Market Overview
After weeks of uncertainty, suddenly there seems to be traction in two major macro factors, or at least this is what market reaction would suggest. With Nancy Pelosi’s self-imposed 48 hour deadline, not really a deadline at all, the Democrats and the White House are seemingly close to agreement on fiscal stimulus. The White House is apparently willing to offer $1.9 trillion, closer to the Democrats’ $2.2 trillion, but the talks continue over whether the two sides can actually sign something. The question is whether anything can be done before the election. Although logistically, this is looking increasingly unlikely, no matter, the market is taking a view that this is a done deal nonetheless. Subsequently the safe haven dollar has come under significant selling pressure and the market seems to be taking a view now. On the other side of the Atlantic, the UK and EU have seemingly made enough progress towards their own agreement on a post-Brexit trade deal. Talks will intensify now and will take place every day for the potential to have an agreement in place by mid-November. Sterling has spiked sharply higher on this and unless there is anything to suggest talks breaking down, it should now be underpinned for the coming weeks. However, despite all this, there are question marks in the market, reflected by the fact that equities are not sharply higher. In fact the one key indicator of risk appetite is under pressure. Wall Street closed lower yesterday and futures are lower again today. Oil is also under pressure. This is a significant disconnect with yesterday’s market moves. Watch to see if bond yields begin to unwind again, something which would play into corrective pressure on equities.
Wall Street closed lower yesterday with the S&P 500 -0.2% at 3435, whilst futures are lower again today (E-mini S&Ps -0.5%). Asian markets were off overnight, with Nikkei -0.7% and Shanghai Composite -0.3%. European markets were weak yesterday and are under pressure again today (FTSE futures -0.3% and DAX futures -0.5%). In forex, after yesterday’s big sell-off on USD there is a mild retracement rally threatening today, although moves are very light currently. This is also reflected on commodities, with gold and silver unwinding yesterday’s gains by around half a percent. Oil is broadly flat in response to yesterday’s -3% sell-off.
There is a bit of a US focus to the economic calendar today. The Weekly Jobless Claims at 1330BST are expected to improve to 860,000 (down from last week’s unexpectedly high 898,000). US Existing Home Sales at 1500BST are expected to increase by +5% to 6.30m in September (from 6.00m in August). The Eurozone Consumer Confidence is at 1500BST and is expected to deteriorate in October to -15.0 (from -13.9 in September).
There are a couple of Bank of England speakers this morning to watch for. The BoE’s Chief Economist Andy Haldane speaks at 0930BST, with Haldane often seen as a controversial speaker. Then at 1025BST BoE Governor Andrew Bailey also speaks, where any comments about negative rates are sure to be pounced upon.
Chart of the Day – Silver
Positive traction has been developing on silver in recent days. With three positive candlesticks in a row, the market is has not only accelerated higher from the now four week uptrend, but has also broken a seven week downtrend. This old downtrend now becomes a basis of support. The move has just eased back this morning, but if support can begin to steady the market again, the way is now open to testing the key overhead resistance at $25.55/$25.85. This band is a collection of important near to medium term levels. Around the 23.6% Fibonacci retracement of the big March/August bull run ($11.62/$29.84) at $25.54, coinciding with the October high (at $25.55) and the overhead supply of the old August/September range (around $25.85). Momentum indicators are moving positively, but still have to do more to suggest a breakout above $25.85 will be seen. The RSI needs to move above 60 and MACD lines above zero. We look to use supported weakness as a chance to buy now. The hourly chart shows the market has slipped back into good support in the band $24.60/$24.90. If this can hold it would be a good buy zone. The bulls need to hold above $24.20 to sustain recovery momentum. Below $23.55 would turn the market corrective. A decisive closing breakout above $25.85 would also open the upside towards the September highs again.
The reaction to a breakout is always key. EUR/USD has spent the past few sessions building higher and closed decisively above near term resistance at 1.1830 yesterday. However, can this breakout now be confirmed so that the bulls can look confidently towards the next resistance 1.1900/1.1915 and perhaps even the key multi-year high of 1.2010 again? The early reaction today is to pullback. Reaction around breakout support will determine whether this move is to be trusted. Support around 1.1815/1.1830 needs to hold today. If the bulls can respond by buying into this pullback then it will be a strong indication that the move is accepted and upside resistance will be targeted. Below 1.1800 loses the bullish intent, whilst back under 1.1760 and the near term outlook turns corrective again. Hourly indicators this morning show that this early pullback is now into an area which should be a buying opportunity if yesterday’s breakout is to be trusted.
