Market Overview
With a lack of economic data and the US on Veterans Day public holiday which saw bond markets closed, Wall Street crept quietly to further all-time highs on an especially unspectacular session. The mood in Asia has been fairly positive overnight, with the Nikkei 225 gaining amid reports that Japanese Prime Minster Abe was ready to delay the planned rise in the consumption tax. However, European markets are a touch more cautious, trading slightly lower in early moves.
In forex trading, the dollar started to lose some ground in the second half of yesterday’s session and this corrective sentiment has drifted into today’s session too. The dollar is weaker against most majors although only mildly. However the yen has strengthened overnight with signs that Japan’s commitment to Abenomics may be wavering.
The key factor traders will be looking out for today will be the Bank of England Quarterly Inflation Report. Mark Carney (Governor of the Bank of England) is expected to signal at 10:30GMT that a rate hike in early 2015 is unlikely, whilst also guiding projections for both growth and inflation lower. The market is expecting this dovish move, so it will be the tone of the report that drives sterling either higher or lower. The key takeaway comments will come over potential slack in the UK economy and the prospects for wage growth.
Just prior to that comes UK Unemployment at 09:30GMT, which is expected to show the headline rate falling to 5.9% and more importantly average earnings rising to 1.1% (from 0.9%). There is little else on the economic calendar other than a speech by ECB chief Mario Draghi at 14:00GMT and the Fed’s Narayana Kocherlakota (at 18:30GMT) who is a dove on the FOMC.
Chart of the Day – Silver
There is a bit of a tricky decision to make in the precious metals commodities. Both gold and silver completed bullish key one day reversals on Non-farm Payrolls Friday (i.e. a move to a new low which is rejected for the bulls to push the price all the way to close above the previous day’s high). However, the market reaction since then has been mixed and uncertain, reflecting the mood of the US dollar in the subsequent days since Non-farms. On silver, the Stochastics momentum indicator has begun to show signs of improvement. However it is a risky strategy to buy into a bearish phase and the recent selling pressure on silver is certainly a significantly bearish outlook. The pick-up in momentum is understandable with the price over 4% off its lows, however much more needs to be done and still at present this looks to be little more than a dead cat bounce. The intraday hourly chart shows that silver is merely back into an old resistance band $15.70/$16.20 which needs to be overcome before the bulls can begin to get excited. I still expect this to be a bounce that will be sold into and believe that there will be a retest of the recent $15.03 low in due course.
EUR/USD
Yesterday afternoon we daw the beginnings of what might be a fight-back against the dollar as the euro rallied back towards $1.2500 again. This brings the euro towards the important near to medium term resistance are between $1.2500/$1.2600. Initially the resistance around $1.2500 held back the previous rally on Monday but if this barrier can be breached then the bulls will begin to gain in confidence. However, as yet, the intraday hourly chart shows the sequence of lower highs over the past few weeks remains intact. Strictly speaking it would need a breach of $1.2577 to end this sequence as that was the latest lower high that preceded a new low. There are several resistances in the band $1.2500/$1.2600 and for the near to medium term outlook to improve they need to be breached. I still expect this key band of resistance to hold back a euro rebound and any rallies should be seen as a chance to sell for an ultimate retest of $1.2357.
GBP/USD
Cable has also rallied against the dollar in the past 24 hours, however, similar to the euro, the rate is now towards a band of key resistance which is likely to hold it back from a serious rebound. Last week’s resistance band $1.5925/$1.6000 is now being tested. The daily chart shows the move remains within the 17 week downtrend (which currently comes in around $1.6010). Daily momentum indicators have just begun to tick higher, however on a medium term basis the configuration still suggests merely selling into strength remains the best strategy. The intraday hourly chart has picked up with yesterday’s higher low at $1.5833, but there is a significant amount more than needs to be done if we are going to back a Cable recovery. There would at least need to be a consolidated break above $1.6000 as a minimum. There could be a significant amount of volatility today with the Bank of England’s Quarterly Inflation Report, so perhaps after then we will get a gauge on how this rebound is looking.
USD/JPY
Despite yesterday’s dollar strength that took Dollar/Yen once more to levels not seen since 2007, an element of consolidation has kicked in during the Asia session. The intraday hourly chart shows that there is a band of support between 115/115.50 which the bulls will be looking at as a first line of support. Essentially, once more this consolidation is allowing any overstretched momentum to unwind, with the hourly momentum indicators taking a breather and relaxing towards more neutral levels to help renew upside potential. The first key level of support does not come in until 113.84, whilst the daily chart still shows the support at 113.77 of the 100% Fibonacci projection of 101.49/110.08 measured from 105.18.
Gold
The gold price has entered into a rather indecisive stage of trading. First and foremost though the breakdown of the $1180.70 floor puts the long term bears firmly in control. However the near term picture is quite messy. A bullish key one day reversal on Non-farm Payrolls Friday was followed by a “Dark Cloud Cover” candlestick that went a long way towards negating the positive aspects of Friday’s move. Furthermore, yesterday’s rebound will once again give the bulls hope. However, the improvement in the Stochastics is tailing off, whilst the RSI and MACD lines are also indecisive. Above all else the resistance at $1180.70 is the line in the sand. Gold will need to trade consistently back above the resistance to even suggest with any confidence that the bulls may be ready to fight back. For now though the outlook remains one of selling into strength and the gains in the past couple of days could provide that opportunity. I do not believe we have seen the end of the weakness in the gold price. The latest low was at $1131.85.
WTI Oil
The bearish outside day on Monday has certainly signalled the return of bearish control. This comes underneath the key near term resistance around $80 and has put pressure back on the key low at $75.84. The retest of the key 4 year floor at $75 remains highly likely and looking at the incredibly weak momentum indicators there is still further downside potential. The RSI is only around 29 (has been habitually down at the low 20s during this bear phase), whilst the Stochastics have only just turned lower again too. The intraday hourly chart shows a basis of resistance forming around $77.50, so look to use any rebound as a chance to sell. The resistance of the four week downtrend is now at $80.25. The bears will remain in control until a breach of the reaction high at $82.88.