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Markets increasingly looking to consolidate ahead of Christmas

Market Overview
Markets are increasingly into consolidation mode in front of the Christmas holidays. There has been a distinct lack of direction in recent days as Treasury yields have started to settle down and the dollar has swung between gains and losses. Yesterday’s gains on the greenback unwound previous losses, only to give gain the gains once more today. It seems as though the strong bull run of the past few weeks for dollar, Treasury yields and equities has slowed and this is a time for reflection, ahead of what is likely to be another tumultuous year in 2017. Gold is taking its lead off the dollar too and is consolidating recent losses, with even the recent geopolitical/terrorist events barely impacting.
Wall Street closed slightly higher again with the S&P 500 +0.4% at 2271, whilst the Dow came within 13 points of hitting the remarkable 20,000 level. Asian markets were mixed to slightly positive (Nikkei -0.3%), whilst European markets are mildly lower at the open. Forex markets show the dollar is slightly corrective across the majors. Commodities such as gold, silver and oil are slightly higher with the mild dollar weakness today.
Traders will be looking for market moving data and only really the US Existing Home Sales may impact on the dollar. The data at 1500GMT is expected to dip slightly to 5.52m (5.60m last). Markets will also be looking towards the EIA oil inventories at 1530GMT with crude stocks expected to drop with a -2.5m barrels drawdown (-2.5m barrels previous), with distillates also -2.0m (-0.8m last) and gasoline stocks to increase by +1.5m barrels (+0.5m barrels previous).

Chart of the Day – EUR/JPY
The bull run higher has been extremely impressive over the past nine weeks since the bottom at 112.57 which recently hit a peak of 124.09. The yen has been threatening a corrective move in the past few days and Monday’s sharp bear candle certainly has had an impact and leaves a legacy on the chart. Despite yesterday’s bull rebound, the pressure remains on that a correction could be growing which could put pressure on the uptrend. The momentum indicators are starting to looking increasingly as though a bear divergence is threatening. The RSI and Stochastics are not as strong as previously, whilst the MACD lines have crossed lower. An uptrend that links many of the key lows in the past 7 weeks comes in at 121.35 whilst the rising 21 day moving average (at 121.47) has not been breached since early November. It will be interesting to see if these technical supports can hold with the deteriorating momentum. Initial support is 121.65. The hourly chart shows a downtrend in the past few days has formed and momentum indicators are looking more corrective. The resistance of yesterday’s high at 122.80 is important today and a confirmed move back above 123.00 would encourage the bulls again.

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Wednesday, 21 Dec, 2016 / 8:39

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