01/04/2015: Forex majors consolidating ahead of crucial PMI data

Market Overview

Market sentiment is under pressure once more as the list of reforms submitted by Greece has been dismissed as little more than ideas rather than a definitive plan. This comes as talks over Iranian nuclear sanctions continue to drag. This resulted in Wall Street closing sharply lower yesterday with the S&P 500 off 0.9%.

The first day of the month is always PMI day and the Asian countries have got us off to a mixed start. The official Chinese manufacturing PMI lifted slightly from 49.9 to 50.1 whilst the HSBC data showed a reading of 49.6 (up from the preliminary figure of 49.2). However we also had a disappointing read from the Japanese Tankan survey which stayed at +12 (a reading of +14 had been expected). This compounded a fall in the Japanese manufacturing PMI which dipped to 50.3 from 51.6 last month. Asian markets have subsequently been under pressure from this data with the Nikkei off 0.9% and Australian stocks also lower due to the weaker commodities. European markets are trading sharply lower during the opening exchanges prior to the batch of Eurozone PMIs which will come out early in the session.

Forex trading shows that the slight rebound In major pairs against the dollar has continued overnight, with all majors showing an element of support today with the exception of the Kiwi which is slightly weaker. With the moves looking to be counter trend to the recent drift of dollar strength, it will be very interesting to see the reaction to the raft of PMIs today.

Traders will be watching for the Eurozone PMIs with special focus being on Germany at 0855BST which is expected to improve further to 52.4, whilst the Eurozone data is expected to show an improvement to 51.9 five minutes later at 0900BST. The UK data is released at 0930BST and is expected to also show a slight improvement to 54.3 (from 54.1). All of this means that if these data points are beaten the US dollar could come under further pressure during the European session. The US ISM Manufacturing data at 1500BST will be the key figure that everyone will be watching today. The ISM has been falling for the past 4 months and is again expected to fall to 52.5 (from 52.9). Any sign that declining trend may be coming to an end (say above 52.9) would give the dollar bulls much expectation and could drive further dollar strength. The EIA crude oil stocks are also today at 1530BST and are expected to dip slightly to 4.19m (from 4.51m barrels) which would be a 12th consecutive week adding to the inventories.

Chart of the Day – AUD/USD

Is this a consolidation or the beginning of a rally? The downside pressure of the stronger dollar has pulled the Aussie sharply lower in recent days and a sequence of 5 consecutive bearish candles means that the Aussie is testing the key March lows once more. It is intriguing that yesterday’s low came at $0.7588 which is bang on the low of 18th March (which is just 30 pips above the critical low from 11th March). The bears will certainly be looking at the momentum indicators on the daily chart and see the downside potential despite the minor consolidation built up overnight. All indicators look bearish on the daily chart but the hourly chart shows some bullish divergences on the momentum indicators as the support has come in. However it would sill need a breach of $0.7665 resistance to suggest a recovery is anything more than a consolidation prior to further testing of the key lows $0.7558/$0.7588. A move below the lows would open levels not seen since early 2009, with $0.7450 and then $0.7265 highly realistic. The bulls have got a massive fight on their hands to prevent another significant breakdown. Above $0.7665 improves the near term outlook.

AUDUSD   01042015


There was an interesting breakdown on the euro yesterday. The move back below the near term support that had formed at $1.0800 has just resulted in the momentum indicators now moving back into reverse and is now adding pressure to the downside. This is showing through in momentum indicators that have turned lower and suggest that the euro rally looks to now be over. The intraday hourly chart shows this breakdown clearly in a move that could even be described as a top pattern (albeit rather an asymmetrical one). This now opens for a correction back towards the support of the reaction low on 19th March at $1.0612. So today’s price action is very interesting as I believe the rebound early in the Asian session is a pullback to the neckline that should now be seen as a chance to sell. There is now a key band of resistance between $1.0800/$1.0900 but you could also probably tighten that back to the resistance around $1.08500 too. The hourly momentum indicators (RSI, MACD and Stochastics) have already unwound back to the levels at which the sellers started to gain control on the 27th March so this is now the point at which I would expect the downside to start to kick in once more. I expect pressure on yesterday’s low at $1.0712 before further weakness. A move above the $1.0900 resistance would now signal a turnaround in sentiment.

EURUSD   01042015


I see this rebound across the forex majors (against the dollar) as now reaching a key crossroads near term and Cable is one such pair. The deterioration in the outlook over the past week has broken key support levels, but then engaged a rally yesterday. I see this rally as being counter trend and looks to be a chance to sell. The resistance remains firmly in place at $1.5000 (above which would be the ideal stop), but there is also a lower high at $1.4920 whilst the previous two days have seen a breach of the support at $1.4800. With the hourly momentum indicators in bearish configuration this would suggest that any recovery is a bear market rally and should be seen as a chance to sell. The rally since yesterday afternoon has seen the hourly RSI, and Stochastics unwind to a level where the sellers have now been returning over the past few days. That would suggest this is the level where the bears will take control once more if this bearish phase is set to continue. This would suggest a retest of $1.4750 support before further downside towards $1.4685 and then likely the low at $1.4633.

GBPUSD   01042015


The daily chart shows the continuation of the ranging play and that Dollar/Yen is a trade that is currently difficult to stay in for longer than perhaps a couple of days. Daily momentum is still neutral and rather choppy and with moving averages flattening off the directional signals are uncertain. However trading on an intraday basis still has its merits. I am always heartened to see technical levels working so well and the pivot level around 119.40 has once more worked unbelievably well as the dip overnight hit the support almost to the pip before the rally kicked in again. I said yesterday that anything towards the support area 119.40/119.75 should be seen as a chance to buy and this outlook has held (at least for now). Whilst the pair trades above 119.40 I remains near term bullish, but a consistent breach of this level would see me re-assessing my outlook. There is currently still the prospect of this being a higher low but a move below the support at 118.90 would put the near term bears back in control. Trading above 119.40 I remain expectant of a test of the resistance at 120.60, but I would be mindful of holding positions open for too long as the daily chart reflects a choppy phase of trading for Dollar/Yen.

USDJPY   01042015


An interesting bout of consolidation has set in in the gold price in the past day. This comes just as the price has broken below the support of the old support of the low at $1190.90 which has now become resistance. The daily momentum indicators have rolled over to suggest the impetus for the bulls has been lost. The intraday hourly chart suggests that the outlook has become more corrective once more and that this move is just helping to unwind any near term oversold momentum and should help to renew downside potential. I said yesterday that using the resistance band $1185/$1190 should be seen as a chance to sell and certainly for now this seems to still be viable, whilst any move back towards $1200 would still be also probably viable. The near term outlook would only really chance on a move above $1206.20. I still expect the drift to correct the price further back towards $1168 and below.

Gold   01042015


In the context of the volatility experienced during the past few weeks, trading on WTI has been remarkably settled over the past couple of sessions. Furthermore, this is interestingly coming around the old key floor around $47.36 which was the bottom of the old trading range throughout February and early March. However, the daily momentum indicators are now in decline and despite the consolidation there is still a slight corrective bias. The intraday hourly chart shows the price has left a series of lower highs and lower lows, with the latest resistance at $49.16 (and possibly now $48.67). I am still seeing the falling 55 hour moving average (currently $48.00) as an interesting gauge with it having been the basis of support during the recovery and now the resistance during the correction. I am also looking at the hourly momentum indicators such as RSI MACD and stochastics which have all taken on a more bearish configuration during the past couple of days. Expect further pressure on the $47.36 support and subsequently the band at $46.67/$47.00 with a break down opening $45.33.

WTI   01042015

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