05/02/2014: Investors cautious ahead of key data

Market Overview

On a day of little market moving data, investors took a pause for breath yesterday. The big question is, whether this is just the calm before the storm which could be coming at the end of the week. With the VIX volatility index falling back below 20, the S&P 500 bouncing by 0.8% overnight and Asian markets also higher, some welcome respite was seen after the recent selling pressure investors have had to endure. The slight weakening of the yen allowed Japanese stocks to recover some losses, with the Nikkei over a per cent higher into the close.  However, things become a touch more interesting once more today, with a raft of service sector from around the world data and the ADP Employment Report in the US. After this morning’s Services PMIs from Europe are released, trading could become more cautious in front of the US ISM Non-Manufacturing data out at 15:00GMT. Investors that had their fingers burnt by the huge miss in Monday’s manufacturing ISM may be preparing themselves for a bad number. This could see further pressure on risk assets and the safe haven markets such as the yen and gold benefit. Before that is the ADP number which some see as an early indication of Friday’s crucial Payrolls number. However, recent history suggests the ADP is not that great an indicator, seeing as a jump of 238,000 came prior to the huge miss in January’s Non-farm Payrolls. Markets may therefore take the number with a pinch of salt this time round.

Chart of the Day – EUR/GBP

We highlighted EUR/GBP last week as this downtrend since July continues to drag the rate lower, seeing another chance to sell within the trend. The rally over the past couple of days looks to be another opportunity. The falling 55 day moving average (now £0.8316) has been a good gauge for where the selling pressure has returned in the last few months and this once more seems to have capped the rally yesterday. The peak yesterday has left resistance at £0.8325, which was under the latest reaction high within the downtrend at £0.8348, whilst momentum indicators remain in bearish configuration. Any bounce back into the £0.8300/£0.8350 resistance area looks a chance to sell.

EURGBP   05022014

EUR/USD

After the selling pressure the Euro has seen over the past week or so, this looks to be a period of quiet reflection for EUR/USD. Trading in a range $1.3492/$1.3538 for the past couple of days it appears as though traders are waiting the next signal. The daily chart continues to look corrective towards a test of the key November lows at $1.3398 and $1.3295. The key intraday support protecting this move is at $1.3475. The service sector PMIs this morning could provide a jump if they are encouraging but this would likely be just seen as another chance to sell. There is a band of resistance $1.3530/$1.3560 which would have nicely retraced enough of the sell off to unwind oversold indicators to renew downside potential.

EURUSD   05022014

GBP/USD

Yesterday’s support and minor recovery in Cable has done little to improve the outlook on the daily chart which remains impacted by Monday’s sell-off. However if the rate can hold back above the broken January low at $1.6308 then this would begin to buoy the bulls. The intraday chart still suggests that this bounce is just unwinding the oversold position and any retracement back towards the 38.2% Fibonacci level could be seen as a chance to sell once more. Hourly momentum indicators are quickly back to selling levels within their bearish configurations. With a raft of data out today there could be plenty of selling triggers.

GBPUSD   05022014

USD/JPY

Yesterday’s recovery has found resistance around the key breakdown level at 101.83 and has once more shied away in Asian trading hours. This now keeps intact the intraday downtrend that has been well defined since the 23rd January and just looks currently to be a technical rally within the downtrend and therefore another chance to sell. With daily momentum indicators remaining in corrective mode, the intraday studies are suggesting that this rally is rolling over once more. There is support around 100 yen which is both psychological and technical, with the 200 day moving average along with price support. This looks to be the area the yen is aiming for currently.

USDJPY   05022014

Gold

The consolidation on the daily chart continues. With a pretty even battle between the bulls and the bears now developing a small trading band $1238/$1278 has formed in recent days. On the intraday chart $1255 has become a pivot level and a break to the upside very recently has now re-opened yesterday’s high at $1260.45 above which would be Monday’s high at $1266.10. Even on the hourly chart the indicators are fairly neutral although the upside break of $1255 is beginning to see a slight skew to the upside. However, there is little to suggest that the consolidation will not continue on both intraday and daily chart. It is likely to be an event driven breakout now.

Gold   05022014

 

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