As we come to the hump of the last full trading week of the year, there is a sense that markets are still lacking the conviction that would drive any decisive direction. This could mean the ranges that markets have formed could last for a while yet. It also means that it would be difficult to trust any attempted breakouts.
- Treasury yields have lost direction
- Forex majors remain stuck in ranges, with a lack of direction
- Continue to play ranges on precious metals and oil
- Indices may have recovered, but ranges are still dominant
Treasury yields lacking direction are impacting across markets
For the past few weeks, major markets have lost direction. The key to this seems to be born out of the bond markets, with Treasuries specifically now ranging.
Looking at the US 10 year yield, which topped out in October. The market has since broken a recovery uptrend and settled into a band (of around 37 basis points) between 1.335%/1.707%.
When Treasury yields lack direction, it is often the case that other markets also drop into a ranging formation. There is a lot of uncertainty surrounding Omicron and whether social restrictions are going to be needed. Subsequently, we are seeing markets lack conviction and are increasingly indecisive from one day to the next.
Playing the ranges on major forex
These ranges are highly evident on major forex:
- EUR/USD has been ranging between 1.1185/1.1385 (c. 200 pips) since mid-November. This range has even tightened up further in recent weeks to 1.1220/1.1360 (c. 160 pips).
- GBP/USD has ranged between 1.3160/1.3375 (c. 215 pips) since late November.
- USD/JPY has ranged between 112.50/115.50 (c. 300 pips) since mid-October.
- AUD/USD has only recently stopped trending but is also now beginning to consolidate between 0.7080/0.7220 (140 pips).
Given the lack of follow-through and false signals (especially on the Aussie), we would be reluctant to trust any apparent trending move or reversal that looks to be taking hold.
There may be value in backing USD against the Japanese yen with USD/JPY moving higher. Momentum still has some upside potential (RSI tends to top out now in the mid-60s). We need to see 113.70/113.90 support now holding for a decisive upside bias to form. However, this is still playing out within the medium-term range. It is just that at 300 pips, it is the widest range of the major forex pairs, giving it the most upside potential. The issue is that this would also need the US 10 year yield moving higher again towards 1.55%/1.60%, which may be a tough ask at this stage.
Commodities also lack direction
We spoke yesterday about what it would take for precious metals to break higher. The shackles are still on with these potential moves.
Gold (MT5 code: XAUUSD) has looked more positive in the past week but is now failing in moves above $1800 again. Until there is any consistent closing above $1800 it is difficult to get excited about long positions.
Silver (MT5 code: XAGUSD) is always more volatile than gold and is again testing the potential for a near-term base pattern breakout. Closing above $22.67 would further improve the outlook. This may induce another rebound within the broad four-month range between $21.40/$25.40. However, there is a mid-range pivot band dating back to August between $23.00/$23.35 which will act as overhead resistance.
Perhaps the most interesting is Brent Crude oil (MT5 code: UKOUSD). There has been another swing around, with the price rebounding in recent sessions. However, the market is now around levels of momentum where previous rallies have faltered. There is also the proximity of a two-week downtrend and the falling 21-day moving average (which has been a key basis of resistance in the past month). This market is at a key inflection point again. A failure of this rally could see the market falling away again to test the reaction low at $69.50. Resistance at $75.90 is now key.
Indices trading around mid-range pivot bands
The recovery in indices in recent days leaves them around key mid-range levels. Within this, we see FTSE 100 slightly better positioned technically, whilst DAX is slightly worst positioned. The S&P 500 futures are sitting bang in the middle.
- S&P 500 futures (MT5 code: SP500ft) have rebounded within what is now a medium-term range 4492/4740 (c. 250 ticks). The market is currently almost entirely in the middle of this range now. The near-term outlook is restricted by resistance at 4650/4670 but is supported by 4585/4610.
- The FTSE 100 (MT5 code: UK100) is technically in the strongest position, trading in the upper half of its three-month range and looking to hold above the 7284/7320 pivot. This would allow a retest of the key high at 7400.
- The DAX (MT5 code: GER40) is more volatile within its range 14,810/16,300 (c. 1500 ticks). The bulls need to get through 15,400/15,510 to open the next pivot band around 15,800/15,870.