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10/02/2015: US dollar bulls are still unable to grasp the initiative as ranges continue


Market Overview

The trading outlook is mixed this morning, with uncertainty over a number of issues. The fact that President Obama has failed to rule out the US arming Ukrainian forces is a concern as it could mark a significant escalation in the conflict (this is unlikely to help the DAX too much). Also we find uncertainty with how Alexis Tsipras remains adamant over implementing his anti-austerity message but which is also contravening the terms of the Troika’s bailout. On the flipside of that Chinese inflation overnight was the latest in a strong of data from the world’s second largest economy which suggests that the People’s Bank of China is likely to need to further ease monetary policy. Risk currencies have taken this rather well.

Wall Street closed lower last night on the back of some of these concerns on a day light on economic data. The S&P 500 closed 0.4% lower. The Asian markets have been mixed overnight, with the Shanghai stocks higher on the back of this perceived idea of PBOC easing, whilst the Japanese Nikkei 225 is slightly lower by 0.3% as the yen has continued to claw back its losses from Friday. European equity markets are mixed in early trade.

In forex, there has been a general retracement of a portion of the dollar gains from Friday and this has continued into today, with major currencies flat to slightly stronger against the greenback. There is a little more data for traders to get their teeth into today. The UK Manufacturing Production is at 0930GMT and is expected to show a -0.1% month on month move which would pull the year on year growth back to +2.0%. The US JOLTS job openings is at 1500GMT which is expected to continue to grow to 4.99m (from 4.97m last month), which would continue the strong improvement in this  data. Interestingly the consensus has increased over the past 24 hours on this from 4.96m yesterday, so the strength of the payrolls report from Friday has clearly impacted.

Chart of the Day – DAX Xetra

Yesterday’s price action on the DAX was fairly decisive. The consolidation around the 10,800 support gave way quite decisively with a gap down at the open which the bears never really looked back from. This does now leave an interesting chart feature as theoretically gaps should be filled and 10,800 becomes the initial resistance. However the longer this gap remains unfilled the more concerning this becomes (it could be a breakaway gap that can signal the beginning of a new trend). The momentum indicators have also taken a turn for the worse, with the RSI falling back from 70, the MACD lines crossing over and a take profits signal on the Stochastics also close. The immediate test would be 10,552 support. However we must also be mindful that the fact that the 100% Fibonacci projection target around 10,950 has been reached and with the price pulling back away from it this does theoretically mean that the price should now move back towards the initial Fibonacci level which is the 61.8% around 10,290. If the support at 10,552 were to be lost now this would become the next target.

DAX   10022015

EUR/USD

The euro continues to consolidate on the brink of a retreat back into bearish control. Despite being briefly breached intraday yesterday, the support around $1.1300 is still something of a benchmark for me, whilst the key near term support at $1.1260 remains intact. There is a deterioration in the daily Stochastics which will be slightly concerning for the bulls, although there has been no real damage to the MACD lines or the RSI. The intraday hourly chart however is less of a concern, showing more of a range play over the past 10 days between $1.1260/$1.1500. There is no majorly decisive signal that points to a breakdown and to get a confirmed move we may have to wait for more indication. For now there is a slight hint of bear control within the range but nothing that would drive any conviction trading. A breach of $1.1260 re-opens a minor low at $1.1230 but more importantly the $1.1098 low.

EURUSD   10022015

GBP/USD

Again, as with the euro, since the payrolls related decline there has been a consolidation building. The move means that Cable is still hanging on to the small base pattern that it had formed last week. The bulls will not be too concerned quite yet with developments as the RSI is still above 50 and the MACD lines are still rising. Also the 21 day moving average which has been a good basis of support comes in at $1.5145. The nagging doubt comes with the price which has been unable to make a clean break of the old 7 month downtrend which therefore still has to be a key feature. On the intraday hourly chart, the old resistance at $1.5200 has become the new support and is providing the lower limit of the consolidation of around 70 pips up towards another old key resistance around $1.5270. This is giving the intraday chart still quite a positive outlook. Until $1.5200 is consistently being breached and the move is confirmed by the loss of $1.5135 support then the bears will not be considered to be in control.

GBPUSD   10022015

USD/JPY

It seems as though despite the sharp gains on Friday (following the Non-farm Payrolls report) the bulls have still been unable to grab the reins and really surge forward. Following a high at 119.22 there has been a disappointing drift backwards which is looking to undo much of the gains. It is only the Stochastics which have really been able to provide any real signal, whilst the RSI and MACD lines have been all rather limp. The intraday hourly chart shows a series of lower highs in the past couple of sessions and the support of the latest key reaction high at 118.50 is being tested. The hourly RSI and MACD lines are now back at levels where the bulls would expect to start to pick up once more and this is an interesting time now. If the support at 118.50 fails consistently then it would re-open 118.00 but be a signal that would suggest the bulls have failed to gain control and this range that has been in place for the past few weeks would be continuing.

USDJPY   10022015

Gold

I was disappointed on Friday that the correction went as far as it did, in hitting a 3 week low at $1228. I also considered whether a breach of the support around $1238 meant that the medium term bulls had lost control. The subsequent development on the daily chart gives me hope as the gold price has formed support. The daily chart shows the Stochastics are now beginning to turn up again (and are close to a buy signal), the MACD lines are looking to flatten above the neutral line and the RSI is looking to turn up from the low 40s (which is what it did during the key lows of November and December. It could now be that the old support between $1252/$1255 becomes the new resistance and the buyers are stopped in their tracks. However a break above this resistance band would be an interesting sign once more. A key signal would also be the breaching of the downtrend that has formed in the past 3 weeks (which currently comes in around $1264).All is not yet lost for the medium term bulls. I see a breach of the support at $1222 confirming the bearish control once more.

Gold   10022015

WTI Oil

It seems as though the bulls are gaining in confidence every day, with a bullish daily candle having been posted on 6 of the past 7 days. It would appear that the volatility that drove a decline of almost 9% last week has been merely counter trend in the recovery and the bulls are controlling the price once more. However the bulls are up against a challenge now. The resistance of the top of the old downtrend channel comes in today at $53.50 and this is directly now being tested. Furthermore, the steady gains in the past few days have now retraced almost all of last week’s correction at $54.24 and if this is broken to the upside it would complete a bull flag breakout which would imply upside towards $58.00. The bulls have now left a couple of higher lows on the intraday hourly chart with $51.65 and $50.94 which need to hold.

WTI   10022015


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