There is a slight but growing pressure that the dollar seems to be coming under early this week. Underperforming across the major currencies, the Dollar Index is ticking lower and is threatening the initial support around 92.70. A breach would be a two week low for the dollar and suggest that the early September rally had once more been used as a chance to sell. In part this is a function of market response to the FOMC meeting last week, but equally it comes as Wall Street appears to be under mounting corrective pressure. The S&P 500 closed below its 55 day moving average (a medium term trend indicator) for the first time since April. With US futures showing further declines early today, the negative pressure on equity markets is growing. Selling into a dovish Fed and a weakening dollar is not the usual playbook for Wall Street, so it will be interesting to see if this is just seen as another chance to buy. However, technical topping patterns have been rare since the recovery kicked in back in March. So, these moves need to be treated with some caution.
Wall Street closed decisively lower on Friday with tech again leading the sell-off. The S&P 500 was -1.1% at 3319 whilst the E-mini S&Ps futures are -0.6% early today. Asian markets have been lower, with the Shanghai Composite -0.7% (Nikkei shit for public holiday). European equities look under pressure early today, with FTSE futures -1.3% and DAX futures -1.1%. In forex, the USD negative play is still in force, with GBP and AUD being marginal outperformers, whilst JPY is also doing well. In commodities, gold is unable to break the shackles and is consolidating, whilst silver is marginally lower, but oil is around -1% back as the recent rebound appears to have run out of steam.
There is nothing on the economic calendar of any real note today.
There are several Fed speakers to look out for today. Fed chair Powell speaks via satellite at 1500BST but is not due to speak about monetary policy, so the impact may be reduced this time. The same could be said for FOMC’s Lael Brainard who is speaking at 1700BST and FOMC’s John Williams at 2300BST.
Chart of the Day – EUR/JPY
A consolidation between 124.40/127.05 has now decisively broken down and the outlook is turning increasingly corrective. The close below 124.40 recently completed a six week top pattern and implies downside of around -260 pips towards 121.80 in the coming weeks. The pullback rally failure around the neckline resistance of 124.40 on Friday (adding further resistance at 124.30) now opens the way for further correction this week. Initial support is at 123.00/123.30 but with momentum indicators increasingly deteriorating this could easily pull the market towards the target. Daily RSI is below 40 and at its lowest since May, whilst MACD lines and Stochastics are moving into bearish configuration. We look to use intraday rallies as a chance to sell now. A move 125.00 is needed to improve the outlook.
The pair is still intriguingly poised. The medium term outlook has been neutralised in the past eight weeks as moves between 1.1695/1.2010 have become increasingly rangebound. Breaking the 4 month uptrend added to this assessment. This range has tightened to 1.1730/1.1915 in the past few weeks. There has been a notable pick up though in the last three sessions, with the market ticking higher again early today. Momentum is looking to build positively once more, but for now the resistance between 1.1900/1.1915 is a barrier. Moderating momentum has been a feature throughout the range, as the peaks on daily RSI are ever declining. So we look for a move above 60 on RSI to suggest perhaps a build up of positive momentum once more and potentially a move above 1.1915 to break the consolidation. Initial support at 1.1825/1.1835.
As the rally kicked in early last week, the big question became whether the bulls could break through the overhead supply around 1.3000. The August lows between 1.2980/1.3050 have left significant resistance that now needs to be breached for the near term bounce to become a decisive bull move. Friday’s negative candle once more contained a key resistance forming around 1.3000. However, with the market ticking back higher once more today, it means that the next move on Cable could be crucial for the medium term outlook. After all the tests of the resistance, a move back into the 1.30s would be a positive signal for Cable. There was an initial slide back that rebounded from 1.2865 last week which is now initial support that takes on an increasingly important role in this phase of trading. A move back under 1.2865 would suggest the market rolling over again. There is a ranging and consolidation element to hourly indicators, as well as daily. Having rebounded early today from 1.2905 this will also be a level to watch today.