Market Overview
The Eurozone GDP data for the individual countries announced early this morning have been positive. Data for the currency bloc’s two largest economies have come in slightly ahead of expectation and this bodes well for the Eurozone-wide data that is announced at 10:00GMT today. I say “well”, but in fact that should be replaced with “not so dreadful as it could be” as growth data remains incredibly weak still in the Eurozone. However, this early data should be mildly supportive for both the euro and equity markets such as the DAX and CAC. Quarterly GDP in France came in at +0.3% and was ahead of the +0.1% that had been expected. Quarterly GDP for Germany was in line at +0.1% but the year on year number was slightly higher at +1.2% (+1.1% had been expected).
Wall Street once again closed mildly in positive territory, with the S&P 500 just 0.1% higher. Asian markets have been mixed to slightly positive today, with the Nikkei 22 once more benefitting from a weaker yen to close around 0.5% higher. European markets are slightly higher in early trading.
Forex trading shows that the dollar bulls are once more in control in early trading. Despite the mildly positive GDP out of Germany and France, the euro is still weaker on the day, whilst sterling continues its malaise and Dollar/Yen has broken higher once more.
The key focus will turn to the announcement of Eurozone-wide growth now and hope will be that the expected +0.1% forQ3 GDP can be beaten. There is also the first key piece of US data today with Retail Sales announced at 13:30GMT. After a disappointing dip of -0.3% last month, expectation is for the data to bounce back into positive on the month with +0.2% for October. The University of Michigan consumer sentiment is also announced at 14:55GMT with an expectation of a slight improvement to 87.5 (from 86.9 last month).
Chart of the Day – USD/CAD
Since July Dollar/Loonie has been posting a series of higher highs and higher lows. Not in a classic uptrend formation, but still the sentiment has been positive and corrections continue to be bought into. This process has enabled the momentum indicators to take on very bullish medium term configurations, with the RSI continuing to find support between 45 to 50 before the next bull leg sets in. MACD and Stochastics lines are also consistently bullish. The low that was posted on Wednesday at 1.1277 may have come a touch early compared to other equivalent reaction lows over the past few months (in terms of unwinding momentum) but the bulls will point to the fact that there is good breakout support in the 1.1300 area that has been used, along with the rising 21 day moving average which has previously been used over the past few months. With the dollar bulls seemingly regaining control, a retest of the 1.1466 recent high can be expected, which is a multi-year high dating back to July 2009. There is also little resistance now until 1.1724 as the dollar continues to strengthen.
EUR/USD
The euro has spent much of the week in consolidation mode, seemingly waiting for the next catalyst. That catalyst could well be the Eurozone growth data that is being released through this morning. Initial signs have been encouraging, with a mildly positive reaction to the German and French data. The daily chart shows that the euro has been a little bit up and a little bit down for the past 5 days with no real gain or loss. However with the outlook still negative below the resistance band $1.2500/$1.2600 this is likely to prove a mere consolidation prior to further weakness. The momentum indicators are also ready and primed for further downside potential. The intraday hourly chart shows that the trendlines that had been converging over the past week have converged to almost cross now as the near term consolidation continues. I would still though use any rebounds towards $1.2500 as a chance to sell. Support to be tested comes in at $1.2393 and $1.2357.
GBP/USD
Dollar strength has resumed and Cable is getting slammed. Since Wednesday (induced by the dovish Bank of England Quarterly Inflation Report) Cable has started a new bear leg. This For a brief few hours yesterday morning Cable traded just above a minor level of support at $1.5750 but has since broken sharply lower and during Asian trading has shown little sign of stopping. There is in fact very little support now for Cable until the reaction lows from August 2013 at $1.5420. Selling into any oversold technical intraday rebound would be advisable, if one happens that is. The daily momentum signals suggest further downside potential, with the RSI only just going below 30, whilst during the September sell-off the RSI got as low as 13. The intraday chart suggests there is now resistance starting at the previous reaction low at $1.5788.
USD/JPY
The Dollar/Yen bulls appear to have regained the control as the rate has pushed once more overnight to a new multi-year high above 116.09. It will now be interesting to see the reaction today. The breakout is clearly a bullish signal, whilst momentum indicators are all positive and the intraday hourly chart shows a series of higher lows continue to pull the rate higher. I am though mindful that the rate has developed a more slow and steady approach to the gains, and the upside looks to be a little more laboured than it has been previously. Perhaps this is me just being a touch cautious though. The intraday hourly chart shows a minor low at 115.30 acting as support prior to the more important level of 114.88. The next resistance is now not until 117.95 which was the October 2007 high.
Gold
The past few days has seen the gold price settling into more of a consolidation phase, however the early moves today suggest the bears are ready to once more take control. Having settled under the key resistance at $1180.70 the acceptance of this new level always suggested that the sellers were just biding their time. The momentum indicators had simply looked to unwind an oversold position and have now got renewed downside potential. Should the $1145.92 low now be breached it would re-open $1131.85. However more likely that with the renewed downside momentum the big downside targets would come back into view. Initially $1123.15, but more importantly $1084.85. There is minor resistance at $1173.20 but $1180.70 remains the key level overhead.
WTI Oil
The price of WTI oil continues to fall. With a breach of the support at $78.54, the initial target of $75 from the descending triangle has now been achieved, but there is little to suggest that the price will not just continue lower. The RSI is becoming stretched again at below 25, however this suggests strong downside momentum and also it recently reached as low at ith levels of 22 reached in mid-October. The intraday hourly chart suggests that there could also now be a downside target measured from a breakdown of the 7 day trading band that now implies a minimum target of $73.50 (which has already been achieved), but could be as low as $71.85. There is now resistance at the breakdown of the old range at $75.85 which will be eyed by the sellers should a rebound set in. From a longer term perspective, $75 marks the bottom of a 4 year trading band which makes this a key breakdown for WTI.