03/12/2014: The dollar is straining to breakout as a raft of key US data approaches

Market Overview

Wall Street bounced back yesterday after strong auto sales and stocks related to the energy sector rebounded to give the markets a boost into yet another record close. The S&P 500 increased by 0.6% which then filtered through into Asian markets which also saw decent gains. Asian markets were also supported by the official Chinese Non-manufacturing PMI which increased slightly to 53.9 in November from 53.8 a month ago. This is helping the European indices higher in early trading too.

There is more of a balanced look across forex trading today with little direction across the majors, with one notable exception. The Aussie dollar is under pressure after Australian GDP fell to +0.3% from +0.5% previously and was much worse than the expected rise to 0.7%.

The services PMIs are in focus today, with the Eurozone countries giving their final readings, whilst the UK services PMI is released at 09:30GMT and is expected to improve slightly to 56.6 (from 56.2) and the US ISM Non-manufacturing PMI is released at 15:00GMT and is also expected to improve slightly to 57.5 from 57.1. UK Chancellor George Osborne gives his Autumn Statement (in effect a mini-budget) in which he will lay out the government’s spending plans of the coming year. This could have an impact on sterling, so watch out for any key newsflow. There is also the ADP Employment report at 13:15GMT which is forecast to just dip slightly to 223,000 jobs (from 230,000 last month). The ADP is a reasonable indicator for Non-farm Payrolls on Friday and as such the dollar could be impacted by any significant surprises. Finally also at 15:00GMT the Bank of Canada releases its monetary policy with the market expecting it to stand pat on 1.0% rates.

Chart of the Day – Silver

In the larger scheme of things, Monday’s incredible rally has actually done very little to change the outlook for silver. Whilst it was tested, the downtrend, in place since mid-July remains intact and the rebound currently looks like it is just another chance to sell. The momentum indicators still suggest that it is a bear market rally with the RSI at 50 and the MACD lines below neutral. The bulls would point to the fact that the 21 day moving average which had been a basis of resistance previously is flattening off. However Monday’s brief spike above $16.71 resistance has not been enough to convince me that the bulls are ready to return in a sustainable way. I am still of the belief that unless the peak of Monday at $16.76 is taken out then the selling pressure will begin to mount once more. The intraday hourly chart shows support at $16.02 and if this is lost then is could trigger a renewed appetite to sell. Below $16.02 the next intraday support was at $15.47 with little real support until the spike low at $14.42.

Silver   03122014

EUR/USD

The downside pressure is ramping up on the euro once more as we move closer to the crucial ECB meeting. The downtrend that has been intact since mid-August continues to act as an excellent basis of resistance for the rallies with the euro bounces running out of steam at ever lower levels. The intraday hourly chart shows that the bottom of the four week trading range is once more being tested at $1.2357. A breach of this would take the euro a step closer to the $1.2040 crucial July 2012 low (when Draghi gave his “whatever it takes” speech), with the next support at $1.2250. Intraday hourly momentum indicators are weak but a little stretched and any rallies should be sold into. There is now resistance at $1.2400, $1.2418 and $1.2450.

EURUSD   03122014

GBP/USD

Across the past few days the outlook for sterling has been very choppy, with little overall direction being found. However, the outlook on the daily chart remains poor, with the falling 21 day moving average, which has been a very reliable basis of resistance in the past few months, acting as the basis of resistance at $1.5737. The intraday hourly chart shows that over the past 3 weeks, Cable has broadly been trading sideways and there have now been three dips back to around the $1.5885 level which have seen subsequent rallies. However the failure of the latest rally at $1.5763 has ramped up the pressure again. Hourly momentum indicators are now suggesting the outlook is deteriorating with the hourly RSI dipping towards 30 again. Although the support has come in overnight around $1.5630 I would be looking to use any rallies as a chance to sell Cable now. There is a caveat today though with the UK Chancellor Osborne’s Autumn Statement which could create some volatility, however look to use any strength as a chance to sell for a retest of the range lows.

GBPUSD   03122014

USD/JPY

It may still be early days, but the breakout on Dollar/Yen is threatening. A close at another multi-year high at 119.19 is above 119.07 which is the 161.8% Fibonacci projection of the 101.49 to 110.08 rally projected from 105.18. This means that if the rate can start to pull clear then the upside will re-open once more. The daily momentum remains bullish and corrections continue to be supported at higher levels. The intraday hourly chart shows the run higher has just been consolidating over the past 12/18 hours and lost a bit of the upside impetus. This may mean another minor correction begins to set in, however it would be used as a chance to buy once more. There is a good band of support between 118.50/119.00 with which to use and this comes above the key reaction low at 117.86. This and the support at 117.22 are now the key lows.

USDJPY   03122014

Gold

After the incredible rebound on Monday, the gold price is beginning to settle down around $1200. This psychological level will be seen as key for the bulls, along with $1180.70 which is the important pivot level. As yet there is still no clear outlook as the momentum indicators are still suggesting that this is merely a bear market rally, however the strength of the recovery was not something that can necessarily be ignored. My feeling is that unless the peak of Monday’s trading at $1221 is trumped then the bulls could lose the impetus. The intraday hourly chart is suggesting that with the price flattening off over the past 18 hours, traders are waiting for a catalyst. There is support broadly in $5 increments, with $1190, $1185 and $1180. A move above $1210 would help to stir the bulls near term.

Gold   03122014

WTI Oil

The volatility in the WTI oil price continues, whilst volume levels remain elevated. This would suggest that the price is yet to settle again following from last week’s apparent selling climax. However, for the rebound to continue it needs to break back above the bottom of the old downtrend channel which is a basis of resistance today around $69.70. Despite the fact that WTI has rebounded, the outlook on the momentum indicators remains very weak and there has been little real recovery seen yet. The key near term resistance is the reaction high that was reached on Monday as part of the snap back technical rally that comes in at $69.54, which coincides closely with the downtrend channel resistance to increase the barrier to gains. A failure to break back above $69.54 would see the rally run out of steam and the prospects for renewed downside grow again. The key low remains Monday’s spike low at $63.72.

WTI   03122014

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