A new year but the markets are still beset by the same old issues. Will Greece leave the Eurozone? Will the ECB pull the trigger on full blown quantitative easing? When will the US tighten monetary policy? This is driving a familiar theme of dollar strength and pressure once more on equities. With an election in Greece that could bring the anti-austerity party, Syriza, into power, the prospect of a “Grexit” will once again hang over the financial markets like the Sword of Damocles, even though Chancellor Merkel believes that the Eurozone is now in a position where it could cope.
Wall Street closed with little direction on Friday after manufacturing PMIs disappointed pretty much across the board. Asian equities were slightly weaker overnight and the European markets have started trading lower as well.
In forex trading, the dollar is once more in the box seat against the major currencies, with the euro below the key psychological $1.2000 handle and big losses being seen on the Kiwi and Aussie. Traders will be watching out for the German inflation data which is released throughout the morning (for the regions) with the countrywide data expected at 13:00GMT to show a dip to 0.2% in December. The UK also releases its construction PMI (around 8% of the economy, so could have a marginal impact on sterling) at 09:30GMT which is expected to dip slightly to 59.0 from 59.4.
Chart of the Day – NZD/USD
Through the past few months, the Kiwi has held up well and actually managed to be one of the best performing of the major currencies against the dollar in 2014. However the dollar strength has once more taken hold in the past couple of days and the key support just above 0.7600 is again under pressure. The momentum indicators have turned far more negative in the past couple of days but also show further downside potential. I think that the close tonight could be crucial here for the outlook in the coming days. Only twice in the past 3 months has the Kiwi closed below 0.7690 and if this is achieved today it could be a sign of further weakness and a serious test of 0.7600. However if the bulls can fight back today to close above 0.7690 it would leave a bullish candle and open for a reversal and continuation of the 3 month trading range. All to play for.
If the trading over the first few days of 2015 is anything to go by then the Euro could be in for another tough year. Having closed bang on the psychological $1.2000 level on Friday there was almost no thought of this providing support as the sellers flocked to drag the rate over 100 pips lower. The euro is now at its lowest level since the low of $1.1875 in June 2010. It seems almost obvious to say but the technical outlook is very bearish once more, with the RSI at a 3 month low and MACD lines accelerating lower. Without wanting to sound like a broken record, selling into any rebounds seems to be the best way to play the euro again. The intraday chart shows $1.2000 to be an obvious initial level and then at $1.2069. The overnight support is at $1.1880.
After losing well over 200 pips on Friday the bears have come back after the New Year and smashed Cable to leave an incredibly bearish candlestick dominating the recent price action. Having broken the support at $1.5484, the technical outlook subsequently looks very weak once more with momentum in bearish configuration. The move has opened the next support at $1.5100 from August 2013, but in all honestly there is very little to suggest there will not now be a full retracement back to $1.4812. The selling pressure continued in the Asian trading session today although there has been a slight rebound in recent hours. Often you will find after such a strong move to the downside there will be an element of a rebound, whilst the fact that the move came with volume still relatively low also increases the potential for a retracement. The initial gap lower at the open today was all but filled to $1.5318, but there is actually very little in the way of resistance until $1.5484 again. Look to use rebounds as a chance to sell.
Amid the huge moves of the dollar strength that have significantly impacted on other forex majors, Dollar/Yen appears to be a model of calm. The rate has traded sideways for the past two weeks in a 200 pip band (for Dollar/Yen that is tight) and there is no significant sign of volatility. However there is still a dollar positive bias evident on the chart with momentum indicators placed positively for the bulls and upside potential in studies such as the RSI. The rebound has stopped short of testing the 121.84 high but this seems to be the next move once the 120.82 resistance has been cleared. The near term key support is at 118.84 while the intraday hourly chart shows support around 119.80. We may still be in for some choppy trading on the pair but I still believe that the ultimate breakout will be to the upside.
The early trading for the new year has given us little clue as to the direction of gold in the coming weeks or even months. I do not see this as a surprise as I believe that 2015 will be very choppy for gold. The price action over the past few weeks has been devoid of any direction and lacking conviction. Strong bullish candles are followed by strong bearish candles and vice versa, whilst the moving averages have flattened and momentum indicators become increasingly uncertain. The bigger picture remains one of a bearish downtrend which currently comes in around $1217, whilst in the past two weeks there has become a basis of support around $1170. Perhaps a close below this support would be a signal for a decisive change in the outlook, however once more overnight the bulls are holding firm following Friday’s test of $1170. Gold remains a difficult call whilst this choppy trading continues. Initial resistance is at $1212.80.
The final trading days of 2014 saw WTI back under downside pressure again, although without seeing any really significant selling. The move amidst light trading was more of a drift lower than a sharp move. Whilst momentum indicators are not entirely confirming the break to new multi-year lows, the selling pressure has taken hold a bit more today. However, the daily MACD lines crossed over a few days ago as the mid to late December support came in and remain in a marginally improved state and this may still be part of the bottoming process. The interesting aspect will come as volume picks up again after the quiet Christmas period and as to whether the market accepts the break of the $53.60 low, and initial signs are negative today. If the move is validated, there is not much support until $50 from early 2009. The intraday chart shows initial resistance at $55 and then $57.50 , with key resistance now at $58.98.