Mild positive bias as markets prepare for trade talks volatility [Video]

Market Overview

The sensitivity to newsflow surrounding the US/China trade talks is significant now. Conflicting snippets are coming out of US and Chinese sources over the progress of the low level talks have driven fluctuations in US futures overnight. The is speculation from China that no progress has been made so far and that but also that Vice Premier Liu He could leave a day early, but also that China will accept a partial trade deal. However, there is more encouraging speculation coming from the US that suggests President Trump may be ready to postpone tariff increases next week in exchange for a currency pact. There is also the potential that President Trump could allow US companies to supply certain components to Huawei. It seems that there is a lot to sift through and iron out, but essentially, markets are mildly risk positive today, but still on tenterhooks waiting for something more definitive. Across major markets there is an increasing consolidation as markets such as EUR/USD, gold and oil have all formed holding patterns. Traders are ready to take direction from the trade talks. An agreement to at least postpone the tariff increases next week would hold off the bears from regaining control, but for longer term risk recovery there would need to be some sort of bedrock deal over trade that markets see as a firm stepping stone towards something more substantial. Anything that is just words based with a commitment to talk again will likely see risk appetite dwindle fairly quickly once more.

Wall Street closed with decent gains yesterday, with the SP 500 +0.9% higher at 2919. US futures have fluctuated overnight but are currently just a shade below flat at -0.1%. Asian markets have been trading slightly positive with the Nikkei +0.5% and Shanghai Composite +0.6%. European futures are also looking decent today, with FTSE futures +0.2% and DAX futures +0.2%. In forex, there is a mild risk positive move, with EUR higher, along with AUD and NZD, whilst JPY and USD are the main underperformers. In commodities, there is an early consolidation on gold, whilst oil is mildly lower.

Aside from the newsflow from the US/China trade talks, the economic calendar also contains a few key entries. A raft of tier one UK data is at 0930BST, with UK monthly GDP keenly watched. Forecasts have a flat month with 0.0% in August (+0.3% in July) which would be a year on year growth of +0.9% (+1.0% in July). UK Industrial Production is expected to have fallen by -0.1% in August (+0.1% in July) which would leave the year on year at -0.9% (-0.9% in July). The UK Trade Balance is expected to deteriorate to a deficit of -£10.0bn (from -9.1bn). US CPI is at 1330BST and is expected to show headline CPI remaining at +1.8% in September (+1.8% in August) whilst core CPI is expected to stay at +2.4% (+2.4% in August). The US Weekly Jobless Claims are expected to remain at 219,000 (219,000 last week).

 

Chart of the Day – EUR/CAD

There is an interesting improvement coming through on EUR/CAD. Having trended lower since early August, last week saw the downtrend breached. A number of indecisive candles have followed, but now with a positive candle yesterday and an early push on this morning, this looks to be a market preparing for the next leg higher. This now means that the resistance at 1.4675 is important for the market to breakout and complete a bull flag. It would imply a move towards 1.4800 in due course. The key resistance comes in at the September high of 1.4715 with a pivot of the past three months at 1.4710. Momentum indicators are continuing to improve with the RSI rising above 50, MACD lines advancing at six week highs and Stochastics still rising encouragingly. Weakness looks to be a chance to buy, with support at 1.4565.

 

 

WTI Oil

The candlesticks on the daily chart are a real mix of intraday failures. In the past five sessions the oil price has flown higher and lower, only to close around the flat line on the day. This is leaving a lot of long tailed, small bodied but also contradictory candlesticks, which tell us very little, other than a market of uncertainty. The hourly chart gives a sense of consolidation with the market in a range now. Fluctuations between 30/70 on hourly RSI and trading around converged and flattened moving averages. Importantly, though it seems that the market has alleviated the selling pressure and this is strengthening the support between $50.50/$51.00. Despite this though, yet again the resistance around $54.00 with the 23.6% Fibonacci retracement of $63.40/$51.00 at $53.90 held firm. Negative momentum has also settled down and this is a market in need of decisive direction (yes, another one).

 

Dow Jones Industrial Average

The near term outlook is rather uncertain. Anyone looking at the movements on US futures overnight will know that we could be in for a rough ride in the next couple of days as the US/China negotiations play out. Within that context, yesterday’s positive close will have been quite a relief for the bulls. However, given the rollercoaster of the past week and a half, this is a market that will trade with almost no conviction until we see a definitive outcome from this round of trade talks. A rebound higher has left support at 26,140 as a higher low above the band 25,743/25,960. However, the market again failed almost to the tick at the 26,425 gap resistance and on a technical basis, this is negative. Momentum indicators are flattening off with the recent daily fluctuations, so we look to the trade talks for direction. Resistance at 26,655/26,695 remains key.

 

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