09/04/2014: Downside pressure on the dollar begins to abate as traders look towards Fed minutes

Market Overview

Yesterday, Wall Street had a break from the selling pressure that has hit equity markets over the past few days. The Dow, S&P 500 and the NASDAQ all bounced last night, but it remains to be seen as to whether this is just a dead cat bounce or something longer lasting. Alcoa unofficially kicked off earnings season in the US on the right note with a beat of expectations. Asian markets were mixed as Japanese stocks saw further significant losses amid the huge strengthening of the yen. Aside from Japan though, equity markets in the region were largely higher and there is a positive handover to the European trading.

Forex trading has settled down overnight after yesterday’s significant selling pressure on the dollar. Traders will be looking forward to this evening’s Federal Open Market Committee meeting minutes. This will add some flesh to the bones of Janet Yellen’s recent press conference. Especial interest will be taken in the hawkish view of Yellen whereby the rate tightening cycle could begin “around six months” after the end of tapering. The initial reaction of traders to the press conference was that stocks sold off, while bond yields and the dollar pushed higher. Any back track on this hawkish tone in the meeting minutes (such as dissenting voices and varied opinions over forward guidance) could reverse this.

Chart of the Day – EUR/GBP

I talked last week about what could be the formation of a downside flag pattern on the daily chart. The pattern subsequently went on for a little bit too long to constitute a flag, but there has been a key move to the downside which should now induce further Sterling strength. A two week of consolidation on the intraday chart was broken yesterday as Sterling strengthened to pull Euro/Sterling below the key support at £0.8240. This downside break means that there is an implied target of a move back to £0.8180, which would coincide with a retest of the late February low at £0.8182. Daily technical momentum indicators suggest that there is further downside potential, whilst the hourly chart suggests that any intraday rallies should now be sold into. The falling 200 hour moving average is the basis of resistance at £0.8268, while any moves into the resistance band £0.8240/50 look like good opportunities to sell.

EURGBP   09042014

EUR/USD

There was a significant rally for the Euro yesterday (or more so, dollar weakness) with a move that has threatened the corrective outlook. However the daily chart continues to show the rate hitting the underside of a falling 21 day moving average and failing. Despite the momentum indicators now beginning to show signs of improvement, until the key reaction high at $1.3819 has been breached then this will continue to look like another rally within the correction. The intraday chart shows that the battle is on though and yesterday’s high at $1.3811 is not too far away. If the bulls can continue yesterday’s momentum to breach $1.3819 this opens $1.3746 and $1.3775. Overnight the rate has undergone some consolidation but is just coming under a bit of downside pressure as the early European trading begins. Support comes in around $1.3750.

EURUSD   09042014

GBP/USD

A huge move to the upside on Cable yesterday was the largest one day advance since 12th February. This has taken out several key resistance levels as the rate once more used the support of the uptrend in place since August. The daily chart now shows the next key resistance is at $1.6785, with momentum indicators moving into positive configuration once more. Although the move was incredibly strong, it is rare that you get a break such as that without some kind of retracement at some stage soon. Cable has not actually pushed forward for several hours now and was almost static in Asian trading. The intraday momentum indicators are stretched and with little economic announcements to drive the rate in European trading, there could be a drift back towards the support band $1.6680/$1.6700. The Fed meeting minutes at 19:00BST could be a major focus for traders to assess today.

GBPUSD   09042014

USD/JPY

An enormous shift towards the yen as Bank of Japan chief Kuroda gave no hints over new monetary stimulus at the end of the monthly BoJ meeting. This has seen Dollar/Yen pull sharply lower and breach the 101.71 key low. Considering where the dollar was trading just on Friday last week it seems incredible that I now have to talk about the support of the rising 144 day moving average and the primary uptrend. The 144 day moving average (currently 101.55) was hit almost bang on overnight before a rebound, while the primary uptrend is currently slightly lower at 101.30 but still worth a mention as these are two long term key buying opportunity levels. The rate has bounced from its overnight low at 101.52 and is now back to the resistance of the falling 21 hour moving average as intraday momentum indicators unwind deeply oversold positions. For now this could just be a dead cat bounce and it is probably wise to wait for the rate to settle. However this could be close to a strong buying opportunity once more.

USDJPY   09042014

Gold

Gold continues in its recovery mode as it has developed a new uptrend channel over the past few days flanked by the rising 55 hour moving average. The overnight low has encouragingly looked to form support at the previous breakout level around $1306.50 and is looking to push on once more. The intraday momentum indicators such as the RSI and MACD are in bullish configuration now and the next key resistances at $1317.25 and $1320.24 look set to be tested. The key low at $1295.19 would need to be breached for the recovery outlook to be aborted.

Gold   09042014

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