There is a slow drip feed of constructive newsflow surrounding the negotiations for “Phase One” of the US/China trade agreement. Discussion has turned to extending a set of tariff exemptions due to expire in December. Every little helps and this is allowing markets to position with increased appetite for risk. A move to drive bond yields higher is reflective of this, with US Treasury yields at multi-week highs. This is also meaning that markets which have been consolidating for much of the past week, are now beginning to edge towards breakouts (such as on Dollar/Yen). With US earnings season progressing relatively positively, we also see this to be something of a sweet spot for the S&P 500. With a more positive outlook for the trade dispute and the market expecting the Fed to cut rates again, this is allowing the S&P 500 to close at all-time highs. This positivity has just had the reins pulled slightly this morning though as there is a mildly cautious start to trading today. This is leading to a slight retracement of some of the risk positive moves of yesterday. Political uncertainty of Brexit continues as yet another attempt to generate a December general election has failed. The Government will try a different method again today to, but in the least, it looks as though the Withdrawal Agreement Bill has been put on ice.
Wall Street closed a strong session with the S&P 500 in all-time highs at 3039 (+0.6%) whilst US futures are a tick higher again today. In Asian, there was a mixed session, with the Nikkei +0.5% but the Shanghai Composite was -0.9%. European markets look a touch cautious today with the FTSE futures -0.2% and DAX futures -0.1%. In forex, there is a slight retracement of yesterday’s moves, with JPY clawing back losses, whilst EUR and GBP are mildly off, however AUD and NZD are the outperformers. In commodities, the disappointment of yesterday’s gold decline has held more steady today, but there is a continuation of yesterday’s slide back on oil.
After a quiet European morning for the economic calendar the US data kicks off with the S&P/Case-Shiller House Price Index at 1300GMT which is expected to show mild signs of a pick up to +2.1% in August (from +2.0% in July). The big data for the day is the Conference Board’s Consumer Confidence at 1400GMT which is expected to improve to 127.4 in October (up from 125.1 in September).
Chart of the Day – French CAC 40
A lot of focus on European equities goes on the plight of the DAX, but its less heralded peer, the French CAC has been building steadily testing multi-year highs recent weeks. A run of strong closes and bull candlesticks in recent the past few sessions has now seen the CAC close decisively at its highest level since December 2007. The fact that this comes with not only strongly configured momentum indicators, but also with upside potential is a signal to suggest that the bulls are not done yet. The RSI is rising into the low 60s whilst MACD lines are advancing and Stochastics have swung higher again above 80. We look to use weakness as a chance to buy the CAC, with a basis of support around the September highs 5695/5705. The hourly chart shows a key near term pivot now supportive at 5660. Aside from yesterday’s high at 5747, the next price resistance is 5795 from December 2007, whilst an upside projection of a flag breakout implied target is 5890. Support at 5613 is now a key higher low.
The fate of the euro recovery uptrend continues to hang in the balance. The corrective slip of the past week retreated into the support band $1.1060/$1.1100 to find a positive candle yesterday. However, this is where the bulls need to build again. It comes at a crucial crossroads on momentum. The RSI is back to just a shade above 50. Given that the sell-off through August and September had the RSI consistently failing at 50, the bulls will be looking to use this mid-point as a buy signal now. Failure to do so would question the integrity of the recovery. MACD lines are positively configured but have lost impetus, whilst Stochastics also look to be at an inflexion point. This support around $1.1060/$1.1075 is subsequently vital for the recovery. A failure would open $1.0990. The bulls will be looking to close back above $1.1100 again to form another positive candle to regenerate the swing higher. For now we favour buying into the weakness but this is a key crossroads moment for the euro.
With uncertainty over the UK domestic political situation regarding Brexit still a massive open question, we see the sterling rally fading. A downtrend of the past week has developed and momentum rolled over. However, yesterday’s mild positive candle has just steadied the ship slightly and sees the recent mini trend lower being questioned. It is also interesting to see the support band $1.2785/$1.2820 holding for the past three sessions. This heightens the importance of this support near term. There has been a drift off on the positive momentum signals, but given the support in the past few days, the selling pressure has been contained so far. The downtrend comes in at $1.2875 today and needs to be watched. Interestingly, on the hourly chart the momentum on hourly RSI has remained with a negative bias but without being near term bearish. This will give the bulls some hope. Resistance is at $1.2875 initially today, with $1.2950 a lower high. We see sterling upside as being limited by political uncertainty, but for now the market is holding back the bears at $1.2785.
Positive risk appetite is negative for the yen, so can Dollar/Yen finally breakout? There has been a tediously quiet consolidation of the past week and a half, but with yesterday’s solid positive candlestick, the bulls are finally showing themselves. The market is pulling higher away from the 108.50 breakout and pressure on the key resistance of the medium term pivot at 109.00 has grown in the past 24 hours. There are signs of life (finally) in momentum indicators, with RSI into the mid-60s, whilst the Stochastics are edging higher again within their bullish configuration. A decisive closing breakout above 109.00 would be a key medium term breach of a ceiling that has been holding the market under wraps since June. It would also point towards the market making a move away from the safe haven yen. Confirmation would be above 109.30 and then 109.90 and 110.65. The reaction low at 108.25 is becoming a key higher low.
It is difficult to see gold pulling decisively higher with broad positive risk appetite across markets and subsequently, the bulls have once more been dragged back into a ranging configuration. No breakout above $1518 and back under $1500 again will be seen as another disappointment for a market looking for decisive direction. Momentum has again rolled over and gold is looking for direction once more this morning. A solid negative candle yesterday reflects a rejection of a breakout and a move back to where we were mid last week. A failure of the breakout support at $1497 means that with $1500 this becomes an area of resistance initially today. On a near term basis, watch for $1488 as an initial higher low above $1480 support. There is a slight negative bias given the recent slip back, but again in October we are in search of direction.
A disappointing candlestick for the bulls and a negative session has dampened the spirits of recovery. All it not lost yet with the recovery, but wit momentum beginning to swing lower, there needs to be a response from the bulls today. The Stochastics have bear crossed (not a confirmed sell signal yet), whilst MACD lines are losing momentum around neutral. Given the run of higher lows and higher highs in the past few weeks, there is still a positive configuration which suggests that corrections are a chance to buy. However, the support band of the breakouts between $54.60/$54.90 needs to be an area where the bulls look to build. Closing back under the 38.2% Fibonacci retracement (of $63.40/$51.00) around $55.75 would be a disappointment, but if this is just a drift back within a building uptrend channel, then the move will be back into support $54.60/$54.90 to give a chance to buy. Under 23.6% Fib at $53.90 aborts the recovery.
Dow Jones Industrial Average
The bulls are champing at the bit to confirm a breakout to multi-week highs but for now, they are still restrained. However, it should only be a matter of time. The intraday break above 27,120 yesterday could not quite be held, but another positive session (with an upside gap) has opened the door to the next resistance at 27,307 and the all-time high at 27,399 in due course (the S&P 500 hit blue sky yesterday). Momentum indicators are responding, with the RSI closing yesterday at a five week high, whilst Stochastics are swinging back higher again and MACD lines are edging higher. The open gap at 27,015 ideally would be filled but look to buy into weakness now as this looks to be a market ready to go. The importance of support at 26,655/26,715 is growing.