There is a slightly more positive degree of risk appetite moving into today’s session as traders take a more upbeat view ahead of the G20. Larry Kudlow, an economic advisor to Donald Trump, re-iterated in front of the meeting between President’s Trump and Xi at the G20 there is dialogue on many levels. If this is the case then it improves the prospects of some sort of an agreement being reached (or at least movement towards an agreement). However, putting aside politics (even if it is just for one day), central banks are key for today’s session. Jerome Powell, the chair of the Federal Reserve, gives a speech at 1700GMT today in New York that could potentially be significant. Coming in the wake of the recent sharp decline in equities and even sharper decline in the oil price, and where expectations of a global economic slowdown are beginning to take hold, Powell’s views will be market moving. His vice chair on the FOMC, Richard Clarida, yesterday noted that how close the Fed was to a neutral rate was open for debate and advocated being data dependent. Could Powell set the market on a path towards expecting fewer rate hikes from the FOMC? We are also keeping an eye on the Bank of England’s financial stability report (at 1630GMT) which will lay out the potential impact of Brexit on UK growth. Sterling traders will once more need to be on their toes.
Wall Street closed higher for a second straight session yesterday, with the S&P 500 +0.3% at 2682, whilst US futures are a similar amount higher today. Asian markets have been broadly positive with the Nikkei +1.0% and Shanghai Composite +1.0%. In Europe, FTSE 100 futures are around half a percent higher. In forex, there is little real direction on major pairs, with the dollar strength from yesterday stuttering a shade this morning. In commodities, gold and silver are consolidating yesterday’s negative moves, whilst oil is over a percent higher in early moves.
The key focus for the economic calendar is on US growth with the comments of Fed chair Jerome Powell also sure to generate significant interest. The release of prelim US Q3 GDP (the second reading) is at 1330GMT which is expected to show +3.5% (which would be no change to the Advance reading of +3.5% a month ago). US New Home Sales is at 1500GMT which is expected to show a sizable increase to 583,000 in October (from 553,000 in September) and would be a considerable achievement given the recent deterioration in US housing data. The Richmond Fed Composite index is at 1500GMT and is expected to move a shade higher to +16 (from +15 last month). US oil inventories are then once more in the spotlight with the EIA oil inventories at 1530GMT. Crude stocks are expected to show a drawdown of -1.0m barrels (from +4.9m last week) which would be the first inventory drawdown for 10 weeks. Distillates are expected to drawdown by -1.5m barrels (-0.1m last week) with gasoline stocks expected to build by +1.0m (-1.3m last week). Just as the European close at 1630GMT, the Bank of England’s financial stability report is released which includes the impact of Brexit on growth and stress test results for a range of UK banks. However it will be the comments of Fed chair Jerome Powell at 1700GMT which could cause a stir, given the suggestion from vice-chair Clarida yesterday that the Fed should be moving towards a more data dependent view of monetary policy.
Chart of the Day – Silver
As the mid-November technical rally has run out of steam, silver is on the brink of posting another bearish signal. The pivot of the old support at $14.20 is giving way now and if seen on a closing basis it would re-open the key November low at $13.85 again. The bearish concern grows in the fact that the momentum indicators are rolling over as they have renewed downside potential. With the Stochastics crossing lower around 50, the MACD lines are now crossing lower under neutral . A move below 40 on the RSI would also be a similar negative signal. The market has rolled over to form resistance at $14.55 under the key autumn highs of $14.91/$15.00. A failure to quickly reclaim $14.20 would add to the bearish momentum. With Bollinger Bands tracking lower, momentum negatively configured and trading below all the moving averages, it is difficult to see anything other than a sell into strength now.
