02/05/2014: Traditional consolidation takes over as traders wait for the Payrolls data

Market Overview

Once more there has been a mixed trading session in Asia, after trading on Wall Street gave very little steer. The Nikkei  traded slightly lower, despite the slight weakness for the yen through the session. European indices are trading slightly on the negative side of neutral early today, although markets tend to consolidate in the hours prior to the key Non-farm Payrolls data today at 13:30BST. Payrolls are expected to show that the US economy added 215,000 jobs in April, up from the 192,000 a month ago. The disappointing Q1 GDP data which was impacted by the weather has given optimists the hope that Q2 will bounce strongly as it takes up some of the slack. This jobs report will give an early indication of how realistic this hope is.

Forex trading into the European session has shown a slight preference for the US dollar today in the major fx pairs, however it is unlikely that there will be too much more of a move until the payrolls data this afternoon.

However, there is the unusual added spice of the Eurozone PMIs to contend with throughout this morning as the countries that had May Day public holiday release their figures. This could have an impact on the Euro this morning.

Chart of the Day – DAX Xetra

The DAX was closed yesterday for May Day but that should just build the anticipation for a test of the key near term resistance at 9645. The very slight gains of the open are seeing an early test of this resistance, but the bulls may have to wait, as European markets tend to consolidate in front of the key Non-farm Payrolls report. However the potential is there as once this resistance is cleared out, it opens for a test of the April high at 9721 and the all-time high at 9790. Daily momentum indicators are positive without being overstretched and suggest upside potential is decent. The intraday hourly chart also has a positive outlook, trading above all moving averages with positive momentum. There is a sense that the DAX is building for a sizeable move, could Non-farm Payrolls be the catalyst?

DAX   02052014


As the rate has once more shied away from the $1.3905 key near term high, the Euro is consolidating once more within the range. After such a strong candlestick that was posted on Wednesday, this will have come as a bit of a disappointment. However perhaps it can be excused with muc of Europe on public holiday for May Day, whilst the US ISM data was also dollar positive. So we move into Non-farm Payrolls Friday in a cautious mode (as per usual) with momentum indicators on the positive side but also reflecting the ranging phase we still find the Euro in. The intraday hourly chart was made quite messy by the mid-week dip followed by the sharp rally. However, a fall now below $1.3855 would form a small top pattern that would imply $1.3820 which would be just below mid-range once more. With the medium to longer term bias still higher for the Euro, the charts suggest the Euro is building for an upside break above $1.3905. Maybe Non-farm Payrolls today could be the catalyst, however expect the consolidation to continue in the run up to the release at 13:30BST.

EURUSD   02052014


The outlook has turned positive once more with the gains of the past few days which have been slow but steady, yesterday reaching $1.6918. However, despite being strong, the daily RSI is currently at 68 and does look historically stretched. Readings around this level on the RSI over the past few months tending to lead to a few days of consolidation or even correction. On the intraday hourly chart, the consolidation seen yesterday evening and into Asian trading has been fairly muted, as is often the case prior to Non-farm Payrolls. However there is now the possibility of a small top pattern forming. The support at $1.6860 protects a correction back towards $1.6820. Despite this though a correction would be a healthy move for Cable as it would help to unwind the stretched daily RSI and just help to blow some of the froth off the top of the recent gains. The is a storng band of support between $1.6800 and $1.6850 now and any correction which finds support into that band should be considered to be a good chance to buy.

GBPUSD   02052014


The support of the rising 144 day moving average that has once more been used over the past few days is firming up a trading band as Dollar/Yen rallied once more from just above 102. Moving into the payrolls data we have still got daily momentum indicators giving us little steer as they become increasingly neutral. The intraday hourly chart shows in better detail the range that has formed 101.94 to 102.78, with the dollar making a slow recovery in the past 36 hours into mid-range. With intraday momentum indicators positive and early indications from the European trading, this drift higher looks set to continue this morning. There is a lower high resistance to be mindful of at 102.62, but until there is a breach of either of the range extremes then the only real trading strategy would be to continue to lay the range. It is perfectly possible that Non-farm Payrolls could be the catalyst for the breakout today, but if the reaction to a mixed series of data this week suggests perhaps this is hopeful thinking.

USDJPY   02052014


The outlook for gold continues to gradually deteriorate as the positive impact of the bullish key one day reversal of a week ago continues to diminish. The now flat 144 day moving average continues to play a role in providing support at $1283.36 but the bulls are running out of positive arguments as the daily momentum indicators take on a bearish configuration once more. The intraday hourly chart shows the extent of the weakness in the past few days as a series of lower highs is in place with rallies falling over at successively lower levels. Hourly momentum is in bearish configuration and reflects this tendency for gold to be sold into strength. There is now a resistance band $1285/$1290 which should be seen as an intraday chance to sell, as the $1268.24 should be retested in due course. Non-farm Payrolls today could have an impact on the chart, however there is an added caveat with news of the Ukrainian military becoming more active in the east of the country to try and quell pro-Russian separatists. If this flares up then gold could spike higher once more.

Gold   02052014

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