21/07/2015: Gold looking to settle with new expectations after huge decline

Market Overview

Greece has managed to use the bridge financing package of €7bn in order to clear its debt with the IMF and also pay off the ECB. Markets have taken on far more of a settled outlook as it appears that the powers that be have now got a sense of control over the Greece situation. Equity markets are far more sedate and volatility has dropped away, whilst sovereign bond yields are also relatively stable. However, the big news of the past 24 hours has been the huge decline on gold. Traders in Asia took a view during yesterday’s Asian session that gold should be hit as news filtered through of the lower than expected China gold reserves. The gold price is still looking to settle down now but a $45 drop in a matter of a e minutes showed a real sign of changing market expectations.

Wall Street closed in positive territory as the positive earnings surprises continued to bolster sentiment. The S&P 500 is still within touching distance of the all-time high at 2135. Apply report results today and will clearly be a major focus for investors. In forex trading there is little real move going on, although the Aussie and Kiwi has opened higher.

Once more there is little economic data to be concerned with today so markets will be trading more on technical levels.

Chart of the Day – NZD/USD

The downtrend channel on the Kiwi has been in place since April and continues to suggest that rallies are a chance to sell. There may be another rally that is now coming through as the kiwi has forged support around 0.6500. Although it is not the best example of one, there is still a “Morning Doji Star” candle formation in the past 3 sessions (sharp bearish candle, followed by a doji candle and then a strong positive candle). It may not be an ideal example of the pattern but sentiment has certainly improved ahead of the Reserve Bank of New Zealand monetary policy meeting on Wednesday where they will discuss whether to cut interest rates or not. The positive start to today’s trade would suggest there could be something in this short term improvement. However there is much to do to prevent this mini-rally from being sold into once more. Technically the falling 21 day moving average at 0.6700 is acting as a barrier to gains and is almost paying a role as the range high. The rally is also approaching the initial resistance is at 0.6620 which marks an old key low in the channel.  The top of the channel today comes in at $0.6740. The intraday chart shows it would now be disappointing to lose the support at 0.6542.

NZDUSD   21072015


The euro continues to slide lower and is now in the process of breaching the key May low at $1.0818. There has not been the decisive breach of support yet, however a fourth consecutive negative candle suggests that the sellers are mounting. A decisive closing break below $1.0818 would open the initial support at $1.0658 but there is little reason to suspect that the pressure would not sell-off back to the April ($1.0520) or March ($1.0456) lows. The momentum indicators remain negatively correlated with further downside potential. There are though the intraday bounces that can be used as a chance to sell. Yesterday there was a pick-up of around 60 pips once more back to find resistance around the falling 55 hour moving average (currently c. $1.0845). Also the hourly momentum indicators are still good gauges with the hourly RSI consistently falling over around the mid-50s and the hourly MACD unwinding back towards neutral before the sellers return. Near term resistance levels come in at $1.0870 and around $1.0900.

EURUSD   21072015


The rally on Cable has lost its way and there is now a consolidation that has taken over in the past few days that is threatening to turn back into another correction. Of the past four sessions, there have been two neutral (doji) candles and two negative ones. The daily chart has lost its positive near term characteristics as the momentum indicators have all rolled over and taken on far more of a neutral configuration. The intraday hourly chart shows a range play that is currently testing the support of the 50% Fibonacci retracement level at $1.5558. There is a hint of a bearish bias but nothing that has really been able to gain any traction. In the last two days there has been a series of lower highs (the latest at $1.5606 and $1.5627). A decisive move clear of the 50% Fib level re-opens the 61.8% level at $1.5470. Hourly momentum has a neutral configuration with a slightly negative bias. I would rather be a seller than a buyer but the chart still lacks conviction for now.

GBPUSD   21072015


The resistance levels between 124.20/124.43 look to be in the process of being broken. After three days of consolidation the dollar bulls are pushing on once more this morning and look to be finally looking higher once more. I have spoken previously about the RSI being a key signal, with a move above 60 suggesting that the bulls were finally getting a hold of the situation and this seems to be confirming the move. The RSI is into the 60s and is the highest for 6 weeks, the point at which the multi-year high was hit at 125.85. A closing break above 124.43 would also add to the conviction of a retest of the highs. Other momentum indicators are also positive, with the MACD lines above neutral and the Stochastics very strong. The intraday hourly chart still shows the support that the 55 hour moving average is providing (currently 124.16) whilst hourly momentum indicators are strongly configured. The key near term support for a breakdown of the bull run is the reaction low at 123.90.

USDJPY   21072015


I talked yesterday about how the reaction of the European traders could be crucial for the outlook, and it seems as though they accepted the new price breakdown and the crucial support at $1131.85 has now been confirmed as broken (and now becomes key overhead resistance). The market is still looking to find a new level of expectations and today is again a key trading day. After such a bearish and strong candle if the price continues to fall again today it could be that the selling pressure could go a lot further. There is initial support at $1185 but then there is not any significant support until the 2010 low at $1143.75. The momentum indicators are all negatively configured and suggests that the bulls will have a really tough time now. The intraday chart shows the considerable volatility yesterday which has set the near term levels to watch for. Clearly yesterday’s low at $1088 is the key marker in the sand, whilst the rebound high at $1118.70 is also a resistance to now watch. The configuration of the intraday chart suggests the sellers are still ready to push this one lower.

Gold   21072015


There has been no decisive downside break, but the bears do appear to be exacting a certain amount of control now. The closing price yesterday below the near term consolidation low at $50.60 has now confirmed the technical breakdown which opens the continued drift back towards the initial target of $49.50. However the measured implied target from the downside break of the range $50.60/$53.90 suggests $47.30 which is just above the next key reaction low at $47.00. Daily momentum indicators remain very negative and rallies are certainly a chance to sell now. The intraday chart will do little to please the bulls either with the configuration of the hourly momentum indicators negatively configured. Use the hourly RSI unwinding to neutral to give a selling opportunity. The initial resistance band comes in at $50.90/$51.25 and then with Thursday’s high at $52.17.

WTI   21072015

hide comments

Leave a Reply

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