01/04/2014: Yellen’s comments help to soothe sentiment ahead of key manufacturing data

Market Overview

Wall Street closed nicely in positive territory yesterday after Janet Yellen noted yesterday that there was more that the Federal Reserve could do to help the economy. This encouraged risk sentiment in Asian trading, however mixed manufacturing data out of China held back any significant gains. The official China Manufacturing PMI for March increased slightly to 50.3 (in line with expectations) up from 50.2 a month earlier, however the HSBC final PMI reading (covering smaller businesses) fell slightly to 48.0 from the flash reading last week of 48.1. Investors will be relieved that the official number did not slip into contraction, however the deterioration in the HSBC number will still be of concern.

Caution therefore appears to be taking hold in the early European session with forex trading so far lacking direction ahead of the key manufacturing data in the region. Eurozone PMIs are announced between 08:30BST and 09:00BST, while the UK has its release at 09:30BST.

Investors will then look towards the US ISM manufacturing data out at 15:00BST. After the weather impacted much of the February data in the US, investors will be keen to see whether March’s economic data shows signs of a demonstrable improvement. Consensus expects the ISM number to improve to 54.0 from 53.2.

Chart of the Day – FTSE 100

Having hit a low at 6492 in March, the FTSE 100 now seems to be in the middle of a basing process. Although the process is currently quite slow, gains are gradually being made with a couple of higher highs in the past week. The next key development will be to see if it can hold on to the low posted at 6561. The daily momentum indicators are looking to improve, with the Stochastics advancing and MACD lines just having crossed over. The intraday hourly chart shows a base pattern in place, with the resistance around 6643 important for the pattern formation, while the 38.2% Fibonacci retracement of the big correction from 6866/6492 at 6635. A move above yetserday’s high at 6658 would continue the recovery.

FTSE   01042014

EUR/USD

The slight improvement in market risk appetite seen yesterday enabled the Euro to make further recovery ground and now the outlook on the daily chart is showing mixed signals. Finding support from just above $1.3700 was a positive move, but the bulls still have some work to do as the rate is in a two week downtrend whilst momentum indicators are still on a corrective slide. The intraday hourly chart shows the falling 200 hour moving average (at $1.3783) having been the basis of resistance for the last two major rallies and $1.3805 being the latest reaction high. This now becomes a key mark for the near term bulls to overcome, with a breach opening $1.3848 and $1.3875. Overnight consolidation around $1.3775 is building and with a slight positive skew in the hourly momentum indicators a retest of $1.3805 could be seen.

EURUSD   01042014

GBP/USD

The outlook for Cable continues to gradually improve, with now 5 straight days of higher daily lows, the latest of which is at $1.6610. Daily momentum indicators continue to improve, while the bulls will be eying the next key resistance at $1.6716. Intraday hourly momentum indicators are all in bullish configuration and suggesting the corrections should continue to be bought into. The rising 55 hour moving average (currently $1.6643) has become a good gauge for the uptrend, whilst there is also good support currently around $1.6650. The strength of the near term chart would be questioned if there was a breach of $1.6610, with the hourly chart suggesting $1.6597 is key near term.

GBPUSD   01042014

USD/JPY

Now that Dollar/Yen has begun to move higher the bulls need to sustain the momentum and push above the March high at 103.75. Uness this were to happen then the move could just be considered to be yet another rally within the trading range of the past 10 weeks and be susceptible to another bout of profit-taking. The intraday chart shows the improvement over the past couple of days, with consistent upside pressure supported by the rising 21 hour moving average (currently 103.19). There is just a slight hint of a negative divergence on the momentum indicators, however yesterday’s high at 103.43 should still come under further pressure today. The old pivot level around 102.83 continues to be used as a basis of support and corrections should still be looked upon as a chance to buy.

USDJPY   01042014

Gold

With selling pressure resuming overnight the key supports on gold are seriously being tested. The 144 day moving average just above $1285 is struggling to hold the price up as the overnight low hit $1278.34. This means that the next key level to be tested is the $1278.01 key January high that provides the neckline support of the original base pattern. Daily momentum indicators are not helping, with RSI, MACD and Stochastics all in bearish configuration. The intraday hourly chart is not especially positive either, with momentum indicators in bearish configuration, although crossover signals on Stochastics and MACD may provide some near term respite, however there would need to be a recovery above $1300 resistance before the bulls can realistically be enthused. For now the outlook remains one where any rallies are seen as a chance to sell.

Gold   01042014

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