Economic data in the States has not been amazing, but has been sufficient to suggest that the economy is recovering well after the surprise 2.9% decline in Q1. Although the ISM manufacturing data came in at 55.3 and missed the 55.9 that had been expected, US stock markets are taking the positives out of this data and running in to new high ground. The S&P 500 has broken out once more on a day where Wall Street markets again close strongly higher. Moves in Asia overnight were also positive, with the Nikkei 225 again being helped by a weakening of the yen. However, European markets continue to struggle and appear less willing to push higher. Markets are trading mixed in early trading.
The dollar has just formed a little bit of support in early forex trading today. There is no significant news, although the Aussie dollar is trading lower after a deterioration in its trade balance. Traders will be looking out for the ADP Employment Report due out at 13:15BST today which is expected to show 200,000 jobs added to the private payrolls this month. Furthermore, Janet Yellen delivers a lecture at the IMF and it will be watched to see if there are any snippets on monetary policy and the timing of tightening that is expected to be around the middle of next year.
Chart of the Day –EUR/JPY
The euro has shown signs of improvement in the past few days, even pushing to a 3 week intraday high yesterday. The sustainability of this improvement is questionable still though as momentum indicators remain in a configuration suggesting this is still just a bear market correction. RSI is unwinding back to 50 and MACD lines are also below neutral still. On the intraday hourly chart, the break above 138.80 really needs to hold to suggest there is any chance of an improving outlook. The support at 138.80 is fairly key near term as if the euro can sustain a move above it, it would suggest perhaps an appetite for a move back towards the key 140 resistance. However with the hourly momentum indicators having been falling away over the past 24 hours this might prove to be difficult. Breaching the support at 138.50 would suggest that the euro recovery has run out of steam.
A bout of consolidation yesterday means that the upside breakout that took the euro above $1.3670 is now retesting the old resistance which has become the new support. There is now a band of support between $1.3640/$1.3670 which the bulls will be looking at to strengthen their case. The longer this support is held, the more that expectations will turn more positive. The intraday hourly chart shows a healthy drift back into the support band and the momentum indicators unwinding overbought momentum. There is also the 3 week uptrend support which currently also comes in around $1.3645. It would need a move back below the support around $1.3600 to suggest that the bulls had lost control of the near to medium term chart now.
An incredible run higher over the past few days on Cable has taken the rate well clear of any real resistance with little in the way until the 50% retracement of the credit crunch 2007/2008 decline at $1.7330. It would appear it is only really going to be profit-taking that will stop the advance now, with the RSI over 72. In May the daily RSI got to 73.6 before profit-taking induced a correction that lasted for 6 days. That makes this position now quite a tricky one to play as the outlook is incredibly strong with gains being made, but the momentum is stretched. We look for clues on the intraday hourly chart then, and there is a slight concern over the momentum in the past 24 hours which has just rolled over as Cable has begun to tread water around $1.7140. There is a band of support around $1.7100 and perhaps if that were to fail then this would open for a move back to $1.7050. To be fair though this would merely be cable unwinding overbought momentum and give another chance to buy as there is strong support now between $1.7000/$1.7060.
The dollar is actually managing to hold on to recovery gains now against the yen which has not really been seen for the past 10 days. The basis of support around 101.30 is encouraging and on the hourly intraday chart there is a definite change of tack with the momentum indicators improving and moving averages turning higher. However the dollar is now at its first stumbling block of its recovery. The resistance around 101.60 is quite strong, whilst there is now a 20 pip band up until 101.80 that contains the next band of key price resistance and also the overhead barrier of the 4 week downtrend. This could therefore make this recovery quite difficult and slow moving. The outlook on the daily chart is still fairly weak and suggests that rallies will be sold into. It could be that this band between 101.60/80 will go a long way towards deciding the direction of the near to medium term outlook.
So far, it does look as though I was right to be cautious about this attempted upside break on gold. The two subsequent trading days since the upside move have shown little appetite by the bulls to back the move and push higher. However we must also appreciate the fact that there is still a big test of the primary downtrend ongoing and whilst the gold price trades above $1320 the potential, the outlook is improving. Momentum indicators on the daily chart remain strong, albeit slightly overstretched. There is just a sense once more that gold is trading off news-flow and on the quiet days, it ends up drifting sideways. If that is the case, then that makes it a difficult play, unless you stick close to the news-flow. Technically, stops for any lon positions should probably be below support at $1306.