Fundamentals:
Markets expect the Bank of England to leave its target rate unchanged at 0.50% and its asset purchase target at 200 billion. Most recent data out of the region has been steady to slightly positive with industrial production increasing 0.2% in July and that trend is expected to continue when the number for August is released today. Services and manufacturing PMI data is also expected to show expansion despite the 53.4 print in September, dropping from 53.7 in August. The European Central Bank is expected to leave interest rates unchanged today so markets are unlikely to find direction from this event risk.
European equities gained almost 1% yesterday despite the negative news releases that were assessed. German factory orders were strong, rising 3.6% in August (expectations were for a 0.9% number). But the negatives outweighed this, with ADP data showing 39,000 people lost their jobs in September (expectation was for a rise of 20,000). Ireland was downgraded to A+ from AA- by Fitch, and Greece reported negative expectations for its 2006-2009 debt and deficit data.
The Austrailian dollar was bid after a stronger than expected jobs number released overnight, showing a gain of 49,500 in September (markets expected an increase of 20,000). Full time employment rose by 55,800 and part time employment decreased by 6,300. The participation rate rose by 0.2% to 65.6% and the unemployment rate stayed at 5.1%.
Technicals:
Commodities:
Oil drifted lower overnight but bounced strongly off the $82.30 level of support that was mentioned yesterday and now trades $1.50 higher. Resistance at $83 has now been removed, clearing the way for oil to trade in the upper 80s. Hourly indicators are bullish but dangerously close to overbought levels. Caution is warranted for entering into new long positions. Support at $82.30 must give way before the short-term bias changes to the downside.
A look at the monthly gold chart shows an asset that has risen almost straight up for the last ten years. As a point of reference, the metal was trading at $250 at the beginning of this decade. We have now crossed the $1350 mark, so traders with any sense of contrarian ideology will have a hard time buying-in at this stage of the game. Shorter-term charts are the best frame of reference for the current environment. Daily indicators are highly overbought but support does not come in until $1280. A break of support at $1265 will turn the short-term bias downward.
Currencies:
The Australian dollar has broken multi-year resistance at 0.9850. This break means that the currency has erased all of the losses that occurred after the “credit-crisis” at the end of 2008, so we are at the highest levels we have seen since this became a free-floating currency. Contrarians will obviously argue against chasing long positions at these levels, especially with the strong psychological resistance that is likely to come at the 1.00 level. Hourly charts are rolling over from overbought levels. Support comes in at the previous resistance of 0.9850, followed by 0.9750 and 0.9530.
Stocks:
Traders pushed the S & P 500 through stops at 1150 but follow-through there was limited, printing a high of only 1159. Markets have stalled at this point but the short-term range that is developing at these elevated levels is indicative of a temporary consolidation before a later move higher. A parallel uptrend channel is forming on the 4-hour chart, which strengthens the bullish argument after the break of Fibonacci resistance at 1135. Only a break of historical support at 1130 will turn the short-term bias lower.