It would still appear as though any back data out of China is able to drive expectation of further monetary stimulus which then supports markets, but for how long this will be the case remains to be seen. A very weak set of trade data with which China exports fell by 15% (growth of 12% had been expected) whilst imports were also worse than expected. Yet still Asian markets were higher this morning as the Shanghai stocks were strong. This came after a solid close on Wall Street on Friday. With the oil price settling down of the oil price and good news from M&A deals still at the forefront, Wall Street was able to close off the week in positive fashion. European markets have started the session mixed to slightly lower.
Forex trading shows that the US dollar is once more strong, but also that the breakdown in sterling continues. Pressure is mounting on sterling now with the UK general election coming ever closer. The commodity currencies have come under considerable pressure this morning with the Canadian Loonie, the Aussie and Kiwi all weaker in the wake of such weak Chinese trade data. Furthermore, the World Bank has cut its growth target for East Asia and China for 2015/2016, citing “significant risks” from global economic uncertainties.
There is very little data for traders to look towards today, so it would appear that markets will be moving off technical signals mostly.
Chart of the Day – EUR/GBP
With sterling weakness taking hold once more today, there is a very interesting range that is forming on Euro/Sterling. It will be interesting to see if the euro can hold up though. The support has formed at £0.7220 and the price is consolidating. However looking at the momentum indicators, this still just looks to be a consolidation that is coming at the end of euro rally that is still likely to result in further selling pressure. The daily MACD lines have lost the recovery impetus at neutral, the Stochastics are also fairly weak. The intraday hourly chart shows resistance now at £0.7280 which if it is broken then the outlook within the range will begin to improve once more for a retest of the resistance at £0.7320. Depending upon how the momentum develops over the next day or so I would be tempted to look at rallies as a chance to sell, with an ideal stop above the key reaction highs at £0.7385 for further pressure on £0.7220 and then further downside.
The outlook for the euro has certainly taken a turn for the worse in recent days and this is now beginning to have an impact across the momentum indicators. With Stochastics now in negative configuration, the MACD lines are bearishly crossing and the RSI has dropped off. There is also further downside potential in the momentum and with the key multi-year low at $1.0456 in sight a retest is now increasingly likely. The intraday chart shows the top pattern that was completed on a move below the neckline at $1.0712 which is now the key resistance. There has been a downtrend channel on the hourly chart which the euro is currently consolidating in but with the hourly momentum indicators all in bearish configuration this just looks to be a consolidation before further weakness. A drift back below the near term support at $1.0565 would re-open the downside.
Cable endured a downside break on Friday and the early price action of this week would suggest there is further weakness that will be seen. The loss of support at $1.4532 opened levels not seen since 2010 and this makes it ever more likely now for a retreat back towards the next key low at $1.4230. There is minor support at $1.4345 but the downside is now open. The concern for the sterling bulls is that momentum indicators have deteriorated sharply and are now in full negative mode. This would suggest that any rallies are likely to be sold into now. This is what we have seen over the past 3 trading days with intraday rallies of perhaps between 50/80 pips before the sellers move back in again. It might also be worth keeping an eye on the falling 21 hour moving average (at $1.4625) which has become a basis of resistance. As the bears have started again this morning to leave resistance at $1.4650, any rebound towards $1.4615/$1.4650 is a chance to sell. First big resistance comes in at $1.4725/$1.4735.
Although the dollar bulls have been unable to grasp control against the Yen as they have done with other majors, there is still a slightly positive dollar bias to the outlook. The price is trading above the moving averages (which are mostly flat) with momentum indicators taking on a more positive slant now. However there is still the caution that until the intraday hourly chart shows a decisive move above Thursday’s high at 120.74 then the handbrake will still be dragging on the momentum. There is though a sequence of higher lows coming at around 20 pip increments above the key pivot level at 119.40, with the latest low coming around 120.00. There is still work to be done for the bulls to convince, however they are gradually gathering control. A test of 121.20 is next to the upside before the key resistance at 122.00.
Gold embarked upon a significant rally on Friday on the back of no real fundamental news and amidst a stronger dollar trade on the forex majors. This comes therefore as something of an oddity. This now makes today’s session important as this move needs to be validated by the bulls maintaining the ground that has been made. So far this is now being seen and it could be just that gold is trading in a sideways band with the support building now at $1191. There is no sign of an imminent breakout on the daily momentum indicators, whilst the hourly intraday chart is also fairly rangebound, with resistance building now around $1210/$1212 and the rally from Friday tailing off. A decisive break above $1212 would be a strong sign for a test of $1224, but for now I see this as part of a range process.
The bulls are hanging on, but for how long? There may be a problem brewing, with the Stochastics giving a bearish cross (likely to lead to a consolidation at best), whilst the MACD lines are losing impetus too. The daily chart shows the key line of support comes in at $47.00, which is a medium term pivot level within this range that has now lasted over 3 months. On the intraday hourly chart I continue to see a support band around $50 as key to the near term outlook on WTI. Once again, and for a third day there was pressure on the $50 support but the bulls have held firm. However, an uptrend in place since the 18th March has now been breached which leaves a retest of the $54.24 key high as less likely now. This may add to the corrective pressure that is now building on WTI.