Tuesday has seen a more positive bias, with the major US stock indices pushing around 1% higher as lawmakers appear to be closing in on an agreement on a new stimulus package in order to support the economy, while at the same time traders continue to look to the chance of clarification of a continuation of the easy monetary policy from the Fed at today’s final FOMC Meeting of the year. There is nothing tangible as yet with regards to the stimulus negotiations but the Democrats and the Republicans do appear to be more upbeat about arriving at a fresh round of coronavirus aid which would be the first new relief measure since April.
The FX markets have again been generally choppy and sideways with most pairs stuck in a 40-50 point range although Sterling has had a strong run to the topside – from 1.3280, to reach 1.3450 as traders continue to hope for some sort of Brexit deal. Overall though, the choppy conditions are expected to continue for Sterling until we see some clarity one way or the other, and the UK/EU negotiations can go right through to the wire on December 31st, when some sort of agreement would not surprise in the least. Until then, stay nimble! The short term momentum indicators for GbpUsd and the Gbp/Xs do look positive but the medium/longer term charts seem to be more neutral and a little mixed.
In the bigger picture, the DXY is holding on for dear life above the psychological support at 90.00. The rallies are minimal and the index does look heavy. If 90.00 does give way we can expect the US$ to accelerate lower, where the next level of support is not seen until 88.45/50 (61.8% of 78.90/102.99), which equates to roughly EurUsd 1.2415.
The main interest on Tuesday was seen in the precious metals, where Gold (+1.4%) and Silver (+2.85%) both had strong sessions, and traders will now be looking to signs of further easy monetary policy from the Fed, later today, in order to continue the run higher over the next few days. If the Fed is non committal, expect further choppy sideways range trading.
WTI rose by 1.25%, underpinned by an upbeat risk mood on the back of the US vaccine rollout which is helping to ease concerns about weak energy demand heading into 2021. Ongoing signs of stronger demand from China have also contributed to the rally, with another move up in the iron ore price today underpinning that theory. Iron Ore rose by 0.8%, to 152.40 on NYMEX.
Wednesday’s main focus will be on the Global Services/Composite PMIs (Australia, China, Japan, EU, UK, US) although some minor NZ (Current Account) and Australian (WBC Leading Indicator and New Home Sales) data will kick the market off in Asia. The UK CPI, PPI, RPI (CPI, exp +0.1%mm, +0.6%yy; PPI, exp +0.4%mm) , EU Trade Balance , Construction Output will be the other interest in Europe, aside from the PMIs. The US will initially focus on the November Retail Sales (exp -0.3%mm, Control Group; +0.2%) and on the PMIs but the main event of the session is going to be the last FOMC Meeting of the year and will include the Interest Rate Decision at which no change to current policy is expected with the Fed Funds rate to stay at 0.25%. The real focus will lie in the Press Conference Statement and Projections for 2021 and the Fed could consider additional monetary stimulus if there is no sight of more fiscal stimulus for Washington. Have a good day.
Economic data highlights will include:
Wed: NZ Current Account, Global Services/Composite PMIs (Australia, Japan, EU, UK, US), Australian WBC Leading Index, New Home Sales, UK CPI, PPI, RPI, US Retail Sales, Business Inventories, NAHB Housing Market Index FOMC Meeting – Interest Rate Decision/Press Conference/Statement/Projections
Market moves, in brief:
FX: DXY 90.50 (-0.25%)
Bonds: US10Y; 0.918% (+2.40%), German 10Y; -0.611% (+1.36%), UK 10Y; 0.262% (+54.66%), Australian 10Y; 0.972% (-0.28%), NZ 10Y; 0.880% (+2.12 %), China 10Y; xxx% (xxxx%)
Stock Indices: DJI; +1.22%, S+P; +1.25%, NASDAQ; +0.95%, EUStoxx50; xxxx%, FTSE100; xxxx%, Shanghai Composite; -0.06%, ASX200SPI: +0.58%
Metals: Gold $1852 oz (+1.35%), Silver $24.48 oz (+2.77%), Copper $3.5435 lb (+0.48%), Iron Ore $152.34 per tonne (NYMEX) (+0.70%),
Oil: WTI $47.55 pb (+1.15%)
Trend Table: December 16, 2020
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In the trend table below, when looking at the charts for a particular FX pair, index or commodity, we are we searching for 2 or 3 consecutive boxes of the same colour which might indicate a trend – and a possible trading opportunity. Consecutive (1 & 4 hour, 4 hour/daily, daily/weekly) green boxes indicate a possible short/medium/long term uptrend; red, a possible downtrend, while blue signifies a neutral bias (range trade possibility). The boxes on the trend table merely replicate the look of the charts for the specific time-frame in MT4/5. Assets with a mixture of colours are pretty much ignored as choppy conditions seem likely to prevail.
