Fundamentals:
Markets were surprised last night when the Bank of Japan cut its interest rates to a 0.00% - 0.10% range, essentially a zero rate. Investors responded favorably, pushing up the Nikkei stock index 1.47%. How long this sentiment will last remains to be seen. The Bank of Austrailia unexpectedly held rates steady.
Risk appetite has returned, with European equities rallying after Eurozone PMI data printed a better than expected number and the US Dollar was sold on concerns of quantitative easing. The dollar index continues its downtrend with technical chart patterns adding to this sentiment, favoring additional weakness in the near term. This did not occur against the Yen, however, where the US Dollar was up by as much as 1% after the Bank of Japan rate decision.
The UK PMI index showed a positive print, improving on market expectations, which called for a small decrease, and the Pound rose on the back of this data. Euro-zone retail sales were lower than expected but the Euro was little-changed after the data was released.
Market tone will be set again by US data today, which comes in the form of the ISM number, expected to reach 51.5. (Remember, numbers above 50 signal expansion.) An upside surprise is possible, given that the contraction in the ISM employment component for August came while BLS employment reports recorded steady hiring in the private sector. Stock futures are currently trading with a bid tone in the US and a positive surprise to the ISM number could push equities further.
Technicals:
Commodities:
Oil is currently flirting with hourly and 4-hourly resistance near $83. A break of this level opens up the immensely important $87 resistance level. Weekly RSI is caught at mid levels, so the price has the potential to fluctuate strongly in either direction. If the $87 level breaks there is no significant resistance until $105, which is the 61.8% retracement of the massive drop from $149. Oil appears to be setting itself up for some very interesting moves.
Gold is still holding onto its gains and pushing forward to all-time highs. Hourly indicators are heavily overbought but still show no signs of rolling over. That said, it is difficult to argue for buying the metal given the current prices. First support is at $1265.
Currencies:
EUR/USD is currently trading with a bid tone and hugging the hourly highs at 1.3800. Price action is showing no signs of slowing down but given the current indicator levels and the proximity to strong historical resistance, the risk for a corrective pullback remains. We would assume some level of profit-taking to occur in this region but any break of 1.4000 psychological barriers would represent a major development for the currency pair.
The bearish close on Monday shows a potential problem on the charts but a break below 1.3635 is needed before the bias turns lower. Hourly indicators are still above 70 for the RSI. It is best to proceed with caution until we see clear breaks of these levels.
Stocks:
The S & P 500 has bounced from the 1130 level that we mentioned yesterday and currently trades $15 higher. The next level of resistance comes in at $1153. The 61.8% retracement of the fall from $1220 has already been breached, so odds have shifted to suggest that a full retracement is in store. On the contrary, a break of $1115 will turn the bias to the downside. 4-hourly RSI is currently at mid-levels.