04/07/2014: European markets settle down with the US on Independence Day holiday

Market Overview

A strong Non-farm Payrolls report resulted in big gains for indices and the dollar. Strong data for the US, including the positive ISM Non-Manufacturing data (which only slightly missed expectations but was still a strong 56.0), now means that payrolls have been strongly above 200,000 throughout Q2 and helps to point towards a strong quarter for US growth. Hence the dollar rally against the major currencies, and Wall Street pushing strongly into new high ground (including the Dow Jones Industrial Average above 17,000 for the first time). The next level traders will be looking at will be 2000 on the S&P 500.

This positive sentiment flowed into the Asian session which also shows strong gains, with the Nikkei 225 around half a percent higher. However, European markets are trading with slight losses in early trading. This could be a feature of the session, without Wall Street to guide as it is Independence Day public holiday in the US.

Although the Dollar Index saw a strong recovery yesterday, forex trading has also been a bit of a mixed bag as we move into the European session. As a portion of yesterday’s dollar gains is retraced, there has been a recovery in sterling, the yen and the Aussie dollar; although the euro still remains under pressure.

There are no major economic announcements to help give the markets direction today.

Chart of the Day – DAX Xetra

Although the DAX has been moving higher in the last few days, the move has been fairly indecisive with a couple of doji candlesticks (denoting uncertainty) and negative candles over the past few weeks, however that feeling was replaced by great positivity yesterday by a huge green candle with gains throughout the day. This has put the index within 18 points and striking distance of the all-time high once again. The momentum indicators are in positive configuration and are all showing good upside potential. This suggests that the DAX is ready to make a strong breakout into new high ground. Intraday momentum indicators are looking a touch stretched which may induce some near term consolidation or even correction. The initial support comes in between 9980/90, however the intraday hourly chart also shows there is strong near term support at 9936, being an old resistance that was tested to the point yesterday and held which suggests strong support now.

DAX   04072014

EUR/USD

A huge decline yesterday has significantly changed the outlook for the euro. The breakdown of the support at $1.3640 has seemingly put the dollar bulls back in control with the 3 week recovery uptrend now being decisively broken. Interestingly also from a medium term perspective the MACD lines have merely unwound back to neutral and are now turning lower again, suggesting that the 3 week recovery my just have been unwinding the bearish outlook for the euro to give another chance to sell. Furthermore, there has also been a sell signal confirmed on the Stochastics. However, until a breach of the support at $1.3585 the outlook will still be under question with further support at $1.3560. The old support at $1.3640 now becomes the initial resistance.

EURUSD   04072014

GBP/USD

Amid the dollar strength induced by the strong payrolls report, sterling has been remarkably resilient. After an initial bout of weakness, the support around $1.7100 held firm and there was an almost instant recovery by the Cable bulls to buy and push the rate back towards the $1.7176 high again. Trading in the Asian session has also backed Sterling, with a test of the resistance now being seen. The intraday hourly chart suggests that momentum indicators are in positive configuration whilst also having upside potential, to indicate that a successful breakout could result in another strong run higher. It would seem as though the correction did not get back to the old breakout highs at $1.7060 which would have been the ideal place to buy, however I would now look to buy into weakness today. The support at $1.7100 is now key near term as a breakdown would complete a top pattern.

GBPUSD   04072014

USD/JPY

With the strong gains of yesterday, the bulls have done an excellent job of changing the bearish outlook to far more dollar positive, with a 4 week downtrend having been decisively broken.  . The big question now is whether the bulls can follow this one through now. The is still a big band of resistance around 102.00 and 102.20 which needs to be decisively overcome and the reaction high from June at 102.32 remains intact. This resistance needs to be cleared for the bulls to gain control near term. Even today in the Asian session there has been a correction which has pulled Dollar/Yen back to the 102.00 pivot level. There is still nagging doubt for the bulls in this recovery, as the 89 day moving average (around 101.17) which has acting consistently as a basis of resistance in the past few months has again done a job as a ceiling for the recovery. The bulls could find their positivity drain away again should the rate pull back below 102.00 again.

USDJPY   04072014

Gold

With the strength of the dollar impacting across markets yesterday, gold could not escape the selling pressure. The wave of positivity throughout global markets and perception of improved risk appetite resulted in a sharp decline for gold. A break below the initial support at $1320 suggests the outlook is once again neutral. However the support around $1310 held the recovery, whilst the key near term support at $1306 also remains intact. The concern is though that momentum indicators are now taking on more of a corrective configuration. The RSI has come off to a two week low with a very slight bearish divergence, while the overbought Stochastics threaten a sell signal and MACD lines are decelerating. Looking on the intraday chart, the hourly momentum indicators have also taken on more of a corrective outlook, whilst the $1325 seems to be the new resistance. A push above $1332 would re-open the upside.

Gold   04072014

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