04/11/2014: Signs of caution continues as minor profit-taking hits the dollar

Market Overview

Investor sentiment is once more looking rather cautious as the announcement of the crucial ECB and US Non-farm Payrolls data begins to loom on the horizon. Despite a big jump in the ISM Manufacturing data, Wall Street markets were unable to push on an spent the day in consolidation mode, unable to continue the rally of recent days. Another factor in this air of caution has been the downside break in the price of oil, with WTI yesterday breaking decisively below $80. In Asia markets were also largely flat with the exception of the Nikkei which posted strong gains as it played catch up following a pubic holiday yesterday. After significant losses in the previous session, the European indices are once more in cautious mood, trading mixed to slightly lower.

In forex trading it appears as though the dollar is undergoing a near term bout of profit-taking. The greenback is trading lower against all the major currencies as the yen unwinds some of the recent losses, whilst the Aussie dollar has found support despite a higher than expected trade deficit after the Reserve Bank of Australia kept rates on hold again at 2.5%.

Sterling traders will be looking out for the UK Construction PMI at 09:30GMT with a slight dip to 63.5 expected (from 64.2). Into the afternoon the main focus will be on the US Trade Balance which is expected to remain broadly flat at -$40.2bn. New Zealand unemployment is announced at 21:45GMT and is expected to improve slightly to 5.5%.

Chart of the Day – NZD/USD

The recent strength of the US dollar has meant that the Kiwi dollar is now creaking under the pressure. The critical support around 0.7700 has been once more tested, but for now is hanging on. However the technical studies are increasingly suggesting that the market is ready for a downside break. The RSI has rolled over and has downside potential, the Stochastics are bearish and specifically the MACD lines have just turned lower below neutral and given a bearish crossover. I would be looking to use any rebounds as a chance to sell. The intraday hourly chart shows there is a band of near term resistance 0.7760/0.7800 and any rebound into that band looks to be a chance to sell.  The next low is the 0.7614 8 June 2012 low but the real support is not until the June 2012 low at 0.7451, then 0.7667 the November 2011 low.

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EUR/USD

Overnight the euro has managed to form some near term support and has started to post some recovery gains. However the outlook remains weak and having closed yesterday below the support at $1.2500 the bears are still firmly in control. The momentum indicators are very weak and suggest that rallies should be seen as a chance to sell. The ideal selling area would be around the neckline of the near term top pattern at $1.2600. The intraday hourly chart already shows that the oversold momentum has already been unwound and with some minor near term resistance approaching around $1.2550 the rebound could begin to slow. Look to use any rallies therefore into the band $1.2550/$1.2600 as a chance to sell for a retest of yesterday’s low at $1.2441 and subsequent further downside.

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GBP/USD

I spoke yesterday about the resistance band $1.6000/$1.6050 which Cable needed to breach in order for the bulls to start to gain in confidence. This barrier has remained a feature over the past few days now and continues to hold back any thoughts of a recovery. The barrier at $1.6000 is also the neckline of an intraday double top pattern and if it continues to act as resistance then the sellers will continue the slide towards a test of the $1.5873 low and towards $1.5820 implied from the top. However I continue to see that Cable is holding up better than the euro on a near to medium term basis and whilst momentum indicators are in negative configuration they are becoming reasonably benign as Cable consolidates. Yesterday’s low at $1.5925 is the immediate support.

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USD/JPY

Profit-taking is always an issue when prices shoot sharply higher as they have done on Dollar/Yen in the past few days. Yesterday the rate hit 113.77, the 100% Fibonacci projection of the 101.49/110.08 rally measured from the reaction low at 105.18 and having peaked out at 114.20 has begun to stall. The intraday hourly chart shows that this is little more than a minor drift at the moment and is helping to unwind overbought momentum. The hourly momentum indicators are already quickly relaxing back towards neutral levels again and helping to renew upside potential. initial support comes in at 113.00 and then at 112.47. Look to buy on support now as it is likely that there will be further gains in due course.

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Gold

The gold price remains under pressure with a second close below the key support at $1180.70 now being seen. Although Friday’s low at $1161.25 remains intact, there is little to suggest that this downside pressure will not continue. The likelihood is that this is a mere consolidation that will give another chance to sell. Momentum indicators remain very weak and if anything have used this consolidation to renew downside potential. The old support becomes new resistance at $1180.70, whilst $1200 is also a psychological barrier now. There is minor support from the July 2010 low at $1157.65 and then at $1123.

Gold   04112014

WTI Oil

The downside pressure is mounting as the WTI oil price has broken lower from a descending triangle that has built up over the past three weeks. The move has been confirmed by a close below the support at $79.44. This now opens the next support at $77.28, whilst the implied downside break target from the triangle is around  $75. Momentum and moving averages on both daily and intraday hourly charts imply on-going downside pressure.  The old support band $79.44/$80 now becomes the basis of resistance for a technical rally today, however the bears are now firmly in control. There is a minor pivot level around $81.60/$81.80 within the past few weeks (which today also coincides with the downtrend resistance within the triangle today), but the recovery bulls will need to see a breach of the key resistance at $82.88 to suggest they are regaining control.

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