01/07/2014: Can the PMIs continue to pile pressure on the dollar?

Market Overview

Wall Street markets had a mixed close to end the quarter, however this could have been as much to do with a lack of appetite to take a view in front of a raft of key data over the next few days, as it was with squaring off the books. The Chinese manufacturing PMI data overnight was positive with both the official and the HSBC data sitting above the neutral 50 level. The government data was in line with expectations at 51.0, while the HSBC private number dipped slightly from the flash reading at the end of June as it fell to 50.7 (from 50.8). The Japanese Nikkei 225 was buoyed by the Chinese data, whilst the softening of the yen also helped the index to close around 1% higher. In other news, the Reserve Bank of Australia held interest rates flat at 2.5%, with the Aussie dollar trading slightly higher as a result. European markets are trading slightly higher in early trading, but no doubt the moves today will be data driven.

Forex trading is showing a slight improvement in the fortunes of the dollar today, trading marginally positively against the euro, sterling and the yen. Despite this move today, it seems to be just some near term respite with the Dollar Index under significant pressure in recent days.

However, traders will be looking forward towards today’s data releases. The morning is dominated by the Eurozone and UK PMIs. The UK indicator is expected at 09:30BST and is forecast to decline slightly to 56.8 from 57.0 a month ago, whilst the US ISM Manufacturing data is forecast to be 55.9 from 56.1 at 15:0BST. This should ensure increased volatility around the euro and sterling crosses.

Chart of the Day – Silver

Whilst gold has been in consolidation mode (at least until yesterday anyway), silver has still managed to drift higher. However, the drift higher showed signs of waning yesterday, and although the bulls fought back later in the day, this could not prevent a “doji” candle (which denotes uncertainty with the prevailing trend. Although momentum looks strong, the daily RSI is way over 70 which could limit too much upside potential. Initial reaction overnight, in the Asian session has been positive but we wait to see if silver can push back above the recent multi-week high at 21.18. The intraday hourly chart suggests that silver is now in a consolidation phase more than anything else too bullish. Holding on to the support at $20.66 is important near term as it marks the bottom of a trading range. It will be interesting to see if this consolidation is something that unwinds the stretched momentum to help renew the potential and ultimately continues higher, as the “trend is your friend”.

Silver   01072014

EUR/USD

A second positive day in a row has seen the euro burst through resistance at $1.3670. Suddenly for the first time in almost 6 weeks, the bulls find themselves in the ascendency. This now brings the initial resistance at $1.3734 into view, with the next key resistance being the old support band from April/May at $1.3785. Longer term traders will be looking at the 144 day ma which has been a good gauge for the major turning points in recent months and could be a basis of resistance around $1.3710. However, momentum indicators continue to improve and if the break above $1.3670 can be sustained this is a key medium term development for the bulls. The intraday chart shows a band of support $1.3640/50 is also an important near term support. It would probably now take a breakdown of the support around $1.3600 to defer the increasing near term bullish control.

EURUSD   01072014

GBP/USD

A huge upside breakout yesterday. The last time Cable was up at these levels, was October 2008 and the height of the financial crisis when it was spiking higher and lower by over 200 pips every day. This means that resistance will not be especially reliable and largely the upside is clear until the $1.7500 region. The only real resistance we can point to is the 50% Fibonacci retracement of the decline from the November 2007 high at 2.1160 to the January 2009 low at 1.3500 at 1.7329. In the hours since the upside break, Cable has traded sideways in a tight range and is consolidating as the European session gets going. The sterling bulls certainly look strong but should any profit-taking set in (daily RSI is over 70) the recent breakout highs of $1.7050/60 will be the first line of support. The raft of economic data that begins today could certainly will have a part to play in the intraday direction, with PMIs for both UK and US out today. Using any dips as an opportunity to buy seems to be wise.

GBPUSD   01072014

USD/JPY

I have been talking about the significance of the closing support at 101.30 for the last couple of days and yesterday’s closing price was bang on the support. The reaction since then has been positive, with the Asian session today showing buyers willing to return once more. Could this be the floor at 101.30 acting as support once more? Well already there has been a higher high which has not been seen for four days. Furthermore, the intraday hourly chart shows that the 101.48 resistance has been overcome as well which is a sign that the near term position could be basing out. Hourly momentum is improving and the dollar bulls will be looking to build on this support that has started to form above 101.21. A signal of a near term turnaround would be confirmation of a move above 101.60 resistance.

USDJPY   01072014

Gold

A push to the upside late in the US session has seriously threatened the primary downtrend that has been in place since October 2012. This move has also taken gold above the resistance of the April high at $1330.90 and is now at its highest since late March. The big question is whether this move is going to turn out to be some sort of upside break for a completed flag. If gold can now start to sustain the break and build a new level of support above $1325/$1331 resistance then it can be worth backing. However the initial reaction as yet to instil too much confidence. Also the RSI is stretched over 70 still. It is still a little early to say that the bulls are in control, although there is now strong near term support at $1306.

Gold   01072014

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