There have been several factors in the past day that are beginning to turn market sentiment more corrective once more. The FOMC minutes last night showed that the Federal Reserve is edging ever closer to a rate hike at the end of this year. This is nothing really to change the view, but it does help to solidify and the hawks are concerned that continued low rates could lead to a recession in the US. Subsequently Treasury yields have taken a bit of a hit and equity markets have started to correct. The oil price has also started to slide on news that OPEC countries are still pumping at record levels. Furthermore, overnight we have had China trade data that has disappointed on both imports (-1.9% versus +1.0% expected) and exports (-10.0% versus -3.0% expected). Although these numbers can be volatility on a month to month basis, this has negative implications for risk appetite. Subsequently, riskier currencies such as the Aussie and Kiwi are under pressure today, whilst the yen and gold have strengthened overnight.
Wall Street closed mixed overnight with the S&P 500 +0.1%) whilst Asian markets were are struggling with the Nikkei -0.4%. European markets have opened lower with the FTSE 100 losing the 7000 support. In forex, the yen is the main outperformer whilst the eur is also holding up well. Sterling is back trading lower again too. The precious metals are trading higher and oil is beginning to develop more of a corrective look.
The economic calendar is fairly light today with US Weekly Jobless Claims at 1330BST (254,000 expected), whilst the EIA Oil inventories at 1600BST will be watched for a continuation of the surprise drawdowns of recent weeks with crude stocks expected to rise by +0.4m barrels.
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 recovery may have already run out of steam as the bears returned yesterday to limit the gains. Resistance at $1.2330 is increasingly key near term and the rolling over of momentum indicators suggests the bears are ready to sell off again. A further lower high is now at $1.2260. (See below for more detail).
• NZD/USD – The decline continues and yesterday’s failed recovery candle shows that rallies are now a chance to sell. Momentum remains negative and there is now resistance in the band $0.7095/$0.7105. A breach of $0.7000 would open the key support at $0.6950.
• EUR/GBP – After a brief sterling rally yesterday the market has settled again above support at £0.8960 and the drift higher has resumed. Corrections remain a chance to buy for a likely retest of £0.9140.
• EUR/AUD – The pair is on a bit of a hoppy rise near term but there is now a band of resistance 1.4630/1.4680 that is looking to cap recoveries and rallies are being sold into with a corrective configuration on the hourly momentum.
• USD/ZAR – There has been some volatility on the breakout above $14.08 but the market has used this as a basis of support for a corrective move and is now pushing higher again. Expect a retest of the $14.93 reaction high and the 55 hour moving average is a basis of support near term.
• FTSE 100 – The early loss of 7000 is a blow for the bulls and this now means that an increasingly corrective move is being put together. A close below 7000 would open 6955 but also complete a near term top pattern of 120/130 ticks of downside..
• WTI Oil – A near term corrective move has taken over and suddenly intraday rallies are now seen as a chance to sell. $50.00/$50.40 is a near term resistance and it will be interesting to see how the market reacts once the oversold near term momentum has unwound. A retest of $49.15 could be building. Watch for the EIA oil inventories. (See below for more detail).
• Cocoa (CCc1) – Rallies remain a chance to sell and once more the momentum indicators remain bearish and the negative candle posted yesterday shows the sellers are in control. Resistance is now at 2688 under the 2708 breakdown. Expect further weakness below 2625.
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