Signs of life once more in the Brexit trade deal negotiations have seen sterling soaring higher yesterday. The move on Cable was also given a boost from the dollar coming under pressure too, but a huge breakout above 1.3080 has been achieved. The market is certainly now moving to price in the likelihood that the EU and UK will find common ground for agreement and this should help to underpin sterling now. This is what the technical on Cable are also telling us. At a six week high, confirmed with improving (and positively configured) momentum indicators. Near term supported weakness back into 1.3000/1.3080 is now a chance to buy. Having broken out above 1.3080 this move can be taken as a continuation of the base breakout and 1.3330 is a valid implied target still. Furthermore, there is upside that is open potentially even towards the September high of 1.3480. Initial resistance at 1.3175 from yesterday’s high which has induced a little pullback, but already this morning there are signs of support forming above 1.3080 at 1.3120.
The dust is still settling on some significant dollar selling yesterday. Dollar/Yen took a big dive to put an end to weeks of moves lacking conviction. A decisive break below 104.90 has opened a test of 104.00 now. We continue to see the strategy of selling into near term strength as being the best way to play the pair right now. Resistance is now overhead between 104.90/105.20 capturing the overhead supply of several old lows of the past few weeks. Daily momentum indicators also renew their negative configuration and also with downside potential Under 104.00 the market is testing key March lows at 103.10 and then 101.15. Already a dead cat bounce is beginning to roll over around 104.75 this morning. Yesterday’s low at 104.32 is initial support.
We were building the case for a gold breakout yesterday, noting that the market needed to push through several key resistance levels. With a solid bull candle that added +$18 into the close yesterday, the bulls made good progress but could not quite overcome the final couple of hurdles. The bulls pulled up short of the October high of $1933 whilst also the market closed back under the 23.6% Fibonacci retracement (of $1451/$2072 at $1926). With momentum not leading the market higher (RSI still stuck in the low 50s, MACD lines still below zero) the bulls cannot breakout quite yet. How the market responds to an early pullback today will be key. We discussed yesterday about the near term importance of $1910/$1914 breakout support holding and it seems to be doing so this morning. Hourly indicators have unwound into areas where the bulls should be looking to buy if they are really intent on a breakout too. After such a positive move yesterday, if the move just fizzles out, back under $1910, then it would be a disappointment. Back under $1900 would turn the near term outlook sour again. A decisive close above $1933 opens the way towards $1973/$1991.
Volatility has increased in the past few sessions on oil, with yesterday’s -3.3% decline on Brent Crude jagging the market back lower once more. It is now testing the key $41.30 mid-range pivot support. A closing breach of this support would open $38.80 again, which is the low of the $5 trading range of the past six weeks. Momentum indicators are turning over with the RSI at two week lows calling the market lower, whilst MACD lines and Stochastics are also threatening lower. Brent has opened lower (marginally) this morning and suggestions are that the $41.30 pivot may not hold. The hourly chart shows initial resistance between $41.85/$42.20 as near term corrective momentum grows.
Whilst it goes again every instinct that conventional trading of Wall Street markets creates, it is difficult to be positive right now. Yet another session where gains have been sold into. This is now the fourth session in a row where the selling pressure has mounted into the close and the market has ended the session around day lows. Whilst the support band between 28,040/28,365 continues to hold, there is still a broad positive outlook (trading above rising moving averages helps this too). However, this does not seem to be a confident market right now and the negative pressure is mounting. Initial support is still at Monday’s low of 28,140 but a decisive close below 28,040 would open a corrective move now. Support then comes in to be tested at 27,730 and then 27,383. Momentum is waning (RSI and MACD drifting) but Stochastics are sliding harder. It looks as though there is a more considerable corrective move brewing on the Dow. We would ultimately use this as another chance to buy, but it is a market looking increasingly likely to fall near term.
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