Monday morning trading in Europe has begun in quite a subdued manner. Despite the strong set of Non-farm Payrolls on Friday, investors have reacted with a fairly risk averse outlook today. Wall Street closed a hair’s breadth above flat on Friday, while Asian trading today has been fairly weak. The Asian session was not helped by a raft of data from China and Japan which served traders little more than disappointment. After inflation was lower than expected over the weekend, China’s export data significantly missed expectations (although the lunar New Year is a mitigating factor), while the Japanese Q4 GDP saw a significant downward revision (to 0.7% from a preliminary 1.0%) and a worse than expected trade deficit. Stock markets in both China and Japan fell over 1% as a result.
So the European trading session has few positives to take out of the Asian session and markets have begun the new trading weak with only slight gains. The only significant piece of data comes with the Eurozone investor confidence at 09:30 GMT.
Chart of the Day – DAX Xetra
A very disappointing day on Friday, with yet another significant underperformance against Wall Street but also a very disappointing sell-off despite the strong Non-farm Payrolls number. A close on Friday at a new 4 week low continues to suggest the DAX is in correction mode. Looking at the momentum indicators which are reversing, a correction within the long term uptrend channel is underway, with the next key low at 9071 now open. This should ultimately prove to be an opportunity to buy, but for the time being the selling pressure is dragging the DAX lower this morning. Near term bounces could now be sold into, with the resistance band 9359/9385 looking a decent selling zone to take advantage of near term weakness.
The Euro has been fairly settled since Friday afternoon following the correction in the wake of the better than expected Non-farm Payrolls data. Having made the breakout to the highest since October 2011, Euro/Dollar has left a peak at $1.3915, which is now the resistance that will be watched. The daily momentum signals all look strong, but the RSI is over 66 now and the peak for the indicator during the run to the previous key high in December reached 65 before turning lower once more. We must therefore be mindful that there is likely to at least be a bout of consolidation soon. With little economic data due and with Friday’s stronger Non-farm Payrolls number still fresh in traders’ minds, this consolidation may be just round the corner. Initial support arrives at $1.3852 and then at $1.3824.
The bullish arguments remain strong on the daily chart as a series of higher lows begins to form and the upside potential of the momentum signals now renewed following the recent consolidation. The chart continues to build towards a retest of the key high at $1.6822 with dips being bought into. The hourly intraday chart continues to trade around the pivot level of $1.6700 with Cable once more bouncing from around Thursday’s low at $1.6682 this morning only to return quickly to $1.6700 again. Momentum indicators are fairly neutral, but with the initial downside break this morning, it would seem that selling pressure is a feature of early European trading. Under $1.6682 opens $1.6649 and then $1.6638. Overnight resistance comes in at $1.6740.
Having made the key near term breakout above 102.83 on Thursday, the dollar has been busy building support as the old resistance now turns into the basis of support. There is a bit of a battle now going on between the momentum signals of the daily chart and the intraday hourly chart. On a daily basis, the MACD lines are still below neutral (on the negative side), Stochastics are rolling over around 80 (close to a corrective sell signal) and only really the RSI is on the positive side. On the other hand, intraday hourly momentum indicators are all positive and just nicely unwinding through this consolidation and helping to renew upside potential. This level of support around 102.83 is taking on increasing importance as the weekend low was 102.79 and a breach would begin to look like a top pattern playing out. A move above the overnight high at 102.39 would help to ease these concerns.
The last few days has been fairly choppy trading in the gold price with the recovery now being called into question. The concern remains the continuing bearish divergences on the RSI and Stochastics, which has now been added to by a crossover sell signal on the MACD lines. The potential for a correction on the daily chart is mounting. This outlook is reflected on the intraday hourly chart also. The chart does appear to be rolling over now with the 200 hour moving average now in decline for the first time in over a month. Also we see pressure mounting with consistent lows below $1330. The pressure is building and a move back to test the key low at $1319.61 (the first key reaction low on the daily chart) could be underway. The bulls will argue a $25 trading band is actually in play now, but for this to hold true there would need to be a move back above the overnight high at $1341.26. Intraday momentum is fairly poor once more and the downside pressure is growing.