- Bond markets are in wait-and-see mode — Boye
- "It feels like the market doesn’t know what to do next," — Hardy
- Bloomberg saying Jan 2018 ECB rate hike odds are 50/50
- Dax in final stages of uptrend, expect a correction — Larsson
- "Bullish on Europe, seems we can't break out of ranges in key equities," — Garnry
- "Movement finally in bunds, could target 30 bps," — Boye
- Oil still stuck in ranges, key support $52.55 for WTI and $55 for Brent
- Longer-term bear trend for gold could resume, room down to $1,210/oz — Larsson
- Nintendo shares up 1.9% on stronger-than-expected Switch sales — Lee
- Aussie reclaimed 0.76 support level following RBA announcement — Lee
- EURGBP breaking higher, next level 0.88
By Jack Davies
While for some weeks now the market has been waiting for news of a potential March Fed rate hike as a North Star to guide its ships by, its aimlessness has continued in spite of hike odds approaching 100%.
“It feels like the market doesn’t know what to do next, the rate outlook’s very complacent despite all the noise on the odds of a hike from the Fed next week and I think the market is really grasping for themes here,” says Saxo’s head of forex strategy John Hardy.
This grappling for direction is reflected in the bond markets, according to Saxo’s Michael Boye, who describes them as being in “wait-and-see mode”, with German bunds potentially targeting 30 basis points.
With a rate hike from the Federal Open Market Committee next week “pretty much locked in”, eyes are now turning to the European Central Bank’s meeting this Thursday, Boye says, although adding that “there are not a lot of expectations” for it.
“The ECB meeting I think is the first thing that could trigger some more notable volatility,” says Hardy. “We have the market really starting to try and time that first rate hike to start extracting the ECB policy out of negative interest rate territory. It looks to me like Bloomberg is assessing 50/50 odds of a January 2018 meeting being that timing, but that’s been shifting quite noticeably – at least a few basis points – late last week.”
Also in Europe, Saxo’s head of technical analysis Kim Cramer Larsson says that the Dax’s uptrend is reaching its final stage and is due a correction.
“It’s worth to notice on the daily chart that there is a divergence on the RSI, it’s not following the market upwards,” says Larsson. “I would also draw attention to the fact that it seems like the RSI is moving in a kind of triangle-like pattern, so sometimes we see the breakout form the formation of the RSI before we see it on the price graph itself.”
Dax weekly chart
Source: Saxo Bank
Despite the impending correction, Larsson says he remains bullish.
“Looking at the weekly chart, we’re very close to the all-time high; just over 12,400. I expect this to be tested sometime in the spring, in Q1 or early Q2,” says Larsson. “Contrary to the daily chart, there is no divergence on the RSI, we see the tops following the market upwards and the upper Bollinger band expanding, so we are in the final stage of this uptrend.”
Saxo’s head of equities strategy Peter Garnry says that he remains bullish on Europe: “I think John Hardy’s pretty spot on when he says that the market is now grasping for a theme. It seems like we cannot break out of some very tight ranges in some of the key equity markets.”
Amid all the uncertainty, however, gold has grown weak, Larsson notes, and could resume a longer-term bearish trend.
“Last week ended with a bearish engulfing pattern where you could see that it opened higher than the close of the previous week but closed lower. That is usually a top and reversal pattern,” says Larsson. “There’s room around the $1,210/oz level and strong resistance around $1,265 if you need further upside.”
Larsson’s observations are echoed by Saxo’s head of commodities strategy Ole Hansen: “It’s being challenged ahead of the FOMC between $1,222 and $1,212 – that is the range we need to hold, below that we turn neutral.”
Oil, Hansen adds, remains stuck in its range, “But what we’re seeing in Brent is that the longs are being pared back, the interest has dropped to a six-week low, suggesting there is some position squaring going on at the moment.”
“We’re pivoting around $56/barrel, but it does indicate at this stage that the sentiment seems to have changed a little bit and non-performing loans are being reduced at this stage; so it still leaves the risk of the downside being tested,” says Hansen. “We’re still looking out for this rangebound market, $52.55 on WTI and $55 on Brent being the two levels to look out for today.”
Brent crude pivoting around $56 within current $55 to $57.25 range
Reporting from Saxo’s Singapore desk, Hong Wei Lee brings some more positive news. The Hang Seng and Kospi indices have continued to perform well, despite yesterday morning’s North Korean missile tests in the Sea of Japan which could have unsettled them.
Nintendo has seen gains, too, notching up an extra 1.9% on the back of stronger-than-expected sales of its new Switch console: “It sold more units in North America in its first two days than the Nintendo Wii when it was first launched.”
Overnight, the Reserve Bank of Australia announced it was leaving rates unchanged, on the back of which Lee notes AUDUSD reclaimed the 0.76 support level.
“It’s also supported by the confluence of the moving averages and is the best performing G10 currency,” says Lee.
Head of forex Hardy says that while the RBA was considered mildly hawkish
, “All the wording on inflation suggests they’re not looking for inflation to pick up any time soon because a lot of the employment growth has been part time – so certainly not from increasing pressure on wages.”
In European currencies, Hardy notes that EURGBP is putting above the local range and could open up for 0.88.
Meanwhile, head of technical analysis Larsson says the lack of RSI divergence in EURUSD indicates a dip to a lower low of around 1.025 is possible.
A rudderless market is eyeing the European Central Bank meeting on Thursday as it grapples for a theme, although expectations are not high. Photo: European Central Bank
Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios