05/03/2015: Euro under pressure as markets look towards the ECB

Market Overview

Markets have been a bit choppy as we have moved ever close towards the important end of the week which contains the key Non-farm Payrolls report. Overnight there was some negative news for risk appetite, with China cutting its 2015 growth target to 7%. This is an 11 year low and below the 7.5% target for 2014. Asian markets were mixed to lower in response. This is likely to drive a negative undertone through the morning trade until the ECB press conference this afternoon. Mario Draghi is expected to put more meat on the bones of the ECB’s quantitative easing programme of €1.1 trillion over the next 18 months. It is likely that the ECB will begin to purchase assets after the meeting.  European markets are looking mixed in early trading, with the FTSE 100 again underperforming Eurozone indices.

The key mover has been the financial world’s most traded instrument, EUR/USD. In forex trading, the euro has broken through its January floor to move to its lowest level since 2003. This is helping to drive dollar strength that has seen the Dollar Index move to multi-year highs and fellow pairs such as Cable also pull lower.

The ECB is not the only central bank announcing monetary policy today. The Bank of England is also set to give its latest update, however as we move ever closer to May’s General Election in the UK, the BoE is ever less likely to act due to not wanting to be seen as being political. So expect very little once more at 1200GMT today. The US weekly jobless claims at 1330GMT are expected to improve slightly to 293,000 from 313,000 last week.

Chart of the Day – DAX Xetra

The DAX is giving off a few mixed signals of late and perhaps that is understandable given that today is the day of the ECB meeting and tomorrow we have Non-farm Payrolls. Tuesday’s bearish key one day reversal is a fairly significant signal that suggests that the bulls have not got it all their own way. The signal has resulted in the momentum indicators rolling off the top and suggesting caution. However the reaction to early selling pressure in yesterday’s session was encouraging for the bulls, as the late rebound resulted in a close at the day high, a move which has been held in early trading today. So in effect we are still waiting for the next trigger. All longer term aspects remain positive but until the bearish key one day reversal is aborted by a move above 11,465 then there will still be a doubt in the minds of the bulls. The intraday hourly chart shows us two supports to be interested in. Firstly a breach of the reaction low at 11,236 would begin to suggest the bears are regaining strength, whilst more importantly this would be confirmed by a breach of the low at 11,193.

DAX   05032015


The euro is under growing pressure now. A strongly bearish candle was posted yesterday which resulted in 100 pips of downside on the day and more importantly a close below the previous low at $1.1098. This move has taken the euro to its lowest level since 2003 and creates something of a void of support. It is below the 100% Fibonacci projection target of a 2011/2012 bear market at $1.1093 and now the next support is at $1.1000 which is psychological. The next real support does not come in until $1.0760 from way back in 2003, so there is very little to hold up the bears. The momentum indicators are bearish but also show further downside potential in the move. The intraday hourly chart also reflects this negative momentum with further downside. There is a minor reaction high overnight at $1.1085 and nothing overly significant until around $1.1150 so there is room for a technical rally. However any bounce would be a chance to sell.

EURUSD   05032015


It would appear that my fears for the Cable bulls have been realised and the final thread of positivity in the rally has now been broken. One after another the indicators have been turning increasingly corrective and now the breach of the support at $1.5300 has decisively confirmed the loss of bull control. Attention now turns to the strong support at $1.5200 which had propped up the rate for several days at the beginning of February and is under threat today. If the support is breached then this opens the way back towards the lows around $1.5000. If this level is breached in a decisive manner then I would be happy to say that the bears are in control. Looking at the daily indicators would say that this is close to happening with the RSI falling, bear cross on the MACD and Stochastics increasingly bearish. The intraday hourly chart too looks very bearish with hourly momentum very weak and suggesting that any rally on an intraday basis should be seen as a chance to sell. There is a minor resistance that has formed overnight at $1.5270 but the main intraday resistance is now in the range $1.5300/$1.5350.

GBPUSD   05032015


The bulls may have lost a bit of the near term impetus but this is not to say that Dollar/Yen is moving lower. The daily chart shows a very neutral and indecisive candle was posted yesterday but coming above all the moving averages with the momentum indicators retaining a slightly bullish bias. The intraday hourly chart is where the action is, with support around 119.40 continuing to hold throughout yesterday as the outlook improved again. A decisive break back above 119.90 would re-open the resistance band 120.25/120.50, with the bulls gradually gaining confidence. Whilst the support band 119.10/119.40 remains intact I am happy to buy into weakness for short term long positions. I do though see Dollar/Yen as a bit of a slow grind at the moment. Perhaps the payrolls report on Friday will give it some direction but for now near term positions are a better way to play.

USDJPY   05032015


Although I retain a medium term negative outlook, yesterday I alluded to turning more neutral for the near term. The daily chart still shows the medium term downtrend which today comes in just below $1226, whilst momentum indicators are negatively configured. However, looking on the intraday hourly chart shows an increasingly rangebound chart over the past three weeks which has resulted in the moving averages flattening off and hourly momentum indicators in the past couple of days becoming more neutral. There has been a negative drift in the gold price this week with a sequence of lower highs, whilst I still see $1210 as an interesting pivot level. However there is no real desire of selling pressure and the range low at $1190.90 is intact as the low of $1194.90 posted on Tuesday has remained intact for the past couple of days. I would therefore be playing gold a a near term range play and looking at the classic oversold/overbought signals on the hourly RSI.

Gold   05032015


The daily chart shows an improvement in the outlook over the past few days. The downside pressure of last week is being reversed and there is gradually an improving chart developing once again. The Stochastics have turned higher and are looking to pick up now, whilst the RSI has now been rising for the past four days. This remains very much a rangebound play but there is a recovery within the band $47.26/$54.24 band that suggests that the resistance could come under pressure if this move continues. The intraday hourly chart shows a volatile session has culminated with a break above the near term resistance at $51.30. It will be interesting to now see the reaction as the hourly RSI is becoming stretched near term and previously in the past few weeks of the range play this has resulted in a consolidation and/or correction. There is an old resistance around $51 that the bulls may now look to use as a basis of support.  Breach of resistance around $52 would re-open the highs of the range once more. A higher low has also been left around $49.50.

WTI   05032015

Leave a Reply

Your email address will not be published. Required fields are marked *