11/06/2015: Forex volatility continues as the dollar rebounds amid RNBZ rate cut

Market Overview

After a few days of respite, Greece burst back on the agenda yesterday with talk of a potential deal being struck. This caused a sharp rally on equity markets which are still volatile to any news on the progress of Greece’s negotiations. Wall Street closed strongly higher with the S&P 500 up 1.2%. However, one needs to be taking these leaks with a pinch of salt as there have been plenty of false dawns throughout this process. However, Asian markets were also strong with the Nikkei up 1.7%. China’s industrial production numbers were broadly in line with expectations and actually showed a slight pick-up from the previous month, and with China retail sales also stable this will do little to push the PBOC into further action.

The volatility in forex markets has been significant in the past 24 hours. Cable has been flying since the pick up in industrial production yesterday morning, but is now beginning to give some of that move back as the dollar has strengthened again. This improvement for the dollar has also been shown in Dollar/Yen which has rebounded after significant weakness yesterday.  However the biggest mover has been the Kiwi after the RBNZ unexpectedly slashed its rates by 25 basis points last night. This move has seen the Kiwi lose around 200 pips in response.

Traders will be looking out for US retail sales today which are announced at 1330BST. The expectation is for the ex-autos data (ie. core data) to improve by +0.7% for the month, which would also be the first year on year improvement since October. Retail Sales have disappointed for several months and an strengthening of the dollar can be expected on any improvement in the data.

Chart of the Day – AUD/USD

The selling pressure of late May has dissipated and there could even now be some sort of a potential recovery in progress on the Aussie. A bullish engulfing candle yesterday showed a turnaround in sentiment and the bulls are growing in confidence again. The resistance that was left by a rebound last week to $0.7818 has left resistance that could now turn out to be a near term neckline of a small base pattern. The daily momentum indicators are interesting as the RSI is currently above the equivalent peak, and the Stochastics have already bottomed and are looking to improve further. The MACD lines have also come together and could be close to giving a buy signal. However, this resistance is added to for the fact that the old May floor at $0.7800 is also a factor. It is also interesting that the RSI throughout May found a low just above 50 and this is also a form of “resistance” now. The overnight move on the Aussie has been fairly indecisive and the buyers are clearly struggling to breach through $0.7800. A confirmed close above the resistance at $0.7818 would imply a move back towards $0.8000 again. The intraday hourly chart shows a minor pivot level around $0.7710 as initial support with the $0.7634 as the key near term support now.

AUDUSD   11062015


Amidst the selling pressure on the dollar across the forex majors yesterday, perhaps it is a surprise that the euro did not manage to push further on (the intraday pullback on German Bund yields was a significant reason behind this). Even the late prospect of a potential deal for Greece has done little to inspire the bulls. Instead, once more there was an intraday test of the reaction high at $1.1380 which was rejected. There is a bullish bias near term (the daily momentum indicators are straining to become positive) but it is still a struggle, which has continued into today’s session. The intraday hourly chart again shows that the bulls are not quite able to grasp control and momentum is fairly lacklustre. Whilst the euro trades above $1.1260 support, the prospect of further gains is high, however if the price begins to drift below this level then a test of the $1.1213 reaction low would be on. I am reasonable positive on the euro currently but am mindful of the significant overhead resistance above $1.1380 which lies around $1.1450.

EURUSD   11062015


The early European session has seen sterling coming under pressure after a series of strong candles. As the Cable rebound over the past few days has taken shape it is interesting that the correction has come around the a key resistance. The Fibonacci retracement levels of the $1.4563/$1.5814 bull run have played a strong role in recent weeks and again there has been a consolidation, this time around the 23.6% Fib level at $1.5519. Yesterday’s reaction high was at $1.5552 but the intraday hourly chart shows that there has certainly been a consolidation around this Fib level and the selling pressure has returned today with the hourly chart subsequently showing lost momentum and started to fall away. The near term key support at $1.5445 has already been breached and the next support band comes in around $1.5370. The bulls are really struggling this morning and a close back below $1.5445 today would be a corrective signal. Could it be that the lower high that I have been expecting below $1.5700  has now been posted at $1.5552?

GBPUSD   11062015


The sharp decline on Dollar/Yen has made a significant impact on the outlook. The corrective configuration of the momentum indicators is now plain to see, with a bearish MACD cross, Stochastics also sell signal and falling, whilst the RSI is also in decline. This would suggest that a top has now been posted at 125.85. Quite how far a correction goes is the question. A Fibonacci retracement analysis of the 118.86/125.85 rally shows that 50% (at 122.36) has been all but retraced at yesterday’s low of 122.43. The consolidation and rebound is now trading around the 38.2% Fib level at 123.19 and a move through this could now result in a pullback. I would still be interested in the 123.50 resistance (which was the old key support) and this being an area of overhead supply. This could be where new sellers start to look for positions again. There would have been a degree of short covering on yen positions in the decline on Dollar/Yen yesterday. My feeling is that there is still room for further downside back towards the od key support t around 122.

USDJPY   11062015


The outlook has been improving over the past few days without ever really taking on a bullish outlook. Each of the three consecutive positive candles have caveats attached to them, mostly by the fact that the bulls have lost impetus towards the end of the day. The daily chart has picked up but there is still a sense that this is just a rally that will be sold into. The past four weeks have been characterise by a downtrend with a series of minor rebounds. The latest rebound was to $1204 before the selling pressure once more took hold. The RSI is still under 50 (suggesting near/medium term bearish pressure), whilst the price is still trading below all the moving averages which are now all falling in bearish sequence. The hourly chart shows a slightly more positive picture with the break above resistance around $1185/86 yesterday, however if this is now lost then the improvement to the chart will be compromised. I am anticipating that a lower high will be formed under the resistance at $1196 and with yesterday’s peak at $1192 before the price drifted again, this could be the high now in place. Above $1196 would seriously question whether this is more than just a bear market rally. Above $1204 would negate the bearish forces.

Gold   11062015


Once again we find the range play continuing as we see another turn lower and corrective candle towards the top of the trading band. The volatility within the trading band has been incredible over the past few weeks with no concept of trend formation. It is interesting to see now that whereas with the bull run of April we had the RSI moving towards 70, now as this range play has set in the RSI is struggling to reach 60. Furthermore, the Stochastics (which tends to be one of the more sensitive technical indicators) is unable to push towards extreme levels in the past few weeks due to the sharp choppy trading. There is still a tendency to use Fibonacci retracement levels within the range to gauge intraday consolidation/turning points. The Fibonacci levels of the $56.83/$61.82 rally now come in with 38.2% at $59.91 and 50% at $59.33.

WTI   11062015

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