Market Overview
Markets appear to have entered into a wait and see mode, with two key factors driving the cautious approach, being today’s OPEC meeting and the prospective dollar correction. Volatility in the oil market will be high as the bi-annual meeting of the Organisation of Petroleum Exporting Countries (OPEC) is held in Vienna. Suggestions are that the key players (Saudi Arabia, Iran and Iraq) are engaged in a game of poker, and the prospect of agreement seems to be increasingly in the balance. Broadly speaking, Saudi Arabia wants every country to cut, whilst Iraq and especially Iran are proving resistant as they look to ramp up production following years of sanctions. The last two years of market share grab will mean that the countries may struggle to come to an agreement. The other key market factor is that the recent bull run on the dollar has stalled and an increasingly mixed outlook is forming. The decline in Treasury yields have pegged back the bulls, but equally the Trade Weighted Dollar is finding support above 100.65 and is not yet ready to lose the hard fought gains. This is all driving consolidation across markets. The Bank of England also gave results of the UK banks stress tests at 0700GMT showing that Royal Bank of Scotland has failed and needs a new capital plan, meaning that 8 years after the financial crisis, UK banks are still not out of the woods yet.
Wall Street closed with muted gains (S&P 500 +0.1% at 2205, whilst Asian markets were also mixed overnight (Nikkei flat). European markets are also mixed in early moves and traders will continue to eye that near term breakdown of the DAX below 10,575. Forex markets show the dollar regaining some lost ground from yesterday, although the Kiwi is a slight outperformer. Gold and silver have held their ground this morning whilst the volatility in the oil price continues with a rebound of over 1.5% today.
The economic calendar is getting heavier as the week moves on. Today is the biannual OPEC meeting in Vienna for which traders will be waiting for any news and volatility is expected to be high on any announcements. Eurozone flash CPI for November is at 1000GMT and is expected to improve to +0.6% on the headline (from +0.5%) whilst the core CPI is expected to stay at +0.8%. ADP Employment change is at 1315GMT which is expected to be 161,000. The FOMC’s preferred inflation measure , the core Personal Consumption Expenditure is at 1330GMT and is expected to be +0.1% for the month. Pending Home Sales are at 1500GMT which are expected to rise by +0.2%. German Bundesbank president Jens Weidman speaks at 1600GMT whilst the Fed releases its Beige Book at 1900GMT.
Chart of the Day – AUD/USD
There are question marks over the corrective move on the US dollar and it will be interesting to watch the movement on the Aussie with this in regard. The Aussie has now unwound almost 200 pips of the 470 pips of correction in November, but has hit an area of overhead supply around $0.7500 and the rally has faltered. After some strong bull candles unwound the bear momentum towards 50 on the RSI it will be interesting to see if this is in fact a bear market rally or perhaps something more. Yesterday’s candle hit a second day’s worth of resistance just under $0.7500 before falling away to form a mildly negative candle and in the early moves today the resistance continues to be found at $0.7500. After yesterday’s muted gains and failure at resistance, this makes today’s move important for the recovery. The hourly chart shows the hourly RSI and MACD lines have lost the positive configuration of the recovery. Also, the low at $0.7428 will be seen as key near term as it forms the bottom of an uptrend channel for the past week. A breach of $0.7428 would also complete a small top with around 70 pips of additional downside.
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