09/07/2015: Sentiment improves after dovish Fed with Greece to submit its proposal

Market Overview

By Friday Greece needs to have submitted a proposal to the EU leaders which lays out formal plans for economic reforms, which the leaders can then seriously consider. The Greeks have already applied to the European Stability Mechanism for a €50bn three year bailout and with these steps being made, stability is returning to the markets, at least in the short term. The German bund yields are pushing higher (a sign of improved sentiment), whilst peripheral Eurozone bond yields are lower. Eurozone equities closed higher yesterday and are again stable today. Furthermore, there has been a pick up in the euro. It has been a tendency for these markets to be disappointed just when it has looked as though a deal could be struck, so caution is the operative word for now.

Wall Street trading was significantly disrupted yesterday by a power glitch that caused the New York Stock Exchange to go down for around 3 hours, the selling pressure that came with the resumption saw the S&P 500 off 1.7%. A series of measures are being implemented by the Chinese government in order to try and stem the sharp losses and reduce volatility on the Shanghai stock exchange. The measures have helped to support Asian markets overnight with the Japanese Nikkei up 0.6%. European markets are slightly higher at the open.

In forex markets there has been an improvement in risk appetite in the past 24 hours. Interestingly, the sharp move towards the yen is being reversed, whilst the euro is also rebounding. Even sterling is up today after a couple of days of significant bear pressure. The FOMC minutes last night were cautious and although they suggested that some members were worried about the implications of not moving on rates soon, others were mindful of the pressures of Greece and wanted to see more evidence of growth and inflation moving back towards target. The slightly dovish tone has impacted on the dollar near term.

Traders will be watching out for the Bank of England which releases its monetary policy at 1200BST. As per usual, no change is expected though. The US weekly jobless claims are at 1330BST and are forecast to improve slightly to 274,000 from 281,000 last week.

Chart of the Day – NZD/USD

Calling a rally after such a long decline is always a risky game. However after consistently falling away for almost two months the Kiwi has suddenly start to push higher. The big question is whether there is anything more in this other than a technical rally. The second day after a strong candle is always seen as a possible confirmation move, and so far the gains today suggest the bulls are continuing to gather confidence. The RSI which had been below 30 has moved back above the oversold limit which is theoretically a buy signal, however having spent June bumping along the bottom there will need to be more to convince than that (although the Stochastics show a similar configuration, once more there needs to be better confirmation after such a long period of weakness. The 21 day moving average has capped the gains in the past two attempted rallies and is falling at $0.6840. The hourly chart shows an improvement in the outlook with momentum indicators picking up and moving averages turning higher. However there is overhead resistance at $0.6810 which is an important barrier to overcome near term. There has been a minor support left overnight in the range $0.6680/$0.6700 which now needs to hold for the continuation of the rebound. There is much that still needs to happen to convince of a sustainable recovery, but playing the near term rebound on the very short term trading outlook is possible, however be mindful of the hurdles that need to be overcome for this to be a move that can continue.

NZDUSD   09072015


The trend has seemingly changed. I say seemingly because the rally has come on the news that Greece will submit a proposal that might suggest Tsipras is serious about averting a Grexit after all, however as we know with this Greek crisis, anything can happen. For now though the technicals which had been taking a decided turn for the worse, have now starting improving again. The euro is once more trading back above $1.1050 (which by my own admission means that I should be turning more positive, strange that I do not feel it…). The daily technicals are more mixed and shows that there needs to be a move above the reaction high of $1.1278 in order to suggest sustainable progress. The hourly chart shows the near term recovery gaining ground which is now testing the resistance band $1.1100/$1.1120, whilst there is further resistance around $1.1150. The hourly momentum has picked up and with a series of higher lows left over the past day or so (support comes in at $1.0972 and $1.1005) the outlook has improved. We shall see how long it lasts for.

EURUSD   09072015


The last two sessions have been extremely poor for the Cable bulls as two strong bearish candles have dragged sterling sharply lower. I have previously said that the last few months on Cable have shown some strong moves, with the price consistently moving in a certain direction for a length of time. The moves have tended not to be choppy but last for several days or even weeks at a time. This latest downside shift continues to drag sterling lower and to be honest has gone further than I had anticipated. This is leading me to question whether it is indeed a bull correction (which would tend to undershoot its downside target). With momentum indicators falling further away than I had also anticipated (RSI into the 30s, Stochastics now strongly negative), I am turning more neutral on a medium term basis. There has been a minor bounce overnight and there is a resistance in the band $1.5412/$1.5485 for this rebound which is helping to unwind immediate oversold momentum on the hourly indicators. It will be interesting to see though if $1.5330 (yesterday’s low) which was left in the wake of the FOMC minutes.

GBPUSD   09072015


A huge bear candle has completely shattered the 122 old support (which now becomes new resistance), with a dip to 120.40 which was below the support at 120.60. However the instant reaction today has been for a rebound to set in through the Asian session which is unwinding much of the selling pressure. The strength of the rebound will question the validity of the sell-off and so this move today becomes very important for the near term outlook. The immediate test is the 121.54 resistance of the 61.8% Fibonacci retracement of 118.86/125.85. This level could be a good gauge near term, however there will need to be a push above the 122.00 resistance that is now in place too in order to confirm the recovery. This is a fluid situation at the moment and the strength of the move is with the near term bulls currently.

USDJPY   09072015


With a decisive two day move that is well clear of the old range lows at $1170 the gold price has confirmed the breakdown. Yesterday’s neutral to slightly positive candle shows that the bears though will not have everything their own way. In the past few months gold has tended to show a bearish tilt but that has not meant that the odd aberration to the upside has not been seen. Yesterday’s price action is a sign that the buyers are still ready to react occasionally and unwind some of the near term oversold momentum. The hourly chart shows consistent bearish configuration on the hourly momentum indicators and that the rallies should be sold into. There is resistance now between $1165/$1170  which will be eyed as a good area to sell. Monday’s reaction high at $1174.70 would be the key near term resistance and despite the rebound in process, anything under there is just a technical rally to be sold into.

Gold   09072015


The rally did not last very long before the sellers returned once more. The intraday volatility on the day remains high but the one positive to take away from another disappointing day for the bulls was that Tuesday’s low at $50.58 remains intact. Exactly how long we can say this for remains to be seen though. Technical studies remain in bearish configuration with RSI the lowest since January and MACD/Stochastics both also negative. Using intraday rebounds a chance to sell, with the hourly momentum also in negative configuration. Initial resistance is at $52.87 however more considerable resistance comes in at $53.43. I continue to expect further weakness to test the support around $50, but I still remain mindful of the extreme trading outside the Bollinger Bands which is something that should be monitored for signs of a technical rally.

WTI   09072015

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