11/02/2014: Risk appetite continues to improve with a dovish Yellen expected

Market Overview

There is a fair degree of cautious optimism engulfing the markets today as investors wait to hear what new Federal Reserve chairman Janet Yellen has to say in her testimony to the House Financial Services Committee. With a positive, but muted handover from the Wall Street session and a Japanese public holiday, Asian markets had a quiet session. Although markets continue to expect that the Fed will remain on the road to tapering asset purchases, investors seem confident that Yellen will remain as dovish as her predecessor Ben Bernanke. Janet Yellen will have the opportunity to air her views on a monetary policy and the economic outlook for the US but perhaps as equally important, would be if she talks about the Emerging Markets and the reversal of capital flows. Interestingly the Fed chose to not mention Emerging Markets in its recent FOMC report and in an open question and answer session it would be likely that the topic will come up. This could certainly have a baring on risk appetite. The early morning’s trading suggests that risk is improving with the Euro, Sterling nd Aussie Dollar  all making gains against the US Dollar. With an absence of market moving data today, there is little due to suggest that this positive intent will not remain a feature in front of Janet Yellen who speaks at 15:00GMT.

Chart of the Day – EUR/GBP

The chart of EUR/GBP is approaching a very important tipping point. The resistance of the downtrend that has been in place since July 2013 comes in at £0.8350. This now coincides with neckline resistance of what could be a base pattern as a push above £0.8350 would form a 6 week base and would at least imply a rally towards the next key reaction high within the downtrend at £0.8466. However, the momentum indicators are not too encouraging for the continuation of this rally. The stochastics are stretched and the MACD has just unwound to neutral. Unless there is a decisive move above £0.8350 and also the historic pivot level around £0.8390, this could just be another chance to sell. One to watch.

EURGBP   11022014

EUR/USD

The Euro continues to make recovery gains and has now pushed above the top of the six week downtrend channel as the outlook continues to improve. Look now for a break above the $1.3739 high for the bulls to regain control. The intraday chart shows a succession of higher lows with first the 55 and now the 21 hour moving average used as the basis of support. Hourly momentum indicators are in bullish configuration and suggest that corrections are opportunities to buy. There is good intraday support in the band $1.3620/$1.3660. The intraday resistances come at $1.3688 and $1.3716

EURUSD   11022014

GBP/USD

Having completed the base pattern above $1.6350 the inference is a move towards $1.6450, and Cable has continued to eek out minor gains overnight. However, it would appear that it is struggling to push through the 50% Fibonacci retracement at $1.6428 having formed a support around the 38.2% Fibonacci retracement at $1.6386. Intraday momentum indicators are on the positive side of neutral and the moving averages are rising. So there is a positive outlook for the recovery in this Cable chart, however if there were to be a break of the support at $1.6380 this would suggest a retreat back towards the neckline support at $1.6350 was on.

GBPUSD   11022014

USD/JPY

After consolidating for much of yesterday’s session, despite a Japanese public holiday, Dollar/Yen has looked to push higher once more in Asian trading. The support has formed at 101.97 and the bulls are looking to regain control for the push towards the intraday base target at 102.77. Although the momentum indicators are only slightly bullish, the moving averages are turning higher and suggest the outlook continues to improve. If the 101.97 support can remain intact we look to test the resistance levels, initially at 102.64 then 102.94.

USDJPY   11022014

Gold

We discussed yesterday a test of the key resistance at $1278, and this has been significantly breached overnight with the gold price now having broken out to a new near 3 month high. The outlook continues to improve but would not be considered to be positive until a move back above the falling 144 day moving average which is currently at $1292.27. Having taken the price above the 38.2% Fibonacci retracement of the $1433.31 to $1184.50 correction at $1279.55, this now opens the 50% retracement at $1308.91. The next resistance is the reaction high at $1294.00, with support consistently being formed around the 21 day moving average at $1255.

Gold   11022014

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