12/05/2015: A near term bounce on EUR/GBP should provide a chance to sell

Market Overview

Reports suggest that Greece will be paying the c. €750m repayment that it owes to the IMF today. This comes despite the continued slow progress of the negotiations between Greece and the “Brussels Group” over its economic reform proposals. Agreement is needed to release the final €7.2bn bailout tranche. It has been suggested that Greece would run out of money in perhaps a couple of weeks. It will be important to keep an eye on the newsflow as this could be a significant driver for the euro in the coming days.

During a period of relatively quiet data announcements, Wall Street is being pulled around by the sentiment on the bond markets. The latest rise in Treasury yields is adding to pressure on equities. Again with little on the economic calendar today, we could see this continue. Once again it would appear that the S&P 500 has been unable to sustain a decent challenge on the resistance of the range highs. Asian markets have given a mixed handover to the European session with the Nikkei broadly flat, despite the weakness on the yen. European indices are trading lower in early exchanges.

In forex trading there is a sense that the major pairs are looking to regain some lost ground from the dollar rally from yesterday. The euro is a main beneficiary, whilst the Aussie and Kiwi dollars are also moving positively today.

As I said earlier, there is little on the economic calendar to make too much of an impact across today’s session. The UK manufacturing production is due at 0930BST with an expectation of a slight month on month dip to +0.3% from +0.4%. There is also the JOLTS job openings at 1500BST which are expected to show an improvement to 5.16m (from 5.13m). The JOLTS continue to rise strongly and a beat would be dollar positive.

Chart of the Day – EUR/GBP

There has been a sharp decline in the past few days which could be set for a near term technical rally, but I would see that rally as another chance to sell. The momentum indicators are currently strongly euro negative as the Stochastics accelerate lower, the MACD lines cross back into negative and the RSI falls with downside potential. However, the intraday hourly chart shows bullish divergences on the hourly RSI and MACD indicators which suggest there could be a technical rally due. There are some really interesting pivot levels on EUR/GBP which are being used as consistent turning points as the sterling strength has been dragging the pair lower. The initial pivot comes in at £0.7220 which would be an initial level for any near term unwinding rally to reach. However with daily indicators negative and hourly indicators suggesting that the move would merely be unwinding an oversold position, this all points towards at least a test of the support at £0.7107 prior to the key low at £0.7010.

EURGBP   12052015


Over the past week or so I have been more positive on the euro, a position that has been tested by the correction in the past three days, but for now the key support band between $1.1035/$1.1065 is holding.  I am happy to retain the view that this recent move is counter to a medium term euro recovery. There has been a slight downward drift in the Stochastics and RSI but for now the bulls are still in control. The hourly chart shows that the momentum has started to pick up again and the early European session is providing some support. A decisive move above the initial resistance at $1.1195 would back the assertion that the buyers are once more ready to move. This would then re-open the $1.1290 spike high (in the wake of the Non-farm Payrolls) and then $1.1390 again. Below $1.1065 would now be a trigger that would see a test of the old breakout highs that are now supportive between $1.1035/$1.1050.

EURUSD   12052015


I have been talking recently about this big base pattern that would complete on a move to a new 2015 high above $1.5550. Yesterday we got a closing breakout. Looking at the daily momentum indicators it is clear that Cable is in a bit of a sweet-spot near term. The Stochastics are rising strongly, whilst the MACD lines had a bull kiss before swinging higher again. A second daily close above $1.5550 would be confirmation of the breakout. In this instance it would be good to then look to use any intraday weakness as a chance to go long. The intraday hourly momentum indicators are all in bullish configuration but just on a drift back as the overnight consolidation has set in. Perhaps a good near term buy zone would be the support between $1.5475/$1.5520. The spike low from Friday’s Non-farm Payrolls at $1.5353 is now the level below which that would signal a change in sentiment.

GBPUSD   12052015


The dollar is looking to build on momentum in the past couple of days and is now looking to push on towards a test of resistance within the range at 120.50. This is now becoming an interesting test for Dollar/Yen. The tendency in recent weeks has been for the bulls to be unable to sustain any real momentum and lose impetus after two or maybe three days, before there is a reversal of sentiment. This latest move towards the top of the 118.30/120.85 band could therefore provide us with a trading opportunity. I am still of the opinion that the range will remain intact. Therefore I see moves on the hourly RSI towards 70 as a chance to sell in order to continue to play the range. I would now be looking for a sell signal as an indication to get short once more. A closing break above 120.85 would force me into a rethink.

USDJPY   12052015


I have been talking about a bearish tilt to the range play in the last few days and this certainly seems to be the case as it seems as though another lower high has been left to add to the pressure on the initial support at c. $1178 which lies above the key low of the range at $1170. Trading below all the moving averages is negative, whilst the momentum indicators continue to fall away, suggesting that intraday rallies are being used as a chance to sell. The selling opportunities within the range are short term in nature but still valid. There is a minor resistance band around $1185 which could be used as a basis for a selling opportunity for a test of the range lows. The resistance has been left now in the band $1191.60/$1193.10, whilst the bearish outlook within the range would be deferred if there were to be a break above the resistance at $1200.

Gold   12052015


The bulls appear to be continuing to fight hard to hold on to the key support around $58.30, although the threat is not yet over. A series of small, uncertain daily candles suggest a lack of conviction on either side and the battle continues. The daily momentum indicators are giving conflicting outlooks now, with an interesting deterioration in the Stochastics, whilst the RSI remains strong. I remain of the opinion that the support at $58.30 is key to the near term outlook. A confirmed breakdown would complete a top pattern as shown on the hourly chart and would imply a move back towards $54.00. I am not calling a top yet (until it has completed). Overhead resistance comes in at $59.90 initially but a break above that would re-open the lower high at $61.30. Hourly momentum and moving averages is currently neutral, suggesting the need to go with a confirmed break.

WTI   12052015

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