a decisive breach would certainly re-open the 61.8% around 120.20, a level which all but coincided with the key December low at 120.32. The hourly chart backs up this assessment with a series of lower highs in the past few days and whilst there is a negative slant, the pressure is only gradual. Resistance for an improvement is at 121.60, whilst the 122.20 near to medium term pivot remains a key overhead feature too.
Can gold maintain its improvement? Yesterday the bulls just lost their way slightly and were pegged back after two strong candles which has threatened to form a base pattern, whilst there is still an obvious concern that the overhead supply which begins around $1077 is still a key facor in preventing a recovery. However, all is not yet lost and the 21 day moving average (at $1068) now bottoming looks to be further confirmation that the selling pressure has just dried up for the time being and the bulls are fighting hard. To be honest though, until the resistance at $1088.70 has been cleared (and a base pattern formed) then there is little real progress that has been made. However the hourly chart is still showing the higher reaction low at $1066.60 remains intact and this will encourage the bulls. It certainly seems to be one they will have to work for.
The big rebound has still to overcome the problem that every rebound has had recently. Big overhead supply and a market that seems intent on selling into strength. The latest move still seems to be very much counter to the downtrend channel that has been intact since early November. The RSI has picked up but has unwound towards the low 40s which again have tended to be used in the past 8 weeks as a chance to sell. Furthermore the key overhead price resistance of the old August low at $37.75 is the big basis of resistance, something which today coincides with the top of the downtrend channel. My base scenario remains using any recoveries that last maybe one or two days as a chance to sell, hence why today could well be flagged up as another chance to sell. There is a gap still open at $34.85.
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.