22/05/2015: Markets still struggling for conviction despite slight dollar weakness

Market Overview

The markets have taken on a mixed outlook in the wake of the FOMC minutes on Wednesday. There has been an element of uncertain consolidation which has stopped the dollar recovery in its tracks and given financial markets far more of a rangebound feel. There has been a slight dip back in Treasury yields which is supportive of mild gains on Wall Street, but I remain concerned that the creeping gains on the S&P 500 (+0.2% last night) are still not coming on positive news. Yesterday’s data was once more a damp squib, with existing home sales and the flash PMI both disappointing.

Overnight the Asian markets were mixed to higher, with the Nikkei 225 gaining just 0.2% unable to gain any upside traction off the Bank of Japan which sat on its hands once more; although Shanghai and Hong Kong markets were firmly higher. European indices are trading mildly higher in early exchanges. In forex trading there has been an early move against the dollar which is suffering against all the major currencies, with gold and silver also mildly higher.

Traders will be looking towards the comments of Janet Yellen who is speaking at around 1800BST and after the economic data has remained weak since the latest FOMC meeting it will be interesting to see her take on that. Prior to that though there will be the German Ifo Business Climate indicator at 0900BST which is expected to just slightly fall back to 108.3 (from 108.6) having not seen a decline for 6 months. There is also the release of US CPI at 1330BST which is expected to show the headline figure of -0.1% and a core of +0.2%, both in line with last month and suggesting that inflation remains firmly anchored. Volumes may be a touch light today coming ahead of the Memorial Day weekend in the US, whilst the UK also has the Whitsun bank holiday on Monday.

Chart of the Day – EUR/GBP

It seems as though sterling is beginning to get some traction once more and this is resulting in the selling pressure on EUR/GBP which has now broken to its lowest level since the mid-March low. Yesterday’s close below the previous support at £0.7107 suggests there will now be a test of £0.7010. The momentum indicators are all in negative configuration but also the RSI and MACD lines show there is further downside potential in the move. The hourly intraday chart shows the price has been trending lower for four days now with all moving averages falling in bearish sequence the pressure is on to the downside. The hourly RSI and MACD lines are also negatively configured and suggest that rallies are being used as a chance to sell. There is a band of resistance now between £0.7100/£0.7160 which I expect to hold back a recovery now.

EURGBP   22052015


The decline on the euro has temporarily been stabilised however I do not see this as too much to be positive about. There have now been two closing levels below the old key reaction low at $1.1130 to confirm for me the outlook has now changed. This is now at best a range play with the potential for the dollar strength to drag the euro lower again and I do not see this as a pullback before a further break to multi-month highs again. The deterioration in the momentum indicators suggests correction too and that rallies will be sold into. The intraday hourly chart shows the importance of the support at $1.1065, however I expect this to come under further scrutiny. The hourly momentum indicators which had become deeply stretched have simply unwound this oversold position and look to be renewing downside potential. I see this as a temporary range between $1.1065/$1.1180 with rallies now being seen as a chance to sell, whilst there is further resistance around the pivot level at $1.1200 and then up at $1.1290 to hold back any recovery. Below $1.1065 is support at $1.1035 and then the pivot at $1.0900.

EURUSD   22052015


The bulls have held on well and the uptrend since the April low is strongly intact as yesterday’s strong candle has sustained the positive outlook. The momentum indicators are all still in bullish configuration and suggest that the recent dip is being used as a chance to buy, with further upside potential for a retest of the highs just above $1.5800. The intraday hourly chart shows there is a slight consolidation which is helping to unwind a slightly stretched overbought position on the hurly indicators. However the strength of the move yesterday suggests there is an appetite for sterling now and it is interesting that the support is now being found above the old support level at $1.5630. If the price starts to fall away look for support with a buy signal forming around the $1.5590 area. I now expect that corrections will be bought into.

GBPUSD   22052015


With the rally of the early part of the week now running out of steam this becomes an important moment for Dollar/Yen. If little has actually been achieved by the outlook then this will turn out to be another top within the range. That would mean that the sellers will once again control the price action for the next couple of sessions as the price mean reverts back towards the pivot at 119.40 around which much of the price action seems to have gravitated around for the past few months. However, The intraday chart shows a series of resistances which were broken by the rally and these should now start to become supportive if the bulls have turned a corner. The old breakout at 120.84 looked to be holding yesterday but this has been breached early today, so this now leaves 120.50 as the key level. Breaking this support would suggest there is little appetite for the bulls to push Dollar/Yen back towards the highs around 122.00 again. The intraday momentum indicators are now fully unwound and further downside would turn them corrective once more. An important day within the range.

USDJPY   22052015


The reaction of the bulls following the sharp negative candle on Tuesday has not suggested that there was an appetite to break higher from the range that has been in place for several weeks. The negative candle from yesterday suggests there is more of a corrective drift now, although momentum indicators are once more showing little on the daily chart. The intraday hourly chart shows a negative slant to the price moves with a test of $1200 likely today. The hourly momentum indicators are corrective, with the RSI and MACD lines in weak configuration whilst the Stochastics suggest that this rally over the past 18 hours is a chance to sell again. This is once more a range play and for now there is a corrective outlook within the range. A move above the resistance now at $1213.40 would change the outlook near term.

Gold   22052015


The price action over the past few days has confirmed for me that oil is in fact a range play. With a market that is a range play, there will be false signals both upside and downside. Breakout can sometimes lead you to believe that there is a new trend forming when actually it is just part of the ranging process and the targets will not be met This seems to be exactly what the move on WTI has been in recent days. The breakdown of the key support at $58.30 which had become a huge level should have signalled a change in expectations. However the buyers have returned almost as swiftly to abort the pattern today. With the hourly chart showing the RSI is now as bullish as it was when the price spiked to the rally high at $62.60, there is a distinct uncertainty to the outlook near term. A break back above resistance at $61.85 wold re-engage the bulls now but I would not be surprised to see the rally stalling around the previous resistance at $60.88 near term. The bulls are with the run higher but the overstretched near term momentum is a concern. Support is now at the old $59.90 pivot and then back at $59.00.

WTI   22052015

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