01/05/2014: Traders turn to PMIs with markets still choppy and data driven

Market Overview

Last night saw a record close on the Dow Jones Industrial Average as investors put aside the disappointment of the weaker than expected (and backward looking) US GDP data to leave the three major indices (along with the S&P 500 and the NASDAQ) all posting gains, while the VIX volatility index continues to decline. Overnight we had the announcement of the official Chinese manufacturing PMI which improved slightly from last month to 50.4 from the reading of 50.3 in March. However this was also slightly lower than the 50.5 that the consensus had forecast. Trading in Asia was mixed on the news with Australian stocks lower, but despite the strengthening of the yen, the Nikkei was able to post gains of around one per cent. Countries such as Hong Kong, South Korea and China were shut for May Day. Trading in Europe is slightly weaker today, although markets such as the DAX and CAC are also closed for May Day. Forex trading has been largely dollar negative in the early moves of today.

Aside from US GDP yesterday, there was also the statement from the latest meeting of the Federal Open Market Committee last night. As expected the FOMC cut its monthly asset purchases by a further $10bn to $45bn. The first line of the Fed statement noted that growth had picked up recently following the harsh winter. This would have settled a few nerves following the weak print on Q1 GDP. However this was tempered by the assessment that interest rates would remain at low levels “for a considerable time”.

Attention turns to the PMIs today which are fewer in number than usual due to the public holidays. However the UK manufacturing PMI is announced at 09:30BST with 55.4 expected, while the US ISM number is at 15:00BST and is expected at 54.3. Aside from that, weekly jobless claims at 13:30BST are forecast to be 319k.

Chart of the Day – Silver

Silver is once more under big downside pressure. The decline of yesterday afternoon (which was doubly disappointing given the dollar weakening GDP data) has now brought the price back towards a test of the crucial support band $18.80/$19.00. The bears remains in control and with momentum indicators firmly in negative configuration this could be a serious test. All moving averages are in decline, with the falling 21 day moving average (at $19.63) acting as the basis of resistance. A breach of $18.80 would re-open the $18.19 June 2013 key low. The intraday hourly chart reflects a similarly weak outlook. There is initial resistance around $19.27 but the intraday outlook would remain under pressure whilst below $19.53.

Silver   01052014

EUR/USD

The volatility in the past couple of days has been very much driven by inflation in Europe. The initial move down following the weaker German inflation on Tuesday was then entirely reversed by yesterday’s push higher as Eurozone inflation came in slightly below estimates but the pickup has reduced the chances of monetary easing. The result on the chart is a bit messy and almost back to square one. However there was finally a strong close on the daily chart which is something we have not seen for around three weeks, with a succession of long upper tails suggesting the bulls have failed to gain the ascendency on almost every day. This has not been the case with yesterday, and if the bulls can now hold their nerve then a test of the $1.3905 resistance could be seen. Intraday, on the hourly chart we see resistance at the $1.3979 peaks of the past two days and if this can be overcome then this re-opens the $1.3905 level. Consolidation has taken hold though and with Europe closed for May Day bank holiday tis might impact today. Initial support comes at $1.3855.

EURUSD   01052014

GBP/USD

The consolidation is now beginning to find momentum to the upside as the bullish candles are accelerating higher. It now appears that there is the prospect of a clean breakout to the multi-year highs on Cable. The move came yesterday afternoon on the announcement of the disappointing US Q1 GDP data and it will be interesting to see if the mood can be sustained with the two PMIs out today. Daily momentum indicators are looking but the price will need to build on this move higher or else the momentum will take on more of an overbought look. On the intraday hourly chart the price has formed a consolidation pattern above support at $1.6860, however it is the previous breakout supports between $1.6840/56 which the bulls will look to now build above. A move above yesterday’s peak at $1.6900 would re-open the upside once more.

GBPUSD   01052014

USD/JPY

A messy little consolidation period has formed in the past few days with the latest attempt at a bullish move for the dollar being reversed once more on yesterday’s disappointing US GDP. The main point of note is that the 144 day moving average at 102.02 is now once more back into play as the basis of support and a gauge of the state of the dollar bulls. Suddenly the support at 101.94 is key once more and could come under pressure. Daily momentum indicators are giving little clues away as the consolidation has rendered the RSI and MACD almost completely neutral. So, looking more intraday for clues, I find the outlook is under pressure not is not showing any sign of an imminent breakdown. It is more that this is now a trading range as yesterday’s low at 102.02 has formed support. The level around 102.30 becomes interesting near term as this marks a resistance which the rate is struggling to move back above. The hourly momentum indicators are in an unwinding configuration and it will be key to the outlook as to how they react. Currently the outlook would suggest selling into this rally, but as we have seen in recent days the economic data is now key.

USDJPY   01052014

Gold

The appearance of the re candles in the past few days would suggest that the impetus from the bullish key one day reversal is rapidly waning and the bears have rejected the rally. The fact that the momentum indicators are all sitting below their neutral points suggests a negative bias once more. However the price continues to trade above the 144 day moving average (currently $1282.33) which is heartening, at least for the medium to longer term bulls. Looking at the intraday hourly chart, it is noticeable that $1300 remains a barrier to the recovery. Also that the hourly momentum indicators are also in bearish configuration. This would therefore back an outlook of selling into strength as the rallies continue to fall over. The latest resistance is at $1297.40, with pressure on the $1285.19 low.

Gold   01052014

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