Risk appetite has taken a shot in the arm after the ECB press conference yesterday in which Mario Draghi, ECB President, denied that Eurozone was facing deflation and that he would wait until the economic forecasts of March until deciding whether to act with new policy. Stock markets rallied on the news, with the S&P in the US climbing by 1.2% and the positive sentiment pulling Asian stocks higher. The improvement in risk appetite helped to lift Dollar/Yen which in turn has helped the Nikkei almost 2% higher. However, traders’ attention will now quickly turn to more pressing matters, this month’s Non-farm Payrolls. This could lead to a degree of caution in trading this morning in front of the release at 13:30GMT. The reaction to the number should be reasonably normalised once more. Previously there has been several months where investors have been unsure as to what a good or a bad payrolls number meant for the Federal Reserve’s tapering plans. However now, with the Fed seemingly unwavering on its path of asset purchase reduction, we should now be back to where good news is good for markets and bad news is bad. The expectation of 185,000 jobs added in January would be a significant improvement on last month’s hugely disappointing 74,000 but the market will now have to deem what an acceptable number for payrolls is, given the such huge miss last month. The likelihood is that anything within 10,000 of the figure will be deemed a decent result and see markets appreciate. As ever though, mind the spike as unless the number blows the lights out or is dreadful, there tends to be a retracement after about 10 or 15 minutes.
Chart of the Day – DAX Xetra
As most stock markets have done, the DAX has spent the past couple of weeks in consistent decline, however, this move is now showing signs that the bulls are waking up once more. The hourly chart shows the 55 hour moving average consistently being used as the basis of resistance, but in the last couple of hours of trading yesterday this barrier was breached. The move has also broken a downtrend in place since 22nd Jan. Momentum indicators are showing definite signs of improvement. The hourly intraday chart show shows there is a pivot level around 9368 which needs to be overcome for this chart to show a sustainable improvement once more, but there are certainly signs of life in the bulls once more.
Following a day and a half of consolidation, the Euro jumped yesterday afternoon as Mario Draghi gave his ECB press conference. In denying deflation was an issue in the Eurozone, this put off the prospect of a rate cut, now at least until March. This significantly bolstered the Euro which spiked over 100 pips above $1.3600. The rate has since drifted sideways with a slight downward bias with around a 10 tick range in Asian trading. It is a difficult call in front of Non-farm Payrolls as traders tend to stand aside waiting for the data before making a move. There is an argument for a continued retracement of yesterday’s move. Yesterday’s high is in place at $1.3619, with a lower high at $1.3607. There is very little intraday price support until $1.3554, while the Fibonacci retracements of yesterday’s Draghi related jump come in at $1.3567 (38.2%), $1.3551 (50% and $1.3535 (61.8%). Strong payrolls number should be strong for the dollar and help accelerate the retracement.
The impact on risk appetite from the ECB press conference filtered through to Cable yesterday which turned sharply around. The daily chart shows a consolidation is continuing, but on the intraday day chart there is the prospect of a base pattern formation. If Cable can hold a move above $1.6350 this would now complete the pattern and be a move to a new 4 day high. Intraday momentum is increasingly positive. Cable bulls may have to wait though, as in front of this key payrolls there could be an element of consolidation. A disappointing payrolls number should help this pattern complete which if it does would imply 100 pips to the upside and a target of $1.6450.
A significant turnaround in sentiment has been seen since yesterday afternoon, with the dollar bulls back in charge of Dollar/Yen. The move is beginning to improve the daily chart, with the momentum indicators beginning to improve. The improvement can be seen more clearly on the intraday hourly chart, with a move back above the key resistance and pivot level around 101.83 having been decisive. This move has confirmed a base pattern on the intraday chart and gives an implied upside target of 102.75. The old resistance at 101.76 now becomes the neckline support. The price resistances from the downtrend come in at 102.40 and 102.94. A good Non-farm Payrolls number would continue the recovery in Dollar/Yen today.
The daily chart continues its theme of consolidation which has been seen over the past week. This can be seen clearer on the intraday hourly chart which continues to have spikes higher that are then retraced back again. There is a slight upside bias on the momentum indicators. Hourly RSI is pushing towards 70 while the corrections find support above 40, and also the MACD lines are consistently above the zero line. Also the price continues to trade above the $1255 pivot level, however, for now any moves above $1265 seem to be met with selling pressure. A strong payrolls number today should help to strengthen the dollar which should in turn be a negative impact on the gold price.