11/02/2015: All eyes on the Eurogroup to bring an end to the consolidation

Market Overview

Today we have the meeting of the Eurogroup of EU finance ministers who will be discussing how to deal with the problem of the bailout loan made to Greece that is due for repayment on 28th February. Finance markets are certainly focusing on this as a key issue for the moment. The euro has become rather static as traders appear reluctant to take a view ahead of what could be a range of outcomes. Either the EU (driven presumably by Wolfgang Schaeuble of Germany) takes a hard-nosed approach and demands the repayment, or there is more of a conciliatory approach to the whole process and allow the Greeks some sort of extension (likely to be a re-profiling of the debt). The market is likely to react positively to the latter, with news of a possible solution allowing equity markets a bounce yesterday.

Wall Street was positive into the close with the S&P 500 closing 1.1% higher. Asian markets were fairly mixed overnight, with Chinese stocks higher, but Hong Kong lower (Japan is closed for public holiday). European equity markets have opened mixed to slightly positive as traders sit on their hands ahead of news out of the Eurogroup meeting.

In forex trading, the major currencies are a little less sure, with consolidation on the euro and sterling continuing, whilst the commodity pairs are all broadly flat too. Traders have got little else to focus on today with a very light economic calendar so all eyes will be on the Eurogroup for steer. The US EIA crude oil inventories is the only significant release of the day (which will certainly impact on oil), due at 1530GMT and is forecast to show a drop from 6.3m to 3.7m barrels.

Chart of the Day – NZD/USD

There has been an interesting rebound in the Kiwi in the past week or so which is threatening a continued recovery. The bulls have managed to claw back the losses of late January. There is now a move that could be set to test the key near term resistance at 0.7495. There have been several attempts in the past few days but the daily chart shows a lack of conviction behind the moves (with several long upper tils on the daly candlesticks). However the momentum indicators are unwinding and the MACD lines have just given a positive crossover as the Stochastics advance. However, taking a step back it seems as though this whole rally merely looks to be unravelling some of the bearish momentum built up during January’s sell-off and with this in mind it looks to be a bear market rally that is likely to find resistance between 0.7495 and 0.7600. before renewing downside potential.

NZDUSD   11022015

EUR/USD

There has been a bout of consolidation that has set in for the euro in the past few days. However, although the support band $1.1260/$1.1300 has held thus far, there is still a feeling that renewed dollar strength is close by. The two consecutive small doji candles on the daily chart signal uncertainty (presumably in the run up to today’s meeting of the Eurogroup finance ministers to discuss the EU portion of the Greek bailout). The daily momentum indicators have started to lack a bit of direction in the last couple of days as we await the next move. The intraday hourly chart suggests that $1.1260 is the key support, whilst there is plenty of overhead resistance at $1.1360 and $1.1400 until you get towards the more key levels at $1.1500 and $1.1532. The euro needs a catalyst and it could get one today.

EURUSD   11022015

GBP/USD

I talked yesterday about the importance of the $1.5200 support in maintaining the encouraging outlook for sterling and this level continues to hold firm. There are other encouraging signs such as on the daily chart with the RSI staying above 50, the 21 day moving average now advancing at $1.5150 (having previously been a basis of resistance it is now looking to become a basis of support) and the continued pressure on the 6 month downtrend (which today comes in at $1.5270). In fact this level at $1.5270 has significance because the intraday hourly chart shows it to now be a near term resistance, having been an old breakout resistance it is once more acting as a minor ceiling. The hourly chart shows something of a consolidation that has set in near term with little real sign of a breakout. There are still conflicting views on the daily chart (the continued presence of the downtrend but also the formation of the base pattern), however whilst the support at $1.5200 remains intact then I will remain hopeful of this near term technical rally. Sub $1.5200 opens $1.5135. Above $1.5270 opens $1.5350.

GBPUSD   11022015

USD/JPY

After almost 3 weeks, we saw Dollar/Yen breaking higher from the range play yesterday. The intraday hourly chart shows a well-defined bull flag completed on the break above the reaction high at 119.22. This now implies a target of 120.30 and with the run progressing well above the 61.8% Fibonacci projection there is little reason to not expect further gains. There has also been decent intraday support that has formed around the breakout level at 119.20. Looking at the daily chart it seems as though some of the weight has been lifted as the rate finally looks to be pulling clear of the previous resistance at 118.90. The RSI is advancing well now and the Stochastics look positive. If this continues then a retest of the 120.84 key reaction high should not be too long in coming.

USDJPY   11022015

Gold

After such a strong downside move from last Friday, the daily chart shows the gold price just consolidating in the past few days. However, looking at the momentum indicators this is resulting in the RSI flattening off in the mid-40s (just as happened with the big corrections of November and December), the MACD lines beginning to settle just above neutral and interestingly the Stochastics beginning to turn up. I have said previously that I see this recent decline to be only near term and that I would only begin to turn bearish again if the support at $1221 was lost, so for now this could all be part of a new support forming. The near term outlook remains corrective with the intraday hourly chart showing the solid downtrend in place since the 22nd Jan peak at $1306, whilst the initial resistance remains the old support band $1252/$1256. However the signs of support are improving and whilst $1221 remains intact there is no reason to get too bearish.

Gold   11022015

WTI Oil

My bigger picture view is I believe that oil is in the process of forming a bottom, however it will not be a simple process and will be punctuated by volatility and a series of bull and bear phases. Yesterday saw another sharp decline as the resistance from the old downtrend channel capped the upside almost to the pip. Not only that, the 61.8% Fibonacci projection level at around $54.00 has also provided resistance. The sharp decline has breached the initial support levels at $50.94 and $50.20. The 23.6% Fibonacci projection line at $49.85 protects a full retracement back to the $47.33 low, and this support has held for now. However, the daily momentum indicators have not been seriously damaged yet and there is still a bullish bias. Interestingly, the 21 day moving average is now rising as support at $48.12. Wait for the price to settle down and as long as the higher reaction low at $47.33 remains intact, so will the near term positive outlook. The downtrend resistance today comes in just above $53.00.

WTI   11022015

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