Markets lack direction ahead of key risk events 24/10/2017 #Hightrade

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Market Overview

Traders seem to be jostling for position with several key risk events in the near future but nothing definitive to provide markets with decisive direction. In the course of the next week, there will be a crucial ECB monetary policy meeting, Q3 US growth data and Donald Trump’s decision for the next chair of the Federal Reserve’s FOMC being “very, very close”. As a result there is an indecisive look to markets. Treasury yields and the dollar has slipped a touch whilst  the euro and gold have rebounded, however, nothing that would suggest a trend changing move. This could become a feature of trading in the coming days at least until Thursday’s ECB meeting. There was finally a slip on Wall Street last night in the wake of disappointing results from GE. Although minor corrections have tended to be seen as a chance to buy, this could filter into the European session today. European equities have struggled of late, not buoyed as Wall Street has been by the promise of tax reform.

Wall Street dropped back with the S&P 500 -0.4% at 2565, and whilst Asian markets were mixed to slightly higher (Nikkei +0.5%), European markets are taking the lead from Wall Street early today. In forex the slip on the dollar into the close last night has been held today but with very little real direction. The big mover has been the New Zealand dollarwhich continues to suffer amidst the socialist policy agenda of the new Labour government being laid out. In commodities, gold is mixed whilst oil is also trading around the flat line in early moves.

Traders will be keeping an eye on the flash PMIs for both manufacturing and services the Eurozone and US today, meaning the euro and US dollar could be impacted. Through the early part of the European session the individual Eurozone countries announce before the flash Eurozone Manufacturing PMI at 0900BST expected to dip slightly to 57.9 (from 58.1 as a final reading last month) whilst the flash Eurozone Services PMI is expected to tick down to 55.7 (from 55.8). This means that the flash Eurozone Composite PMI is expected to drop slightly to 56.5 (from 56.7 last month)  The US flash PMIs are at 1445BST with flash US Manufacturing PMI expected to improve slightly to 53.3 (from 53.1 last month), whilst the flash US Services PMI is expected to be slightly lower at 55.2 (down from 55.3 last month). This is interesting again, given how strong both the ISM Manufacturing and Non-Manufacturing readings were a few weeks ago. The Richmond Manufacturing Index is at 1500BST and is expected to dip slightly to +17 (from +19) but this remains a strong number.

 

Chart of the Day – DAX Xetra 

Global equity markets have been pushing higher in recent weeks and dragged higher by ever more all-time highs on Wall Street, the DAX has managed a break above 13,000. However the bulls are by no means having it all their own way. The support of a seven week uptrend on the DAX was breached last week as the bulls have begun to look increasingly tired. Having posted an all-time high of 13,095 last week the negative candles are beginning to rack up. Another failed intraday move above 13,000 adds to the building questions of the sustainability of this run higher. The momentum indicators are positing a series of sell signals now with the MACD lines crossing lower, the Stochastics confirming a sell signal. If the RSI were to now close below 70 is would be a full set. Ultimately it is the price which drives market moves and the support is holding firm around 12,910, whilst there also seems an appetite to support above the old key breakout from June at 12,951. The hourly chart shows a mixed near term outlook with a trading band of 185 ticks. Breakout would imply 185 ticks in the direction of the break and given the positive outlook for global markets remains in play, this flies in the face of corrective momentum indicators. With such choppy and mixed moves, look to trade the break. Initial support is 12,956 and resistance at 13,069.

dax-24102017

EUR/USD

There is a mild negative bias to the trading outlook which is acting as a drag in the near term. Another negative candle yesterday bounced from around the initial support of last week’s low at $1.1730 but the momentum indicators are slipping back and suggest that this is a market that is using rallies to sell into. Trading under the near term pivot at $1.1820 will maintain this outlook and the configuration of the momentum indicators suggests that the market is positioning for a test of the $1.1660 key support in due course. As the week drags on the ECB policy meeting will come ever more into focus and this could develop a consolidation, but for now strength is seen as a chance to lighten positions.

eurusd-24102017

GBP/USD

Cable is a market which is extremely nuanced at the moment, with several factors able to pull it around on a daily basis. Right now there is a mild rally taking hold which is on the brink of breaking a four week downtrend. Momentum indicators are neutral but there is a slight tick higher on the Stochastics which reflect the improvement in the chart since Friday’s bull hammer candlestick. A small positive candle yesterday is being followed by early gains today and on the hourly chart this means that resistance at $1.3230 is being directly challenged. The hourly chart also shows a subtle shift in near term momentum now with an improving configuration forming on hourly RSI and MACD lines. Holding above the support at $1.3155 is now important for the recovery whilst a decisive move above $1.3230 today would complete a small head and shoulders base pattern and imply 140 pips of upside towards $1.3370, so at least suggesting a rally to test the key near term rally high at $1.3335.

gbpusd-24102017

USD/JPY

The bulls will have come away from yesterday’s session disappointed, however all is not yet lost. The breakout above 113.43 was decisive but the intraday correction pulled back over 70 pips form the high of 114.10 to leave a negative candlestick for the day. However, the close was bang on the old resistance and if the bulls can settle, this is likely to still be seen as a chance to buy. The positive configuration on daily momentum indicators in addition to the sequence of higher lows suggests that corrections are being supported now. The hourly chart shows that the market has simply unwound momentum indicators back to levels where the bulls have been regaining control. The hourly RSI bouncing around the mid-30s, the Stochastics ticking higher and the MACD lines just under neutral. Furthermore, for the past two weeks the 89 hour moving average has turned from being a basis of resistance to one of support (this morning around 113.25). There is a band of support 113.05/113.43 to use as a “buy zone”. A supportive candle today would see the bulls regain the confidence for another go at the key July high at 114.50. Key near term support is now 112.30.

usdjpy-24102017