The global markets are continuing to rebuild momentum after some positive comments from the FOMC’s Dudley yesterday afternoon, while the unexpected relief in pressures for WTI that has seen the commodity ascend back above the $40 area has also contributed towards the recovery in sentiment. The FTSE100 has continued to regain momentum since those severe losses on Monday, and the improved momentum should continue with the bounce in the price of WTI. There is going to be optimism that the price of WTI might have bottomed out following the rise in price, but the sentiment for the hard commodity remains bearish both fundamentally and technically. Following the fall below $40 earlier this week, some are expecting the price to stretch to targets to the lows of 2009 around $32.70.
Concerns over the oversupply of oil in the markets are not going to go away, and if global growth anxieties continue there will be concerns reduced demand for the commodity will further punish the oil markets. I do think the bearish sentiment with the oil markets remain despite the recovery today and if the price extends below the $38 support, investors will be tempted to target the 2009 lows around $33.
China still remains in the limelight with market participants continuing to watch the Shanghai composite index. The Shanghai Composite is continuing to perform erratically and although it closed higher by 5%, it was trading with losses not too long before this market closed. The 3000 area of the Shanghai Composite is seen as a psychological level, but many remain bearish with anything to do with the Chinese economy and because of this, the Shanghai Composite trading below 3000 remains a possibility. Although the PBoC unleashed further monetary policy as recently as yesterday, declining economic data is a running theme from the China economy and this is likely not the last we have heard from the central bank. PMI data from China will be released next Tuesday and any unimpressive results will continue to weigh on the China sentiment and most likely be used as fuel to send the Shanghai Composite Index lower.
With all the headlines continuing to surround China, the Euro unexpectedly resides in the background. With that being said, the pressures from China will weigh on the European economy and I am paying attention to the China/Germany relationship, where imports to China currently account to around 6% of Germany’s automobile exports. The slowdown of China will weigh on Europe with the slump in commodity markets furthering downside risks to the EU economy achieving the ECB’s long-term inflation goals of 2%.
Only as recently as yesterday, the ECB threatened the prospect of further QE and I think to combat the China risks, achieve inflation risks and prevent investors from continuing to purchase the Euro in times of market uncertainty.
The EURJPY fundamentally suggests a battle of two currencies which have safe haven attributes. Investors have been flocking to purchase both the JPY and EUR post market crash on Monday. The JPY has gained against the EUR and support at 137.00 has been breached. The daily close below this identified support suggests that the EURJPY is technically bearish on the daily timeframe. Lagging indicators such as the MACD and daily 20 SMA signal that this pair may trade to the next relevant support based at 135.50. A bullish move and daily candle close back above the 137.00 level invalidates this daily bearish outlook.
The GBPJPY used to be bullish, but the pair has suffered dramatic weakness following the events of Black Monday.The strong GBP joined with the passive JPY were the correct ingredients needed for a move to the upside once the resistance at 195.00 was breached. The developments on Monday which imbued demand into the JPY have caused the GBPJPY to plummet to the downside. This market is technically bearish and one can either take advantage of a corrective move to the 188.00 regions or a breakdown below 185.0. There seem to be lower lows and lower highs. The MACD has traded to the downside and prices are far below the 20 SMA. A breakdown below 185.0 may suggest a further decline to 182.50.
A long term glut of oversupply accompanied with the strong USD has seen the price of Oil drop to lows not seen since 2009. This commodity is bearish both technically and fundamentally. The daily timeframe illustrates lower lows and lower highs created, all attributes of a downtrend. As the MACD trades to the downside, prices also reside below the daily 20 SMA. The new trend defining level holds as 41.85, a previous lower high which also accounts as the level of bearish invalidation on the daily timeframe. Prices may either correct to this level or simply breakdown below the 38.00 support with next targets of 35.00.
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