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09/02/2015: Focus on Greece and weak Chinese trade on a day bereft of data


Market Overview

The strong Non-farm Payrolls report changed the sentiment considerably on Friday. It resulted in a sizeable move away from safe haven plays such as the yen and gold, to the benefit of the dollar. The next question is whether this move can be sustained. The news over the weekend has not been all that positive (and this has allowed a degree of retracement in some of these moves). Top level discussions over developments in eastern Ukraine have hardly achieved anything, whilst Greece continues to try to renegotiate the mountain of debt on its books. Furthermore, the economic news that China has posted a huge 19% decline in its imports versus one year ago will be a significant blow to commodity prices and also market sentiment. Subsequently, the slight weakness seen on Wall Street on Friday has translated through to mixed markets in Asia (Nikkei actually benefitted on the back of the sharp yen weakness). However European markets are solidly lower today.

In forex trading, the dust is still settling from Friday’s huge dollar strength and this is resulting in some retracement (to a small degree) of some of the moves. So we have the euro and sterling both slightly higher. However the incredibly weak Chinese data has not really impacted te commodity currencies too badly yet, even though the Aussie is weaker slightly. Perhaps there is the usual counter reaction of bad news is good in that very weak Chinese data will encourage further easing from the People’s Bank of China. Speculation on central bank reactions never seem to make forex trading too straightforward.

Today’s calendar is all but empty (aside from Canadian housing starts at 1315GMT, 184k expected) so markets will continue to move on maco events such as Greece and Ukraine, whilst the Chinese trade data will not help risk sentiment.

Chart of the Day – AUD/USD

After Friday’s dollar firming Non-farm Payrolls report the Aussie dollar recovery bulls are hanging on by their fingertips to a small base pattern. I have been looking out for a decisive break above 0.7850 to suggest a base pattern and an improvement in outlook, however this confirmation was never quite achieved. The subsequent decline formed a bearish daily candle (arguably a shooting star) and the Aussie dollar needs to hold above the 0.7732 higher low to prevent a loss of the recovery and a full retracement back towards the key low now in place at 0.7623. There is currently a bout of consolidation that has taken hold overnight but the pressure is mounting.

AUDUSD   09022015

EUR/USD

The sell-off on Friday leaves the daily chart rather mixed, without really breaking the resolve of the euro recovery bulls. Daily momentum indicators are still in recovery mode and the rate continues to trade above the old 6 week downtrend. However there has been increased volatility over the past four days and there has been little if any ground made for the bulls. The intraday day hourly chart gives more of an impression that the outlook is on the brink of turning negative once more. In the past 9 days a band of support has been used as a floor between $1.1260/$1.1300. Friday’s low hit $1.1283 before an element of support returned, however the pressure remains on today. A break back below $1.1300 would be concerning and a subsequent breach of $1.1260 would really suggest the bears are winning control once more. For now the euro can be still argued to be ranging but all the time the rate trades under the minor resistance at $1.1400 the pressure is mounting once more.

EURUSD   09022015

GBP/USD

The base pattern on Cable is far more developed than on the euro and the bulls have a greater foothold. In fact, for the time being, Friday’s weakness looks to be a bull market correction as a pullback to the neckline support area. I spoke at length last week about $1.5200 being a key near term resistance. Well, old resistance becomes new support and Friday’s low at $1.5207 suggests this to be the case. On the intraday hourly chart there has been good support formed between $1.5200/$1.5270 which Cable is now trading in. There has been a crossover buy signal on the MACD and the RSI has bounced off 30. I am still enthusiastic about Cable whilst it trades above $1.5200 and the base pattern which completed last week above $1.5270 still stands firm. The resistance is now in place at $1.5352 near term. If support at $1.5200 is breached the next level comes in at $1.5135.

GBPUSD   09022015

USD/JPY

Well, on Friday we finally got some direction out of Dollar/Yen. The move played significantly on the strong Non-farm Payrolls report which induced a sharp dollar run higher though all the recent resistance and above 119 for the first time since 12th Jan. There was also a close above the resistance at 118.87 which suggests that the bulls are regaining control. Monday’s price action has been somewhat muted so far, but still the intent was shown on Friday. The next move would be to hold on to the gains made and use the previous rally highs as breakout supports between 118.50/118.87. The move would need to hold above 118.00 on the hourly chart to prevent a loss of this hard fought control once again.

USDJPY   09022015

Gold

A huge decline on the gold price on Friday came on the back of a strong Non-farm Payrolls report. This has meant that the bulls are under huge pressure as key levels of support have been broken. The breakdown of $1252/$1255 also instantly saw the next key breakout level of $1238 (the December high) tested, however the $1228 low would suggest that the bears really are controlling the gold price now. The daily momentum indicators continue to fall away and if you start to see the RSI trading below 40 then the sellers will certainly have made a significant breakthrough. The intraday hourly chart shows there is a degree of retracement currently underway and it will be interesting to see what the bulls can reclaim. However the consistent support formed last week in $1252/$1255 now becomes near term resistance and could now be the ceiling of any dead cat bounce. The dust now needs to settle before making an assessment on the sell-off, but the initial impression is not too positive.

Gold   09022015

WTI Oil

With a second straight day of the WTI price holding up the outlook is steadily improving for the bulls. The support that has come in from the 21 day moving average which has bottomed and is now rising around $47.80 is also adding to the positive bias. The RSI is staying in is improving configuration above 50, whilst MACD lines continue to rise (although the Stochastics are reflecting the more volatile moves of the past couple of sessions). The bulls will now be eying a test of the resistance from the top of the old downtrend channel (which now arguably makes it a 4 month downtrend) which today comes in around $54. That would suggest that the resistance at $54.24 from Tuesday’s peak is now increasingly important for the medium term outlook. The intraday hourly chart shows initial support at $50.20 which is also where the 50% Fibonacci retracement of the bull run comes in.

WTI   09022015


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