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01/06/2015: Sentiment shows early signs of improvement as equities find support

Market Overview

The pressure is mounting even more this week as Friday’s supposed deadline for Greece to repay €300m to the IMF comes ever closer into view. The problem is that the negotiations over the release of a final €7.2bn tranche of bailout funds continue to rumble on with no sign of a deal. However, the purchasing managers indexes from China today have been supportive for market sentiment. The official data ticked higher to 50.2 which was in line with expectations and just above the 50.1 from last month, whilst the HSBC Manufacturing PMI improved to 49.2 (from 49.1). The continued sluggish PMI data though will have the market speculating over further stimulus from the PBOC. Although equities in Shanghai have been up strongly overnight, there has been little sign of much positivity in other Asian markets, with the Nikkei all but flat. European markets have been reasonably positive at the open though.

There has been some mixed trading through the major forex pairs, with a slightly positive bias for the dollar. The euro is the biggest mover as the rally from the past three days has threatened to correct, whilst the Swiss franc has also followed suit. The gold price has continued to consolidate as the selling pressure that has seen the price dragged back to the bottom of its recent trading range has dissipated again.

It is PMI day today and in the wake of the data out from Asia, the European countries take turns in announcing early in the session. The Eurozone data is released at 0900BST and is expected to show a slight improvement to 52.3 (from 52.0), whilst the UK is at 0930BST and is also expected to show an improvement to 52.5 (from 51.9). Then all eyes will turn to the ISM Manufacturing PMI, which has not ticked higher since October last year. However the US is expected to show an improvement this month with a pick up to 52.0 (from 51.5 last month). This would be dollar positive if this were to be seen as the market has been concerned about the consistent disappointment of the ISM data in recent months and it would suggest that the US economy may finally be turning the quarter after such a disappointing start to the year.

Chart of the Day – FTSE 100

A near term sell signal has been posted. A bearish engulfing candle is a negative signal which suggests that Friday’s high at 7070 is now a key resistance near term. There has not been too much of a trend of late with which to reverse but still there is potential now for a slide back towards the 6930 support. I would though be mindful that there have been a number of mixed signals of late and the early rebound today suggests that the sellers are not in entire control. The daily momentum indicators are all decidedly neutral near term and there is little really to get too worried about yet. The intraday hourly chart shows a slightly bearish bias also without really being too negative. I think it is more that the high at 7070 is now in place and that there will be a period of mixed trading continuing. The loss of the reaction low at 6930 would be the signal to be interested in from the point of view of a confirmation of a change of near term outlook.

FTSE   01062015


The euro has started the week slightly on the back foot as the rather tepid recovery of the past few days looks to be threatening to run out of steam already. This is all happening as Friday’s rally moved into the resistance band $1.0960/$1.1065. Daily momentum indicators have flattened off but there is still a bearish bias to the medium term outlook. As such I still anticipate that the rebound of the past few days is counter to a broader selling phase for the euro, whilst I also anticipate another lower high under the $1.1208 reaction high. The intraday chart shows that the dip back early in today’s session has put Friday’s low at $1.0925 under pressure and a breach would be a first indication of a loss of impetus in the rally. With the hourly momentum indicators also rolling over the pressure is mounting to the downside. The key near term support is $1.0867. The bulls will be looking to breach the reaction high at $1.1005 to reinvigorate the rally.

EURUSD   01062015


Although sterling fell for a sixth consecutive session on Friday the candle that was posted showed the closing level above the mid-pint in the session which would suggest that the bears may have lost some of their impetus. All momentum indicators remain in bearish configuration but there is a sense that with today’s trading around flat, the consolidation could suggest that the bulls are close to a minor recovery. The intraday hourly chart shows no significant improvement yet, but the falling 55 hour moving average is now a good gauge of the sentiment as it has been providing resistance for rallies in the past 4 sessions and once more today is playing a role. Also watch the hourly RSI which has not been above 55 for 3 days and the hourly MACD lines which have not been above neutral since 22nd May. If these conditions start improving then a rebound could begin to develop. Resistance comes in at $1.5342 and $1.5385. A breach of support at $1.5234 would re-open continued downside in the medium term chart with $1.5189 and $1.5088 notable levels.

GBPUSD   01062015


The pair has been consolidating the rally since Thursday’s multi-year high of 124.46. The big question is whether this is a stalling before further upside or whether it is the precursor to a correction. I am still concerned it could be the latter. The daily RSI is over 77 which in itself is not a negative (it could still suggest strong momentum), however the temptation to take profits will be mounting. I wrote at the end of last week about the bearish divergences on the hourly chart momentum indicators and this remains a concern for me as the RSI and MACD lines are both still suggesting a loss of upside impetus now. The support at 123.47 is the near term level to watch as a decisive breakdown would suggest that the consolidation is beginning to break lower. There is further support at 122.75 but I am of the opinion that a pullback towards the 122.02 breakout which is now supportive, is becoming likely. Above 124.46 continues the rally but until the bearish divergences on the hourly indicators have been aborted I will remain cautious.

USDJPY   01062015


The consolidation in gold has continued as the selling pressure that just took the price towards the lows of the range (c. $1178) once more has dissipated and the range play continues. The past three completed candles have been intriguing as they have all been rather neutral, however are still sowing a sequence of higher daily highs, which has been continued already today. The momentum indicators are still showing a neutral configuration and there is little to suggest that the bottom of the range will be imminently broken. However, it does still seem as though the market is waiting for a catalyst as the intraday hourly chart is increasingly neutral. The overhead resistance of the pivot at $1200 (and the early resistance today at $1196.35) is just holding back a rebound as the consolidation continues.

Gold   01062015


Friday’s sharp rebound may have woken up the near term bulls temporarily, however with the key near term ceiling at $60.88 still in place then it will be difficult to back a sustainable recovery. The recent downtrend is though being tested as Friday’s rally hit $60.70 (the downtrend comes in around $60.25 today), whilst the old pivot level at $59.90 has also been breached. A move above the key near term rally highs at $60.88 would signal another change in outlook. However, the hourly RSI has turned lower around the 70, whilst the hourly Stochastics are also deteriorating. Trading entirely outside the Bollinger Bands on Friday would suggest that the move is extreme and to take caution with backing the rally. Near term support is now around $58.50 and at $57.70.

WTI   01062015

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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.