Nervous Markets make for light volumes.

Discussion in 'Market Commentary' started by SimonDenham, Jun 2, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    A big attempt on the downside yesterday which seems for the time being to have been thwarted but there also appears to be little appetite for the upside either so volumes are light and nerves a little frayed.

    Reports from European banks are showing that it is becoming almost impossible for them to make reasonable returns. The costs of regulation, the removal of most of their trading units, the fall in client activity, the negative interest rates and finally the never ending legal wrangles over past activities (plus the attendant massive, and seemingly arbitrary, fines) is creating a toxic mix that is driving down net revenue streams. So what! Many people will say. Who cares? It is just the banks whom everyone hates anyway.

    The problem is that most our prosperity and certainly much of our economic growth potential relies on a strong banking system. If the banks are unable or unwilling to lend then growth will slowly wither. Draghi’s sudden move into QE last year has only exacerbated these issues. The hope of the ECB is that the effect of negative interest rates will boost growth by triggering an economic recovery and help bad debt turn good. But this ‘recovery’ still seems elusive. Yes, things are slightly better than this time last year but not measurably so and if the global economy does slow in the medium term these gains are likely to be wiped out just as quickly.

    This afternoon we will get the latest ECB decision which is unlikely to be for any change but the market will be watching to see Draghi’s accompanying comments to get some hints about future intentions or indications as to how the ECB is measuring the current effects of existing policy.

    Then at 13.35 the FOMC’s Powell will be making a speech followed closely by Governor Carney at 14.00.

    Economic Indicators

    Not much of interest today with just the US ADP Employment Report at 13.15 which is expected to show growth to 175k for May from 156k last month.

    Indices

    FTSE

    As mentioned the markets have tested the down side but are seemingly satisfied at the moment that the move has been rejected.

    We are almost exactly where we were this time yesterday (6210) but in the meantime have been as low as 6145 yesterday when the US and European selling took control.

    While the FTSE seems uninterested in regaining the highs it also appears to have no interest in probing the recent lows either.

    Support is at 6175/85, 6045/50 then 5980/90

    Resistance is at 6295/00 then 6410/30

    DAX

    The German market suffered yesterday and was unable to really reverse the falls along with the US market recovery. We are now down quite close to yesterday’s lows and buyers are probably feeling a bit nervous. Support at the 10160/70 level is being tested and we have gone through it a few times but have so far managed to recover.

    For all the power of the German economy margins are being squeezed across the board and the financial sector seems to be in a permanent state of crisis.

    Support is at 10160/70, 10120/30, 10090/00 and 9880/90

    Resistance is at 10280/90 then 10350/60 and 10410/20

    Dow

    US markets sell off sharply in European time before the Yanks performed their usual trick of reversing any European influenced falls and rallying up to close virtually unchanged!

    US economic data seems to be showing signs of slowing up a bit but this is a difficult item to call when relating to the equity markets. The economy is not looking remotely recessional just not particularly robust. This makes Fed action on the rate front more problematical. If the fed is seen to be looking for rate to be (eventually) around 2 to 3 percent then equities may suffer slightly but if they find it difficult to push much beyond 1% then we may see equities do rather better as the search for any kind of return goes on.

    Support is at 17710/20, 17605/15, 17450/60 and 17330/40 then 17180/90

    Resistance is at 17870/80, 17915/25 and 18050/60

    FX markets

    Euro

    As mentioned yesterday the moves lower were weakening and the bulls took advantage yesterday and we have now pulled back up above 1.1200. I am not going to get too enthusiastic though just yet and in any case we have Mr Draghi’s comments to get past this afternoon. The activity of the Euro seems to be impacting the Dax again in inverse measure with any pip higher being reflected in weaker equities.

    Support is at 1.1110/20 then 1.1050/60 and 1.0990/00

    Resistance is 1.1225/35, 1.1320/30, 1.1460/70, 1.1590/00 then 1.1720/30


    Sterling

    Sterling is suffering again as the Brexit side seem to never admit to defeat. Considering that every single reputable organisation is adamant that the UK should remain in the EU and that leaving would be ‘disastrous’ the vote should be a complete no-brainer. BUT we are still getting the occasional poll showing that it is too close to call.

    The UK voters seem impervious to advice and are dreaming once again of a past that never really existed.

    Support is at 1.4380/90, 1.4320/30 and 1.4250/60

    Resistance 1.4460/70 1.4560/70, 1.4745/55, 1.4810/20 1.4915/25


    Gold

    Gold has managed to reject the low 1200’s again and we are sitting exactly where we were yesterday morning. how nice!

    Clients remain very long (87%) but there is a bit of selling this morning for some reason with some holders lightening positions. The support at 1204/06 held nicely yesterday afternoon and I guess that we saw some buying down there and these short term punters are releasing these positions as we are now just under the 1216/18 resistance again.

    Support is at 1204/06 1196/98 and 1184/86

    Resistance is 1216/18, 1228/30 1240/42 and 1266/68

    Oil

    Another attempt at 50 dollars for the Brent contract and we are currently just drifting away from this having run out of steam at around $50.30. Saudi have called a new OPEC meeting which is being billed as more conciliatory towards Iran but is looking to limit production to around 32 barrels a day. Iran is understandably not exactly pleased about any production limits as up until a few months ago they have been restricted by sanctions. Any agreement will have to take this into account which would mean some other producers cutting back on output (don’t hold your breath!).

    This afternoon sees the latest US Crude Oil Stocks numbers (at 16.00) which ight prove ‘exciting’.

    Support is at 48.60/70, 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 50.70/80 and 52.05/15
     

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