This week has been spent with forex markets consolidating in anticipation of the key event which were the Fed meeting minutes. Whether the minutes can provide some direction for markets which have been settling down remains to be seen, however the dollar bulls would have been the more satisfied with what they read. The minutes showed that the committee was split with some looking for a June rate hike, some later on in 2015 and some into next year. In truth there was not a great deal that we did not already know, with any hike being data dependent and consideration taken over the strength of the dollar and the drop in the oil price. It was the division in the committee which will have pleased the dollar bulls though and there has been a slight strengthening of the dollar in the hours since the release.
Wall Street held a fairly muted reaction with marginal close in higher territory with the S&P 500 up 0.2%. Alcoa kicked off earnings season yesterday with a slight beat of estimates that had been significantly reduced in recent weeks. Asian markets were mixed overnight but the Nikkei closed 0.8% higher as the yen weakened slightly on the slightly hawkish Fed minutes. European markets are mildly higher at the open.
In forex trading, there is still a very slight edge of dollar strength in the wake of the FOMC minutes, as the euro, sterling and the yen are all weaker. The exceptions being the commodity pairs with the Aussie and Kiwi both marginally higher as oil has formed support overnight. Gold and silver have come under increasing pressure overnight and continue to also slide as the dollar has strengthened.
Traders have only really got the UK trade balance at 0930BST to watch, expected to deteriorate slightly to -£9.0bn (from -£8.4bn last month). Then there is also the Bank of England monetary policy decision at 1200BST. So close to the UK General Election it would be deemed to be politically motivated if the Bank were to move on rates , so it is all but guaranteed that it will hold steady. The weekly jobless claims at 1330BST is expected to show a rise to 285,000 from 268,000 last week.
Chart of the Day – DAX Xetra
Despite the broken uptrend there is still a positive skew to the consolidation on the DAX. There are still momentum indicators with bullish configuration, whilst the Stochastics have just turned up again. In light of the volatility of the past few weeks, yesterday’s disappointing session barely even registers and could even come as a potential buying opportunity. The intraday hourly chart shows how there have been a sequence of higher lows in the past two weeks which have shown on the hourly momentum indicators as buying opportunities when the RSI gets back to between 40/50 and the Stochastics back to 20/30. For now it would seem that the run higher is fairly short lived though and this is reflective of the consolidation in the past few weeks. However there is certainly a more bullish tilt to the outlook which should see an upside break above 12149 and a test of the all-time high at 12219. The key near term supports are at 11953 and 11880.
Despite some intraday volatility from yesterday the crux of it was that the euro had a weak close as it fell away in the wake of the slightly hawkish lean in the FOMC meeting minutes. This has resulted in a third daily close lower in a row and a slightly bearish look to the consolidation now. The momentum indicators are not giving too much to worry about yet and are still fairly neutral though, although the Stochastics have reacted lower. The main concern on the intraday hourly chart is that the euro has dropped below the $1.0800 pivot level. This clearly opens the range low at $1.0712 and the bulls will need to work hard this morning to break back above the $1.0800 level which is now resistance. The hourly moving averages are all falling in bearish sequence now and the pressure is mounting to the downside. Key near term resistance is now at $1.0870.
Once again the resistance around $1.5000 has capped a potential recovery as the bulls lost impetus in yesterday’s rally. This has meant that a potentially strongly bullish candle lost a lot of momentum and closed below the midpoint of the day in a rather disappointing move for the bulls. Daily momentum indicators retain their drift configuration and there is not a great deal that suggests an imminent upside break through $1.5000 which is a point at which the bulls have failed time and time again in the past few weeks. The latest two highs have been $1.4978 and $1.4972. The intraday hourly chart continues to show a range play with the momentum studies (specifically RSI and Stochastics) once again acting as excellent indicators to play the extremes of the range. Using the overbought sell signals as a chance to go short and the oversold buy signals as a chance to go long. This is very much an instrument to play on a near term basis. Key near term support comes in at $1.4800 before $1.4737.
The sideways range on Dollar/Yen is an ongoing event, although the reaction from yesterday has just helped to give the dollar bulls a slight edge in the consolidation. This has allowed the Stochastics to start to gain a bit of upside momentum and maintain the pressure on the resistance band 120.30/120.60. For now we still must await any breakout but the intraday hourly chart has now shown the pair is into its third day trading above the 119.40 pivot. I am still not convinced that there will be a decisive breakout though if one is to be seen. Having analysed Dollar/Yen for some time it is clear that during these range phases never really allow too much direction before any move is retraced. This means that trade management becomes vital. The resistance above 120.60 comes in at 121.20 before the strong resistance at 122.00.
Gold has not reacted well to the slightly hawkish FOMC minutes, with traders seeing the edge towards dollar strength as a signal to take profits on gold. This is having significant implications for the rally on gold. Following the failure of the rally at $1224.20 there have been two completed bearish candles and so far today this move has continued to the downside. There is no decisive bearish signal quite yet on the daily momentum indicators, however the pressure is beginning to build to the downside once more. The intraday hourly chart shows the break back below the psychological support at $1200 whilst the support at $1195 is under immediate threat. A decisive breach of $1195 would suggest the near term bulls had lost control and would re-open a test of the $1278.25 low. The selling pressure has been accelerating in the past 18 hours and with resistance now in place around $1206/$1210 the bulls are in danger of giving back a large amount of well-earned gains.
The volatility continues. Interestingly the WTI oil price has turned lower at $54.13, once more almost bang on the resistance of the key range high at $54.24. The sellers have subsequently returned (as the sharp increase in the US oil inventories came through unexpectedly yesterday) to drive the price strongly lower. I said yesterday that oil needed to now form another higher low in the range $50.45/$52.40 and this is now what could be in prospect. If the bulls are to continue this recent improvement then they will have to be ready to support around these levels. A breach of the support at $48.10 would certainly question how sustainable the rally is, with a move below the key reaction low at $47.00 confirming a loss of control by the bulls. The hourly momentum indicators have now unwound back to levels where the buyers have been supporting in recent days and if the support can form then it could even be considered a good chance to buy. That means that the price action today could be crucial for the near term prospects of oil.