Trading sentiment has begun Monday morning under pressure as weaker than expected economic data from China again points towards economic slowdown in the world’s second largest economy. Chinese economic data disappointed with Industrial Production (+6.0% vs 6.5% exp), Retail Sales (+10.1% vs +10.5% exp) and Fixed Asset Investment (+10.5% vs +10.9%). However this will now prompt questions over whether this will drive the next round of monetary easing measures from the People’s Bank of China. For now though, the data has impacted slightly negatively on risk appetite this morning with safer haven plays such gold and US Treasuries performing well and equity markets under pressure. Wall Street closing 0.9% lower on Friday would not have helped the mood and whilst Asian markets were mixed overnight, the European indices are all trading weaker in early moves.
In forex markets there is much more of a mixed outlook today with little direction on euro, sterling and yen. However with the gains of well over 1% on the oil price, the commodity currencies such as the Aussie and Canadian dollars outperforming. The gold price is also positive today.
After a quiet morning for economic data, the focus will switch to the US with New York Fed manufacturing at 1330BST which is expeted to remain positive at 6.5. The National Association of Home Buyers Housing Market Index is at 1500BST and is expected to tick slightly higher to 59 from 58.
Chart of the Day – NZD/USD
Having highlighted the potential top pattern, the Kiwi has gone on to complete the double top below $0.6800 which implies a move back to $0.6550. After a choppy week of trading last week the pullback to the neckline of the top seems to have been confirmed with the failure of the rally coming in at $0.6847. This means there is around 50 pips of strong resistance now in place and that the dollar strength looks set to continue to drag the pair lower. The confirmation also comes with the deterioration in the RSI which recently fell to a three and a half month low a move which is also reflected on the Stochastics and now reflects that rallies are a chance to sell. A move below the support at $0.6713 would open the next low at $0.6667 before the key February/March support band $0.6560. The hourly chart shows that rallies are now being seen as a chance to sell, with resistance initially around $0.6780 towards $0.6850 which is now increasingly key to the near to medium term outlook. The overnight low at $0.6740 is initially supportive.
After a few days of consolidation the dollar started to gather momentum on Friday as a strong bear candle resulted in a sharp downside break of the old pivot support at $1.1330. This now means that there have been eight bearish candles in the past nine sessions on the euro and the way is open for a test of the key April reaction low at $1.1213. The momentum indicators show the continued correction with the Stochastics recently completing a “bear kiss” to accelerate lower and the RSI also back below 50. This is also now an important point for the RSI as continued weakness below 45 would be a 10 week low and suggest perhaps further weakness back towards the old $1.1100 pivot again. The hourly chart shows rallies are a chance to sell and that there is a band of resistance up from $1.1365/$1.1445.
For much of last week the sterling bulls were trying to form some sort of recovery but could never really find the traction, and now the dollar has regained some strength to pull below a key support area around $1.4400. The close below $1.4400 signals for a test of $1.4300 which is the only real support standing between a full pullback to the March/April lows around $1.4000/$1.4050. The momentum indicators are certainly a concern for the move, with the RSI back under 50 and the Stochastics forming a “bear kiss” in the acceleration into negative territory. The old support around $1.4400 could also now be seen as an area of resistance, and whilst the reaction high at $1.4530 is now key there is a band of overhead supply now between $1.4375/$1.4450. Near term rallies could also be seen as a chance to sell.
It would appear that we are now closer to knowing the direction of the next breakout as the consolidation between 108.20 and now 109.50 continues. A sequence of bull and bear candles in now into its fifth day whilst the momentum indicators continue to become ever more neutrally configured. The RSI has been just below 50 now for the past five sessions whilst the Stochastics have also plateaued at 50. Furthermore, the hourly technical indicators give little further indication with the RSI between 40/60 and the MACD lines around neutral. Once we get a breakout, the implied target will be a projection of the trading band depth (so around 130 pips) higher or lower. However, for now we await a decisive move and a catalyst.
On the breakout above $1282.50 a couple of weeks ago I suggested that the ideal buying zone on a pullback would be between $1260/$1282.50. Early last week the bottom of this zone was briefly breached but essentially the argument still stands. The gold price has subsequently spent the past week in consolidation but this move has been allowing the technical indicators to unwind any overbought momentum and this still looks to be a chance to buy. The RSI has unwound back to the mid-50s, whilst a similar move has also been seen on the Stochastics. A break and close back above $1282.50 could re-open the upside for a test of $1295.70 initially. This near term correction back from $1303.60 is looking ready to be bought into again. The hourly chart shows momentum is beginning to build this morning and a move above $1280.60 would be a signal of intent for the bulls. Initial support is $1263.10 whilst key near term support remains $1257.25.
The stronger dollar may have pulled the oil price lower on Friday but corrections continue to be seen as a chance to buy. Last Thursday we saw a new intraday and closing high within this recovery and the bulls are close to driving a breakout but still need to confirmation move. With early gains today, could that breakout be seen today? The drift lower on Friday means that the band of support between $44/$45 should be viewed as a strong buying zone now as the overbought intraday hourly technical indicators have unwound to renew upside potential. Daily momentum indicators remain a bullish configuration but also with further upside potential, so the impetus is there for a confirmed breakout above the $46.80/$47.00 which could be seen in the coming days. A breakout opens the November high at $48.35 and subsequently the October high at $50.92. Key support remains $42.50/$43.50 with the support of the three month uptrend coming in at $42.70 today.