10/11/2014: Markets looking for direction still as the hangover from a tepid payrolls report continues

Market Overview

A rather tepid Non-farm Payrolls report on Friday failed to inspire any further bullish move, with Wall Street all but unchanged into the close. This rather flat mood has continued into the new week with Asian markets mixed this morning, as the Nikkei has been dragged lower by a strengthening yen (again on the back of Payrolls). The Chinese inflation data has also failed to inspire, with inflation sitting again at 1.6% (which remains not far from a 5 year low) whilst producer prices inflation fell by 2.2%. European markets have started the trading week broadly flat as well.

In forex trading, major currencies are still trading on the legacy of the payrolls report, with the dollar still under a little bit of pressure, however if the past few weeks are anything to go by then  traders will be looking to use these rebounds as a chance to buy the dollar once more. Gold is more settled now following on from Friday’s sharp rebound.

Traders will be reacting to the Chinese inflation data today, whilst the only real piece of data released is the Eurozone Investor Confidence at 09:30GMT (-13.8 exp which is slightly lower than -13.7 last month). This evening, Fed member Eric Rosengren will be speaking, who is a long standing dove but is also a non-voting member on the committee.

Chart of the Day – NZD/USD

The Kiwi dollar has been interesting over the past week or so. Whilst the Aussie dollar has weakened significantly, the Kiwi has held up reasonably well. The critical support around 0.7700 has never been decisively breached, however the sequence of lower highs and lower lows over the past few weeks has been a drag on the rate. The latest rebound (following Friday’s slightly light Non-farm Payrolls numbers) has once more pulled the rate up towards the downtrend, whilst last week’s reaction high at 0.7842 is the immediate price barrier. The key near term high remains the 0.7976 resistance left by the bearish outside day on 29th October. Momentum indicators are in weak configuration and the latest rally looks to once more be renewing downside potential for further pressure on the low at 0.7658. A breach of this low would confirm the deterioration and open for further subsequent weakness with the rate at its lowest since June 2012.

NZDUSD   10112014

EUR/USD

Friday’s rebound on the euro after the Non-farm Payrolls data has been once more a welcome respite from the selling pressure, however it is likely to be short-lived. This situation has happened on several times over the past few weeks, whereby a minor retracement follows a sell-off. However the bearish bias on the chart continues to drag on the euro. Momentum indicators are weak across the board and rallies continue to be a chance to sell. The latest rally high came at $1.2577, just under the neckline of the head and shoulders pattern at $1.2600. The intraday hourly chart shows there is a minor rally high at $1.2533 and already the hourly momentum indicators are beginning to tail off again. Expect the selling pressure to resume in due course to retest Friday’s low at $1.2357 and further lower. $1.2250 is the next minor support area but there is little real support until the July 2012 low at $1.2040.

EURUSD   10112014

GBP/USD

The slightly underwhelming Non-farm Payrolls data got a slightly underwhelming reaction from Cable, with a minor rebound that should act as little more than simply another chance to sell. The resistance band around $1.6000 acted as a barrier throughout last week and with the big downtrend dating back to July today coming in around $1.6025 today the resistance is mounting. Momentum indicators remains weak and suggest selling into rallies remains the most viable strategy for a continuation of the lower highs and lower lows with a retest of Friday’s low at $1.5788. The intraday hourly chart shows that the resistance area from last week begins to creep in around $1.5950 and whilst Friday’s bounce has continued overnight, the sellers will begin to see an opportunity soon. With hourly momentum still rebounding, perhaps look for a sell signal first. Next support is around $1.5750.

GBPUSD   10112014

USD/JPY

For the first time in over two weeks there is the prospect of a correction. As Dollar/Yen has weakened today and fallen below 114.20, it is the first day in that time that the rate has formed a lower daily low. However there is no reason for the bulls to panic quite yet, as for now this should simply be treated as a consolidation. The support around 114.20 has been the basis of an old breakout, but there is now a good band of intraday support 113/114. The daily chart shows that the 100% Fibonacci projection target of 101.49/110.08 measured from 105.18 is at 113.77 and this should be seen also as a basis of support. Daily momentum indicators have rolled over and suggest caution rather than outright sell signals. The bulls would stay in control until a breach of 113.00 support. Only then would a correction begin to gain real traction. I still expect to see the 115.49 rally high retested in due course.

USDJPY   10112014

Gold

I talked last week about the breakdown of the critical support at $1180 becoming the new basis of resistance and that any rallies in towards this level should be seen as a chance to sell. Friday’s sharp rally seems to have given this opportunity. The only caveat is that the rebound has also given us a bullish key one day reversal on gold. This has left a support low at $1131.85 and bullish key reversals tend to work quite well on gold. This makes the outlook rather tricky. I feel therefore that the next couple of days could be key as a failure to continue the recovery (through $1180) would see Friday’s move fail to be validated and could just be seen as an anomaly. The hourly intraday charts show the momentum is already being lost. The resistance band between $1180/$1200 looks to be key this week.

Gold   10112014

WTI Oil

Once more the WTI oil price has looked to form a rather orderly consolidation below an old breakdown support which ultimately is likely to give another chance to sell. The break below support around $80 completed a descending triangle breakdown and implies a target of $75. With the rebound off $75.84 failing to react above the old support turned new resistance at $80 the rebound looks to be a chance to sell. The daily momentum indicators remain firmly in bearish configuration and have simply unwound to renew downside potential. The intraday hourly chart shows the bulls are struggling above $79 and the recovery is again running out of steam. The bears would remain in control until a breach of $82.88.

WTI   10112014

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