The market continues to price for a stronger dollar as expectations of a rate hike in December become increasingly firm. Helped by the flagging prospects of Donal Trump in the race to become President, the dollar strength continues. This has taken the trade weighted dollar index above the 97.57 level it peaked at in July with the dollar now its strongest since March. This comes as Treasury yields continue to rise and the probability of a December rate hike by the FOMC (according to CME Group FedWatch) reaches 70%. The FOMC minutes for the September meeting will be analysed tonight for further signs of the way the committee is positioning for the coming months. Away from the US, sterling has bounced overnight after reports that British Prime Minister Theresa May would be willing to allow Parliament to debate the terms of a Brexit. This is seen as a softening in stance (away from the hard Brexit rhetoric that has been such a driver of the declines in the past week or so). However whether this will make any real difference remains to be seen and it is still likely that any rallies on sterling will be viewed rather sceptically by a market that was burned so severely by last week’s flash crash. Oil is another factor, with the World Energy Forum in Istanbul hosting informal discussions between OPEC members over production cuts.
Wall Street fell into the close last night with the S&P 500 down 1.2% amid a number of factors including concerns over the election, the dollar strength and a drop back in oil. Asian markets were also lower with the Nikkei down 1.0%. European markets are again looking cautious in early moves, however after such huge gains on the back of sterling weakness, a strong rebound in sterling would surely put FTSE 100 under corrective pressure. In forex markets there has been a mixed outlook today, although the strength on sterling is clearly the main mover. The Aussie and Kiwi are also stronger. Gold and silver are marginally higher as their consolidation in the past few days continues, whilst oil has managed to find some support after a dip yesterday.
Traders will be looking initially at the US JOLTS jobs openings with 5.72m expected (5.87m last). However the main event will be the FOMC minutes for the September meeting which will be eyed to see the extent of the divide within the committee over when to raise rates.
Lucky 8 – FX Trader of the Year 2016 competition update
I am now moving on to look at a new set of Lucky 8 instruments for Week 2 of our competition that we are running throughout October. I will be giving daily updates on how the Lucky 8 instruments of the week are performing.
• GBP/USD – The bears remain in control however there has been a minor recovery overnight. This still though looks to be a bear rally and I am looking for a chance to sell again as downside potential is renewed. Resistance is now at $1.2330 but I expect a retest of $1.2086 in due course. (See below for more detail).
• NZD/USD – The bears are in control for a continued correction towards $0.6950 and rallies should be seen as a chance to sell. There is now resistance between $1.7105/$1.7150 and today’s minor recovery does not look to be anything more than a near term bear rally.
• EUR/GBP – Sterling remains very bearish but that does not mean that there will not be chances to sell the currency, so we must be looking to use any dips in EUR/GBP as a chance to buy the pair. The overnight correction to £0.8960 support has now unwound overbought momentum. Support at £0.8900 is key near term but I am looking to use this as a buying opportunity. I expect a retest of £0.9140 in due course.
• EUR/AUD – A failed rally yesterday and early declines today puts the bears in control and the momentum generated is beginning to suggest a test of the support at 1.4532. Look to use a rally maybe towards the 1.4630 breakdown as a chance to sell.
• USD/ZAR – A big breakout above 14.08 has been sustained and the bulls are now in control with the daily chart showing a big bull break, large bull candle and strengthening momentum. If the bulls can hold on to the near term reaction low at 14.14 then a move towards 14.58 could be seen.
• FTSE 100 – Will the failed breakout to a new all-time high yesterday be a big sell signal or a minor near term set-back? The near term supports are key now at 7024 protecting 7000. As the overstretched momentum unwinds the bulls need to hold on otherwise a drop back to 6955 could be seen. It could be determined by the direction of sterling so watch both.
• WTI Oil – The bulls again were unable to breakout above $51.67 yesterday but support at $50.40 along with renewed upside potential on the hourly momentum should help for another attempt. Next resistance beyond $53.50/90. Supports are in at $50.00 and $49.15 is now key. (See below for more detail).
• Cocoa (CCc1) – After such a big sell-off on Monday perhaps it is understandable that there was a minor recovery of sorts yesterday. However, rallies remain a chance to sell and there is resistance at 2708, 2760 and 2800 to use as an opportunity for further weakness.
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