The euro is coming under pressure once more as a strengthening dollar is once more pulling the pair lower within the downtrend channel. Following on from the consolidation around Thanksgiving last week, the dollar bulls have returned to post three consecutive bear candles in a row and drive a close below the old key low around $1.1300. With the momentum indicators deteriorating again there is downside potential for a test of the $1.1213 low and perhaps even further. The RSI and Stochastics are tracking lower and the MACD lines are on the brink of crossing lower which suggests that Intraday rallies are being seen as a chance to sell. This is reflected in the lower highs and lower lows on the hourly chart along with negative configuration on momentum. There is an overhead resistance $1.1325/$1.1345 initially, adding to the resistance at $1.1385. Yesterday’s low at $1.1275 is initially supportive but the preference remains for a test of $1.1213.
With dollar strength being renewed across the major pairs and sterling still subdued from Brexit politics, this adds up to Cable testing lower. The reaction low from last week at $1.2720 is subsequently being eyed. Momentum indicators remain bearishly configured to suggest that rallies are a chance to sell and the trend lower of the past few weeks is providing resistance around $1.2850 today. Although the market looks relatively stable this morning, the preference remains for a test of $1.2720 and likely pressure on $1.2695 and perhaps $1.2660 in due course. The hourly chart shows negative configuration across the momentum indicators, whilst the near term overhead supply between $1.2760/$1.2800 is likely to restrict rallies.
The renewed dollar strength is playing out well through USD/JPY with bullish trends rejuvenated, trading above rising moving averages and positive momentum renewed. The move that has decisively left the near term pivot band 112.90/113.10 behind, now means that the market is eyeing the key November high at 114.20 once more. Intraday corrections are a chance to buy, with momentum indicators turning positive again, but also with further upside potential. Reacting from yesterday’s low at 113.40 means that there is another higher low to reference for the bulls now, with positive momentum configuration confirming on the hourly chart.
After several days of consolidation where the positive momentum had gradually been ebbing away, the result was a first decisively negative candle in more than two weeks. Given the fact that the market is now trading in the pivot band $1208/$1217 this is a crucial near term period for gold. Losing the momentum is a real concern, especially with the Stochastics and MACD lines crossing lower. However if the bears were gaining control, then a move like this would be expected to be followed by another bearish candle today. So far the market is consolidating, however a close under $1208 would be a real concern for not only the medium term uptrend channel (the support of which comes in at $1203 today) but also the key higher low at $1195. The bulls therefore need to respond quickly today to prevent the outlook taking a decisive corrective turn. The resistance is mounting at $1230 and a failure to quickly reclaim $1217 would increase concern for the bulls.
Is this a consolidation within the sell-off, or the early knockings of a recovery? Monday’s rebound candle has been followed by a doji candlestick (normally denoting uncertainty). A positive open today adds confidence too that support has now been left at $50.10 (interestingly a shade above the psychological $50 level). However the latest move still has several of the hallmarks of that mid-November consolidation that came prior to last week’s huge downside. The real tests for a recovery are still ahead, with the resistance initially around $52.75 (an old low from last week) and $54.75 (the overhead supply of the previous consolidation). The prospect of an unwinding move to the resistance of the sharper three week downtrend (comes in around $54.00 today) is growing and this is a realistic recovery area now. Watch the momentum indicators, which show the RSI ticking higher (the highest in three weeks now) but MACD and Stochastics are not yet showing any real improvement.
Dow Jones Industrial Average
Can Wall Street muster some sort of recovery? The Dow has now posted two consecutive positive candlesticks where the market has closed the sessions around the day high. This is beginning to have a positive impact on momentum, with the Stochastics crossing higher (not yet a confirmed bull signal) and the MACD lines bottoming. How the market reacts around the pivot band 24,800/24,900 will be key near term. This is also a confluence with the barrier of a near three week resistance which comes in around 24,800 today too. It is interesting to see the hourly chart has a small “head and shoulders” base pattern which completed above 24,675 which actually implies a rebound target of 390 ticks (c. 25,065). A move through the pivot resistance would certainly open the move. Initial support at 24,675 and then 24,415.