Market Overview
The significant improvement in market sentiment on Friday that saw the DAX close 3% higher and Wall Street up around 1.5% seems to have been held over the weekend. Positive corporate earnings and strong US consumer sentiment data helped to stabilize markets, whilst sentiment was also boosted by dovish comments from Fed member (who is incidentally not a voting member of the FOMC) James Bullard suggested that the Fed should consider postponing the taper of asset purchases. Asian markets have reacted accordingly today too with the Nikkei 225 up almost 4% as support for the safe haven yen continued to drift away again. European indices have started the week in a mixed mood.
Sentiment in forex trading amongst the majors is fairly mixed today. The dollar is gaining strongly against the yen whilst the euro and sterling are also weaker, however the Aussie and Kiwi dollars are performing solidly. The economic calendar is fairly bare today with perhaps the only scheduled interest coming from the ECB’s Governing Council member Constancio who is speaking and also the Fed’s Powell too. The lack of data may also help to reduce volatility that was still significant at the end of last week. Traders will also be mindful of the Chinese GDP data that is released overnight tonight and could have a significant bearing on sentiment tomorrow.
Chart of the Day – EUR/GBP
I spoke last week of the key breach of resistance at £0.7900 and that it would open the next level at £0.8000 and this has been achieved. However, the euro bulls have just lost the impetus in the last couple of days and there are signals now beginning to come through that might suggest the recent bounce has run its course. The Stochastics have given a crossover sell signal which has now been confirmed. The fact that this came as the rate failed to break through the key resistance at £0.8065 is a significant concern. Other momentum indicators are also deteriorating with RSI and MACD lines also rolling over. The £0.7900 level once more becomes key, now to the downside as a breach would open the initial resistance at £0.7850 but increase the pressure on the £0.7760 multi month low. The intraday hourly chart shows a key lower reaction high at £0.7980 which is the initial resistance that needs to be breached to improve the outlook once more.
EUR/USD
The volatile euro rally is set for a key test of nerve in the next couple of days. The daily momentum indicators are now threatening to roll over at levels at which a bear market rally would normally begin to tail off and this would suggest this is a real test of the bulls’ credentials. There is still a slightly positive bias towards the euro over the past couple of weeks, but the intraday hourly chart shows that the drift back on Friday has brought the near term pivot level around $1.2700 back into range once more. This is a support that should be seen as a bit of a watershed as a breach would open the key reaction lows around $1.2600. With the hourly momentum fairly neutral there is little to gauge immediate direction. The resistance near term comes in at $1.2840 but the spike high from 15th October remains the key level that needs to be breached.
GBP/USD
The latest rally in sterling which has pulled Cable off the 11 month low at $1.5873 is just now approaching the resistance of the 12 week downtrend once more. However, this has been an excellent indicator for selling opportunities over the past few months, whilst also being flanked by the barrier of the falling 21 day moving average which comes in at $1.6150. The daily momentum indicators are not showing anything substantial in terms of improvement and this still looks to be another chance to sell. The intraday hourly chart shows a series of higher lows have been left in the last 3 sessions, with the pivot level support that has formed at $1.6020 being the first key reaction low. The intraday hourly chart shows the resistance at $1.6135 is being tested and needs to be breached to be able to continue the rebound, however the move is threatening to run out of steam and it is likely that Cable will once again fall over at the first key hurdle. A decisive upside break above $1.6135 opens the key near term resistance at $1.6226.
USD/JPY
Throughout the second half of last week I was talking about the potential for a medium term buy signal. It is increasingly looking as though this is what we are seeing. The crossover buy signal on the daily Stochastics have now been confirmed, whilst the RSI is improving and the MACD lines are showing signs of an end to the corrective phase. The past three days has seen USD/JPY pushing steadily higher again but the first test is now close. The reaction high at 107.50 is within sight and a break above would be the first lower high on the daily chart overcome since the correction began in early October. The intraday hourly chart shows the rebound is strong and is now looking to use 107.00 as a basis of support, having already breached and used 106.50 as a basis of support on Friday. A successful move above107.50 would see a return to the neckline resistance of the old top pattern at 108.00.
Gold
The potential for a continuation of the bull rally is still there, but the bulls are seemingly running low on impetus now. With a third straight close below the key medium term resistance a t $1240.60, the strength of the rally is waning. However there is as yet no appetite to sell either, with a couple of very neutral and subsequently uncertain candlesticks being posted. The concern would be that the momentum indicators are showing signs of fatigue in the rebound and this is happening at levels consistent with where medium term bear market rallies tend to roll over. So the bulls have a fight on their hands and the consolidation drift on the intraday hourly chart does not suggest that there is a definitive break either way. The balance though is pointing to a downside move currently.
WTI Oil
For the first time in weeks the oil price looks to be building on some positive price action. The bullish key one day reversal on Thursday was confirmed on Friday as WTI again posted a positive day. However although the intraday hourly chart show the breaching of a well-defined 3 week downtrend, for the near term outlook to turn positive there needs to be a move above the spike high at $84.83. Currently the oil price is struggling just to push on above the immediate resistance around $84. However the hourly technical indicators are showing a much improved picture, with the hourly MACD lines moving decisively above the neutral line for the first time since 3rd October. The neckline of the small intraday base patter has been providing support at $82.50 and if this were to be broken now it would be a setback for the recovery. The key near term resistance within the downtrend at $86.29.