07/03/2014: After yesterday’s exuberance, forex pairs have calmed down in front of Non-farm Payrolls

Market Overview

The S&P 500 completed a 50th closing high in the past 12 months as investors on Wall Street continued to push merrily forward. Mario Draghi’s “glass half full” press conference and a lower than expected release for weekly jobless claims kept investors spirits high and this subsequently fed through into the Asian session. Buoyed by continued weakness in the yen, the Nikkei 225 pushed up another per cent to a 5 week high.

However, early in the European session we could be in for some cautious trading. Following the excessive movement in currency pairs yesterday, consolidation has taken over with the focus turning towards today’s Non-farm Payrolls that are released at 13:30GMT. There is always a degree of caution in front of the number, but today there could be a muted reaction afterwards too. The expectation is for around 150,000 jobs being added in February, but the significant misses of expectations in the last two months have been shrugged off by traders. There is chatter that there could be a third disappointing month with the weather in the US still a factor. The “weather” was mentioned over 100 times in the recent Fed Beige Book (a monthly report documenting the Federal Reserve’s outlook for the US economy), so the excuses are already lined up.

Chart of the Day – FTSE 100

I am becoming a little concerned by the lack of buying pressure behind the FTSE 100 (and the DAX for that matter). The S&P 500 continues to hit new highs on almost a daily basis, but the FTSE 100 has become stuck in what is becoming a sequence of lower highs. Having failed to break out above January’s high at 6867, there was a second failure at 6833 (last Friday just prior to the Ukraine related sell-off on Monday), only then for the bounce on Tuesday (risk back on after tensions eased in the Ukraine) to fail again at 6827. However subsequently the FTSE has drifted lower. Technical studies suggest a corrective phase is underway, with a crossover sell signal on the MACD, with the RSI and Stochastics in reverse. The inference is that FTSE could be coming back once more towards the band of support around 6700. This outlook would change on a move back above 6833 which would re-open the highs.

FTSE   07032014


The monetary policy announcements from first the Bank of England and then the ECB gave the Euro a boost, but the real move was seen during Mario Draghi’s press conference yesterday. Whilst being supportive, the ECB President was not as dovish as many had been expecting and the Euro spiked higher as a result. The intraday chart will need some time to settle down and has spent much of the time since in consolidation mode in front of the next crucial piece of data with the Non-farm Payrolls. We look to the daily chart for more of an indication therefore. The technical outlook for the Euro has been positive for over a month now and the Euro is now within striking distance of the $1.3892 high from December which was the highest level for the Euro since October 2011. Technical indicators look positive but the RSI is beginning to look stretched (RSI at December’s high was 65). This may result in some consolidation near term possibly back towards the $1.3773/$1.3824 support band.

EURUSD   07032014


Whilst Cable has not seen the stellar rise that the Euro had yesterday, the bulls are also gaining control once more. The rate has now pushed solidly higher off $1.6683, the Sterling bulls will now look to build a new support above the $1.6700 level. Intraday hourly moving averages are all now rising in bullish sequence and momentum indicators are in positive configuration. This would suggest that corrections are chances to buy, with a decent band of support around $1.6710. There is likely to be added volatility around 13:30GMT today with the announcement of Non-farm Payrolls.

GBPUSD   07032014


Dollar/Yen finally made the key breakout yesterday above 102.83 key resistance which has now taken the rate to the highest since 29th January. This resistance had become a significant barrier that had been tested on numerous times over the past few weeks and the bulls will now concentrate on trying to form a new range. The 102.83 resistance now becomes a key area of support, a level which has already been tested overnight.  The intraday hourly momentum indicators remain in positive configuration and with the outlook having changed to a positive one, any dips should now be seen as a chance to buy. Even if the 102.83 support is breached, there is good support in the band around 102.60.

USDJPY   07032014


The gold price spiked higher once more yesterday as it took off during Mario Draghi’s press conference. The price has now settled but found resistance at $1352.76 which was below Monday’s flight to safety high at $1354.80. The hourly momentum indicators have subsequently rolled over and suggest that the upside in the price is done for now, with increased potential for a correction. Despite the upside move, I am still held back in my bullishness by the bearish divergences which remain on the RSI and Stochastics on the daily chart. With Non-farm Payrolls today there could be a degree of caution. If the support at $1347.49 could induce a correction, with a 50% Fibonacci retracement of yesterday’s upside at $1341.70, with the support from the previous intraday high at $1341.50.

Gold   07032014

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