Markets continue to trade with a lack of certainty as newsflow of major macro factors remain on a knife edge. However, slight chinks of light over the weekend are generating a mild positive risk bias this morning. In one final (?) attempt to break a deadlock on US fiscal support, Democrat House Speaker Pelosi gave a 48 hour deadline over the weekend. It means that the next couple of days could generate elevated volatility on any announcements, but markets are taking this as a positive. Furthermore, although no agreement has been reached yet between the EU and UK on a post-Brexit trade deal, there were suggestions over the weekend, that there could be changes to the controversial UK Internal Market Bill in order to ease the log-jam. Sterling has ticked higher early today. China’s Q3 GDP missed expectations (4.9% actual, versus 5.2% forecast), although other data for September (Retail Sales and Industrial Production) beat expectations to ease any negative aspect from the growth data. Taking all that in, there is a very slight edge of positive bias to sentiment this morning. US yields are ticking higher, which is translating to marginal US dollar weakness (USD is still very much acting as a safe haven now). US equity futures are taking a bit of a lead too, but this is coming to balance a disappointing drop into the close on Friday.
Wall Street closed mixed on Friday with the S&P 500 half a tick higher at 3483, whilst futures are kicking back higher today (E-mini S&Ps +0.6%). Asian markets were mixed to positive, with the Nikkei +1.1% and Shanghai Composite -0.6%. In Europe, we see consolidation early, with FTSE futures -0.1% and DAX futures all but flat. In forex, there is a slight positive risk bias and USD negative, with GBP a main outperformer, whilst NZD is also strong after the incumbent Labour Party won a majority in the New Zealand general election. In commodities, the mild edge of USD negative bias is helping gold higher by +05% and silver +1.7%. Oil continues to lack direction, -0.3% early today.
It is a pretty sparse economic calendar today, with little to really trouble traders.
All the action however, comes with a whole swathe of central bank speakers. Fed chair Jerome Powell speaks at 1300BST and is always worth watching. Other Fed speakers include Richard Clarida (vice Fed chair, leans a touch dovish) at 1645BST and Patrick Harker (voter,. Leans a touch hawkish) at 2000BST. There is also ECB President Christine Lagarde to watch at 1345BST.
Chart of the Day – FTSE 100
Wall Street indices are in apparent bull market corrections, whilst the DAX is slightly lagging Wall Street as it trades in a multi-month range. However, languishing all of these we come to the FTSE 100. The old adage is that the high tide lifts all boats, well FTSE 100 is doing its hardest to prove that wrong. Since the June high of 6510, there has just been a stream of lower highs and lower lows which effectively now leaves the FTSE in a downtrend channel. This is marked by the daily RSI consistently seeing rallies failing around 55/60 before selling phases move down to the mid-30s. This suggests a bearish drift, where selling into strength remains the prime strategy. A sharp bull candle on Friday may give rise to a near term technical rally again, but it is rather like shifting deckchairs on the Titanic still. Unless something big changes (perhaps a Brexit trade deal), we favour seeing another lower high failing around the 38.2% Fibonacci retracement of the big COVID sell off (7687/4899) around 5964. A slightly sharper downtrend comes in at 6000 today leaving the bulls needing to make a decisive move above last week’s high of 6037 to hold any real prospect of a sustainable rally. It leaves a near term sell-zone 5975/6040. We favour selling into this rebound for a retest of the 5770 September lows before a retreat towards the channel lows which currently come in around 5680.
We are increasingly looking at EUR/USD as being a market lacking direction. A two week drift higher subsequently spent last week retracing back lower. However, the market has spent recent sessions holding around the old 1.1695 support area with Friday’s small candlestick body filtering into an early lack of conviction again today. Although we still see momentum indicators (RSI, MACD) broadly flattened, the falling Stochastics lends a slightly negative bias. A decisive close below 1.1685 would open pressure on 1.1610 key September support. Initial resistance at 1.1720/1.1745.
A mild positive drift on Cable was curbed last week, but the support holding around 1.2845/1.2860 essentially leaves Cable stuck in a consolidation between 1.2845/1.3080. A tick back higher this morning will encourage the sterling bulls. This is a positive reaction to the suggestion from the UK side that agreement over a Brexit trade deal is breaking down. The market clearly sees this as a negotiation tactic (Cable would be sharply back lower on a confirmed “no trade deal” scenario) and there is still hope for a deal. Technically, momentum is flat on RSI and MACD, whilst Stochastics are still suggesting a negative bias despite today’s early rebound. A run of lower daily highs continues, so the bulls will be eyeing a close above 1.2960 (Friday’s high) to begin to improve the outlook. For now we see positions above 1.3000 as a struggle.
As with so many major forex pairs, the past few sessions have shown a lack of real direction. For Dollar/Yen though, the overall bias is still towards the downside. The three and a half month downtrend is now falling at 105.90 today, whilst Dollar/Yen has struggled to overcome 105.50 for the past few sessions. It still points towards using near term rallies as a chance to sell for pressure on 104.90. We also favour an eventual downside break. The resistance around 106.00/106.10 is growing. The hourly chart shows hourly RSI consistently faltering around 60, which at best means consolidation in the past few days. A move above 105.60 could be an early sign of recovery, but we would still expect a rally to falter fairly quickly.
We have seen so many major markets (forex and commodities) consolidating recently. This is the same with gold, but is there just a hint of positive bias beginning to show through? The two trendlines continue to converge (six month uptrend now at $1885, two month downtrend now at $1925), but with the market just putting together a run of higher lows and higher highs in the past month, there is a bias towards testing the downtrend now. Early gains today are helping to forge this view and if the market closes around here tonight, it would be three positive closes in the past four sessions. Trading back above $1902 also adds to the mild sense of improvement. The key resistance remains $1933, but a close above the 23.6% Fibonacci retracement (of $1451/$2072) at $1926 comes with increasing positive intent now. The hourly chart shows resistance initially at $1912 this morning and a move through here will give the bulls a little more confidence of a positive bias which is beginning to hint into the hourly momentum. Initial support at $1897 above Thursday’s low of $1889. A close below $1873 would be a breakdown.
Brent Crude Oil
Despite the intraday fluctuations of recent sessions, Brent Crude continues to consolidate in its six week trading range between $38.80/$43.80. Although the market is now consistently trading in the upper half of the range, resistance at $43.55/$43.80 is holding firm. Momentum indicators retain a positive bias for the range but given that moving averages have flattened, this is very much a consolidation play right now. The mid-range pivot at $41.30 continues to be a basis of support. Until the price closes above $43.80 or below 38.80 there is very little real direction of any conviction.
Dow Jones Industrial Average
The mixed signals continue to come for Wall Street. Thursday’s trend breach and strong intraday rebound into the close, were then followed by Friday’s early gains almost all being eroded. It leaves a highly uncertain run of candlesticks. However, the bulls will point to holding on to the support band 28,040/28,365. With the market also finding support (at 28,181) to continue to trade above all rising moving averages, it still suggests that weakness is a chance to buy. Although this may be a difficult phase for sustainable trend, we still favour testing higher. Futures are ticking higher initially today, so the focus will be on Friday’s bull failure high of 28,842 before last week’s resistance at 28,958. We still see any retreat into 28,040/28,365 as a chance to buy. Momentum remains positively configured and also suggests that weakness is a chance to buy.