In the next couple of days we have the annual G20 meeting, where one of the themes will be whether the major economies of the world can come together to prevent waning global growth in the face of increasing nationalist protectionism. Chief amongst this will be a meeting between US President Trump and Chinese President Xi in an apparent attempt to avert a trade war which would have a significant negative impact on global growth. Financial markets will be watching the outcome of the G20. The dollar has outperformed as the US economic trends have been strong relative to other major nations, with the performance in part driven by the trade dispute. However, if there are signs of an agreement in the pipeline between the US and China, could this see the dollar start to retrace some of this move? Could positive news also help to lend a floor of support for the oil price too? The FOMC minutes showed that a December hike is all but a done deal, but that a pause to the speed of the cycle is to be debated. FOMC member rhetoric will be key now. Keep an eye on vice chair John Williams today. Williams has tended to lean more hawkish and could be a good barometer of the balance on the FOMC.
Wall Street closed flat to slightly lower on a choppy session yesterday with the S&P 500 -0.2% at 2737. US futures are ticking -0.1% lower initially today too but Asian markets held support with the Nikkei +0.4% and Shanghai Composite +0.7%. European futures are following US markets with the FTSE 100 futures lower by around -0.4% in early moves. In forex, there is a lack of real direction, although the underperformance of sterling remains an issue, whilst it interesting to see the Aussie slipping a touch as China’s manufacturing PMI came in lower than expected at bang on 50 (no expansion or contraction in the sector). In commodities, the consolidation on the dollar is reflected through gold and silver almost flat whilst the oil price has found a shade of support..
The G20 meeting in Buenos Aires will be a key focus for investors, but the impact is unlikely to be felt today. Presidents Trump and Xi are having dinner together which means that this will be after the close on financial markets tonight and therefore traders will have the weekend to stew. On the data front today, the big emphasis will be on the flash Eurozone inflation at 1000GMT. Consensus is expecting a headline HICP dropping to +2.0% (from last month’s +2.2%) whilst core HICP is expected to remain at +1.1% (+1.1^% in October). Eurozone unemployment also at 1000GMT is expected to drop to 8.0% in October (from 8.1% in September). Canadian monthly GDP is at 1330GMT and is expected to grow by +0.1% in September (+0.1% MoM in August). It is also worth keeping an eye on the comments of one of the more hawkish leaning FOMC members, John Williams (permanent voter) who speaks at 1400GMT.
Chart of the Day – AUD/USD
Jerome Powell has hit the dollar and the ensuing underperformance of the greenback is being felt through the chart of AUD/USD which is now on the brink of a confirmed key upside break. The resistance at $0.7310 needed to complete a bullish recovery pattern was never decisively breached in mid-November as the market fell over, however another test is now being seen in the wake of the Fed chair’s dovish comments. A closing breakout above $0.7340 would confirm that the bulls were really gathering momentum in a recovery now. If seen with a confirming second closing breakout, this would complete a three month base pattern and signal a medium term recovery was underway. It would complete a large head and shoulders base that would imply c. 270 pips of recovery in the coming months. In terms of recovery, the momentum indicators are now positively configured on a medium term basis and also having turned near term positive, the bullish pressure is growing to suggest buying into weakness now. This week’s higher low at $0.7195 came above the near to medium term pivot at $0.7160. The hourly chart shows a band of support $0.7275/$0.7290 to use as a near term buy zone. Near term resistance is at $0.7360/$0.7380 and then around $0.7450.
A second positive session on EUR/USD in the wake of Fed chair Powell’s dovish comments means that the market is now testing the upper bound of the downtrend channel once more. This is once more a key test, with the trendline resistance at $1.1410 today, the pivot at $1.1430 and the key November high at $1.1470 all barriers to an outlook of decisive improvement. It is interesting to see that the momentum indicators are showing signs of improvement again, with the MACD and Stochastics lines looking to accelerate higher, whilst the RSI is looking to push above 50. An early consolidation this morning around the downtrend shows that the market is giving consideration to the next move. The hourly chart shows support at $1.1350 initially as yesterday’s low, whilst hourly momentum has a positive bias without being overtly strong. This all points to a key moment for the near to medium term technical outlook.
Taking a step back, it is clear that Cable has actually traded sideways now for the past two weeks. Intraday volatility remains elevated (the Average True Range is still 125 pips) but essentially Cable has become very difficult to trade on a time horizon of over a day. Despite this, there is still a negative bias as the market is still bumping up against the resistance of a three week downtrend. The consolidation is testing the downtrend and it is interesting to see momentum indicators are plateauing to suggest the selling pressure is dissipating, for now. The support at $1.2720 has held firm now for two weeks, although there is still a mild gravitation towards it. Further support at $1.2660/$1.2695 is key. However the hourly chart show lower highs and resistance at $1.2850 is preventing a rally. This remains a news driven (Brexit) play, so we await the next catalyst.
For now the near term corrections should be viewed in the context of the medium term positive trends. Therefore, the corrective move of the past few sessions needs to be watched carefully for signs of support and renewed positive signals. However, there is a pivot band around 112.90 and a higher low at 112.60. If these are breached then the outlook will look more questionable, whilst the key near term support remains 112.30 and the six month uptrend is supportive today around 112.15. The near term deterioration in momentum indicators such as the Stochastics crossing lower, RSI failing under 60 and MACD lines stuttering are all warning signals in the longevity of the bull trends being able to continue to pull the market higher. There is initial support from yesterday’s low at 113.20, whilst resistance has formed around 114.00 under the November high at 114.20.
The two consecutive positive sessions are threatening the resistance at $1230 which is a basis of near term resistance that protects the key medium term pivot at $1236. However, for now this resistance remains intact and the candle of yesterday’s session suggests that this is a resistance the bulls need to be wary of. However, the two days of gains are beginning to pull the Stochastics higher, and suggests that a move higher within the uptrend channel is threatening to take hold. Leaving support at $1210 (which is inside the medium term pivot band $1208/$1217 also helps to improve the outlook. However, there needs to be a decisive improvement in momentum indicators, which is yet to be seen, especially on the MACD lines. Is the market now setting up for a test of the key resistance at $1236.
WTI breached the psychological $50 level yesterday but the intraday recovery suggested that the latest near term outlook is one of consolidation over the past week. The trouble is that previous consolidations have all resolved to the downside in recent weeks. A four week downtrend comes in at $52.70 today and has tended to cap recoveries. The overhead supply of the old $52.75 low is also an issue for the bulls. It is though interesting to see that perhaps there are finally signs of life in the momentum indicators after weeks of deeply bearish configuration. The RSI is now showing positive divergence and the MACD lines seem to be threatening to flatten off. Chasing further downside needs to be cautioned by the expectation that it is likely to be a news driven move to pull a recovery. The demand side of the oil story could be improved by the G20 meeting in the next two days. Yesterday’s low at $49.40 is supportive.
Dow Jones Industrial Average
Intraday volatility remains elevated and the Dow has posted a candlestick to give mixed signals. A “long-legged doji” denotes uncertainty and the fact that yesterday’s high came at 25,480 just under a resistance at 25,500 is interesting. This seems to be a bit of a wait and see candle which may have just halted the momentum of the recovery, but the bias is still towards the upside. The hourly chart just shows the near term hourly momentum rolling over a touch and this could represent some initial slippage, however yesterday’s low at 25,202 will be watched as support for the continuation of the near term recovery. A close above 25,500 opens 25,800 as the next old pivot.