For instance, if we see consecutive green boxes in the 1 hour and 4 hour time-frames for the FX pair “EURUSD”, that would signify the chance of a move higher in that pair over the next 24 hours. If the dailies were also green that would add to the bullish conviction from a slightly longer term perspective, and if the weeklies are also green then it would give added credence to the longer term bullish view, albeit that it might take longer for the trend to play out, so patience will almost certainly be required. The opposite would be true of red boxes, which could signify downward momentum. The strength of any possible trend depends on the time-frame, with the longer term (daily, weekly charts) obviously having a greater overall weighting than the short-term charts.
In the near term though, the 1 and 4 hour charts are what are likely to combine to indicate the possibility of a trading idea for the next few, possibly up to 24, hours.
Note that a longer term bullish view (green daily/weekly boxes) does not discount the possibility of near term dips (i.e. Red 1 & 4 hour boxes), which may indicate near term weakness and suggesting that we should be looking to buy dips for a longer term rally – and vice versa if the near term boxes are green and the longer term; red.
|1 Hour||Turning Neutral||Down||Up – Bearish Divergence||Turning Neutral||Turning Higher?||Turning Higher?|
|4 Hour||Turning Neutral||Neutral – Turning Lower?||Turning Higher?||Turning Neutral||Turning Neutral||Turning Neutral|
|1 Day||Possible Topping Formation||Turning Neutral||Turning Neutral||Down – Bullish Divergence||Turning Higher?||Turning Higher?|
|1 Week||Neutral – Turning Higher?||Turning Neutral||Turning Higher?||Neutral – Turning Lower?||Turning Higher||Up|
|1 Hour||Turning Lower?||Turning Higher||Neutral – Turning Higher?||Up||Turning Higher||Turning Higher?|
|4 Hour||Turning Neutral||Neutral||Neutral – Turning Higher?||Turning Neutral||Neutral||Neutral – Turning Higher?|
|1 Day||Possible Basing Formation||Neutral – Turning Lower?||Neutral – Turning Lower?||Turning Neutral||Turning Neutral||Turning Neutral|
|1 Week||Neutral – Turning Lower?||Up – Overbought||Up||Down||Down||Neutral|
|1 Hour||Neutral – Turning Lower?||Turning Lower||Turning Neutral||Neutral – Turning Higher?||Neutral – Turning Lower?||Turning Higher?|
|4 Hour||Turning Neutral||Turning Lower?||Turning Higher||Neutral – Turning Lower?||Turning Neutral||Turning Neutral|
|1 Day||Possible Topping Formation||Turning Neutral||Turning Lower?||Neutral – Turning Higher?||Turning Neutral||Turning Higher|
|1 Week||Neutral – Turning Higher?||Turning Neutral||Turning Neutral||Turning Neutral||Turning Neutral||Neutral – Turning Lower?|
As I said, the DXY is holding on for dear life above the psychological support at 90.00. The rallies are minimal and the index does look heavy. If 90.00 does give way we can expect the US$ to accelerate lower, where the next level of support is not seen until 88.50 (61.8% of 78.90/102.99), which equates to roughly EurUsd 1.2415. In the meantime, the Euro looks set to remain rangebound in its 1.21/1.22 range albeit that any surprise from the Fed today could see a US$ move, taking the DXY and the Euro out of their current comfort respective zone.
Sterling looks as though it could squeeze towards 1.35 in the near term although it will remain very choppy and headline driven.
GbpUsd 4 hour
The Aud$ could receive a boost from the upcoming Services/Composite PMIs. It is hanging below the 30 month high seen yesterday at 0.7577, and could yet make a move towards the next major resistance at 0.7600 and then at 0.7630, which will be very strong if/when seen (38.2% of 1.1082/0.5508). Buying dips is preferred. Ditto the Kiwi, which seems capable of heading towards 0.7150, above which there is little to stop it from moving to towards 0.7220 (100 MMA)
The ASX looks slightly more positive today and if 6700 can be overcome in the upcoming session, we could see another run towards 6740-50. Buying dips today is preferred with a SL below 6645.
ASX 1 Hour
Keep an eye on Silver, which seems about to break dally trend resistance, possibly propelling it towards 25.00+.