Market Overview
Market sentiment has taken a hit after the FBI announced further investigation into Hillary Clinton’s use of a private email server whilst in government. The potential for this to harm her bid for Presidency (and therefore improve the prospects of Donald Trump) has increased the level of fear in the markets impacting across asset classes. VIX volatility jumped on Friday with equities under pressure. In currencies, the dollar has also taken a hit whilst safer havens such as the yen and gold have also benefitted. Will this be anything more than a blip that gives another opportunity to buy the dollar again? It is unlikely to derail Clinton who remains the front runner in the election campaign but volatility is benefitting in the near term. There is a further hit to sentiment from news out of a meeting in Vienna for non-OPEC countries to discuss the potential for production limits, but there was no agreement and this has pulled out lower again. Markets will be looking out for inflation from the Eurozone and the US today as the main economic events.
Wall Street was again lower on Friday (having looked to be positive prior to the news breaking from the FBI). The S&P 500 closed 0.3% lower at 2126, whilst Asian markets have been mixed to mildly lower (Nikkei -0.1%) and European indices are also weaker in early moves. In forex we are seeing the dollar looking to claw back some of the losses from late on Friday, whilst gold and silver are relatively settled. The oil price is around half a percent weaker.
Inflation is key for traders today with the Eurozone flash inflation at 1000GMT expected to pick up to +0.5% (from +0.4%) whilst the core Personal Consumption Expenditure from the US at 1230GMT is expected to be +0.1% for the month and staying at +1.7% for the year. The Chicago PMI at 1400GMT is expected to dip slightly to 54.1.
Chart of the Day – USD/CHF
Dollar/Swiss has been spending the past week testing the key resistance at 0.9950, however just has been unable to make the breakout. The momentum indicators suggest that the bulls are running out of time and the loss of impetus could begin to drive a correction. Will Friday’s big bear candle be the beginning of that correction? The Stochastics have already given a crossover sell signal and the MACD lines are also crossing lower, whilst the RSI again failed in the mid-60s as it has done on previous tests of the resistance. The corrective candles had been racking up in recent days prior to Friday’s drop. An imperfect shooting star (due to the close higher on the day) has been followed by negative and doji candles to reflect the uncertainty of the bulls for the run higher. There had been a spike to almost bang on parity (0.9998) that failed also last week only for subsequent candles to again find resistance around 0.9950. A move back below Wednesday’s low at 0.9900 now suggests the loss of bull control and another corrective move within the 8 month range 0.9475/0.9950. The old support around 0.9900 is now a basis of resistance and a failed rally would increase the resistance and put the support at 0.9840 under pressure. It needs a close above 0.9950 to re-energise the bulls.
EUR/USD
The pair jumped strongly late on Friday in the wake of the FBI investigation to Hillary Clinton’s emails. This meant that a strong bull candle was posted that took the price back above the resistance at $1.0950. I had been seeing this as a key level of overhead supply where old bulls had been suffering losses and would be looking to sell out. I am now looking for the next sell signal as I believe that there will be further downside potential and dollar strength that will be pulling the pair lower again. I am now looking for this sell signal in the $1.0950/$1.1050 area. We have seen early today a retreat from $1.0992, however this is now important as the Stochastics have now crossed higher to give a near term positive signal. The movement on the daily RSI will be key now as a failure below 50 would confirm this to be a near term selling opportunity. Also a loss of support at $1.0950 would suggest a failed rally too and re-open the lows around $1.0850.
Read the full article and see the charts on Hantec Markets website.