04/04/2014: Traditional caution takes hold despite expectation of positive Non-farm Payrolls

Market Overview

It is Non-farm Payrolls day, and as such there is an element of caution that has entered into the minds of traders. Wall Street pulled back from intraday all time highs to close slightly lower, while this fed trough to Asian markets where the Nikkei was also slightly lower despite the weakness of the yen over the past few days. European equity markets are cautiously higher, but this payrolls related consolidation tends to be a feature of the European trading day up until the announcement at 13:30BST. This caution is being reflected also in the early risk aversion of the major forex pairs. The Euro has remained weak though ever since Mario Draghi’s ECB press conference where he talked about concerns over the proliferation of low inflation and that the ECB had discussed the possibility of QE.

The expectation for today’s Non-farm Payrolls number has been pushed up throughout the week and now stands at around 200,000 which is up from the 175,000 posted last month. There is a risk that traders may have gotten ahead of themselves and ramped up expectations too far, suggesting that any number below 200,000 would be seen as a disappointment and could result in equity markets selling off and recent dollar strength unwinding. As ever forex trading will be extremely volatile around the release.

Chart of the Day – EUR/JPY

Unable to push for a test of the key March high at 143.78, yesterday’s decline suggests that a correction is setting in, with the daily chart  showing a support band coming in just under 142.The intraday hourly chart shows that the rally from 139.91 to 143.47 has now rolled over as the price has fallen below the support at 142.68 to complete a small top pattern that implies 141.93. Overnight the rate has been finding the neckline resistance is a barrier to the upside and now a breach of 142.27 (which was the reaction low following the ECB press conference) has opened the downside. Although the top pattern targets 141.93, the next real support comes in between 141.73/77. The rate needs a sustained move above 142.68 to suggest the bulls are back in control.

EURJPY   04042014

EUR/USD

The daily chart shows Euro/Dollar still trading within the range $1.3700/$.13824, although yesterday’s sell-off amid dovish comments from Mario Draghi, means that the support is under strain. A decisive break below $1.3700 would once more open a test of the key rising 144 day moving average currently at $1.3649. The intraday chart shows a deteriorating outlook, with falling hourly moving averages and momentum indicators in negative configuration. It looks now as though any rallies towards $1.3740/50 should be used as a chance to sell. Non-farm payrolls coming a day after the ECB is likely to create further volatility and another spike to the chart, however the pressure is increasingly to the downside now and unless the number is a significant miss of expectations, any recovery should be short-lived.

EURUSD   04042014

GBP/USD

Cable is a far more orderly decline than the Euro, with a slow drift lower on the daily chart back towards the uptrend support once more. If the correction continues there is still the support of the rising 89 day moving average to provide a buffer at $1.6511 currently. The intraday hourly chart shows the correction having formed a head and shoulders top pattern which completed yesterday on a move below $1.6610/20 support band. The move that now implies a target of $1.6555 was confirmed by the breach of the 38.2% Fibonacci retracement level at $1.6603, which once more looks to be now turning into a basis of resistance. With moving averages falling away and hourly momentum in weak configuration now additional downside looks likely. Reaction to Non-farm Payrolls is always tends to be volatile, but the hourly chart certainly suggests a move back towards the $1.6500 area could be seen.

GBPUSD   04042014

USD/JPY

I mentioned yesterday in my Dollar/Yen video that the daily ranges were tightening and this suggested that whilst the push higher was continuing, the conviction of the backing by the bulls was waning. The rate continues to see higher highs and higher lows, but the overnight price action has not been especially supportive of a continued move to the upside.  However the consolidation that has now broken the three day uptrend channel on the hourly chart could be something more to do with caution in front of Non-farm Payrolls than anything else more sinister. Whilst a breach of yesterday’s low is possible, the intraday chart suggests that the more important low is at 103.56 below which would complete a top pattern. It appears likely that the rate will spend the morning in consolidation mode in front of the key payrolls data.

USDJPY   04042014

Gold

Despite a minor bout of weakness in the wake of the ECB press conference yesterday, the gold price has largely held up once more. Although this was an inside day on the daily chart (which suggests indecision), it also represents a second daily higher low which is once more a small step on the road to recovery for the bulls. As the price continues to trade around the support of the 144 day moving average (a strong long term trend indicator), the momentum indicators are beginning to bottom out which suggests that the downside momentum of the sell-off is slowing. The intraday hourly chart shows moving averages having converged as gold has consolidated. Yesterday’s low at $1281.29 is now seen as near term key to a recovery. The intraday chart still needs a move above $1300.00 resistance to develop a recovery, but there are signs of improvement. Below Wednesday’s low at $1277.29 would scupper hopes of a near term recovery.

Gold   04042014

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