Market Overview
It is the day that the Federal Reserve announces its latest monetary policy update. At 1800GMT (remember the US clocks have not gone back yet) the Fed will put out a statement that will once again not include a rate hike. The lack of press conference and staff targets is certainly prohibitive to the committee making such a ground breaking move (despite the FOMC members insisting that all meetings are “live”). The Fed only therefore has the statement to guide markets. Again there may have to be a tweak to the line about international developments but it is unlikely that much will be change from the September statement. Market sentiment is cautious going into the FOMC this evening but a degree of consolidation is fairly normal and I would not expect too much to be gleamed from today’s announcement.
Wall Street closed very slightly lower last night with the S&P 500 off 0.2%, whilst Asian markets were also fairly mixed to slightly lower, aside from the Nikkei 225 which was 0.9% in the wake of weaker than expected Retail Sales data that has led to speculation of further QQE from the Bank of Japan this Friday. European markets are flat to slightly higher today but I would not anticipate any real direction being garnered.
In forex trading the major pairs are fairly well settled in front of the FOMC tonight with euro, sterling and yen fluctuating around the flat-line. The big movers are again the commodity currencies, with the Aussie and Kiwi strongly weaker in the wake of the lower than expected Australian inflation data which could put the pressure on the RBA at next week’s meeting.
Aside from the Fed this evening, we also have the Reserve Bank of New Zealand updating the market at 2000GMT. There is no expectation of a rate cut from 2.75% but it will be the tone of the update that traders will be watching, especially considering the struggle with the disinflationary impact of thee falling milk prices. There is also the announcement of the weekly US oil inventories at 1430GMT which are expected to come in at 3.7m (down from 8.0m last week)
Chart of the Day – NZD/USD
I looked at the Kiwi last week and talked about the fact that the rally had fallen over. The pair has since formed a consolidation triangle as the Kiwi has battled against a strengthening US dollar. However ahead of tonight’s announcements of both the Fed and the RBNZ, the triangle is just beginning to show signs of breaking down as the technicals are reflecting that momentum continues to deteriorate. The Stochastics momentum have turned lower once again (also with a bear kiss), whilst the RSI is also suggesting that impetus has been lost too, currently around a 4 week low. The balance of the daily candles recently have a corrective outlook and a test of the support at $0.6695 could be seen now, however a breach would certainly put pressure on the key reaction low at $0.6615. The hourly chart shows a mildly bearish bias and that an intraday rally would be seen as a chance to sell now. Yesterday’s high at $0.6813 is the resistance now with $0.6865 more key.
EUR/USD
Ahead of tonight’s crucial FOMC statement the euro is still consolidating under the big pivot range $1.1050/$1.1100. I would also say that it is fairly apt that the euro is trading where it is currently as the rhetoric from the ECB changed the outlook last week and suggests a more bearish bias within the medium term band $1.0810/$1.1465 and in front of a key meeting the euro is fairly well positioned for that. The technicals also back this assertion with negative configuration on RSI, Stochastics and increasingly MACD lines. I still see the $1.1050/$1.1100 range as a pivot and as providing near term resistance. The pair has slightly consolidated in the ast day or so as we approach the meeting and whilst I do not expect any rate hike I think this will come as little surprise and aside from any volatility it is likely that the euro will be trading flat to slightly lower after the meeting.
GBP/USD
I talked yesterday about a continuation of the bearish bias but, as I see it, I do not foresee any significant sell-off. The deterioration into the close last night has left Cable with a negative candle as a legacy and it seems as though rallies continue to be sold into at lower levels. Daily momentum indicators suggest a mildly corrective feel, but for now, whilst there could be a test of the key near term support at $1.5200, I am not anticipating a dramatic break. The intraday hourly chart reflects this continual selling into strength, with resistance at $1.5380. The hourly momentum indicators are in bearish configuration too. There is likely to be further pressure on yesterday’s low at $1.5280, with $1.5330/$1.5350 a band of overhead supply to use for a near term selling opportunity. The key overhead resistance remains around $1.5415.
USD/JPY
The resistance around the top of the range has been bolstered further as the rally certainly seems to have peaked at 121.50 as the bears have been in control once more for the past two days. This correction has left a second consecutive negative candle, which has resulted in a crossover sell-signal on the Stochastics (not yet confirmed). In a range play these signals are usually fairly robust although this is the first such signal for several months. The hourly chart shows the broken uptrend and the slide that has resulted in a more corrective configuration on the hourly momentum indicators and that the intraday rallies are now being seen as a chance to sell. The initial support band of 120/120.20 is currently holding, whilst the more important pivot for the range at 119.60 is the likely target area for now. There is minor resistance at 120.75 and 121.10.
Gold
I have been waiting (and talking) for a while about the next higher reaction low forming within the support band $1156/$1170, and could this now be about to be seen? The sequence of three very small bodied red candles has been ended by a completed green positive candle and another positive open today. However, it is the momentum indicators that give me cause for encouragement, as the RSI has picked up back above 60, the Stochastics are no longer in decline and this is all happening above the support of all the moving averages (and specifically the support of the 144 day ma). The initial test is a break and hold back above $1170 (which on the intraday hourly chart has been a basis of minor resistance. However the more important move would be seen on a break above $1180.30. If this move were to be seen it would open the $1190.60 high again. However with the momentum indicators unwound and positive there would be an argument for further upside beyond. The main caveat is the Fed tonight as any hawkish hint could drive dollar strength and pull the gold price lower. Support is initially in around $1165 and then the reaction low at $1158.80.
WTI Oil
After weeks of talking about the key support at $43.20 the bears have finally driven an intraday breakdown as WTI fell yesterday to a new 8 week low. The intriguing aspect is though that the close price was bang on the old support. So there is yet to be a confirmation. However, WTI has now been falling for 10 of the past 12 sessions and also ominously seems to be accelerating its decline lower. The other concern for the move seen yesterday has been that a 23.6% Fib retracement of the $61.50/$37.75 decline at $43.35 has been breached. Certainly a two day move clear of this support would back the assertion that a full retracement back to $37.75 will now be the downside risk. The momentum indicators remain bearishly configured, but also of concern is that they also have further downside potential. The intraday hourly chart shows an oversold position on the hourly RSI and this could induce an intraday rebound, but the rallies should be seen as a chance to sell now. There is a consistent sequence of lower highs now, with $43.75, $44.00 and $45.00 and $46.0 all as overhead supply now.
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