After breaking below the 1,330 resistance turned support level late Friday, prices continue to dip lower early Asian session. However, bears were not able to press down further, trading back quickly resulting in an overall flat trade for Monday. This is not entirely surprising, as there really wasn’t any strong catalyst that could have instigated the decline during Friday’s US session.
From a technical perspective, prices is retesting the bottom of the 1,330 – 1,345 consolidation zone. Even though Stochastic readings are currently pointing higher, we’ve seen previous stoch peaks around these levels, and hence it will not be surprising to see prices retreating lower from here with Stoch curve u-turning as well. The key level to watch would be 1,320, where a breach of the aforementioned level will increase the chances of a bearish extension today towards 1,307 – the final vestige for bullish support before breaching 1,300 round figure.
Weekly Chart continues to maintain broad bearishness, but last week’s Doji candle leaves much to be desired in terms of bearish momentum. In itself, a Doji candle does not necessary imply trend reversal, but it does show uncertainty where prices have dithered back between July 21st to August 9th. Hence, in order for bearish momentum to continue, we need to see prices trading below the key 1,300 level once more which will open up Channel Top as a potential bearish target.
Fundamentally, CFTC Commitment of Traders numbers has fallen once again, showing signs that institutional investors are clearing their speculative long positions. Previously we were concern that the latest COT numbers may not be a good reflection of current sentiment as the numbers are taken pre FOMC non-tapering outcome. As such, we could have seen institutions buying back their positions between Wednesday to Friday and that data would not have been captured. However, it seems that this concern has been made moot as prices have already given up most of their post FOMC gains, and we were trading close to the price levels of last Tuesday by the end of the week. Assuming that the declines of last Friday wasn’t based on ultra-thin volume, it Friday’s COT numbers will be a good reflection of current institutional sentiments. Should this week’s COT long positions numbers decline once more, coupled with a break 1,300 by close of Tuesday, we would have a confirmed bearish reversal on our hands and we could see acceleration lower quickly in the next few weeks.
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