There is little sign that the volatility, that has picked up in September, is showing any sign of calming down. Once more we are seeing big moves across the forex majors as a series of fundamental factors drive currency movement. This volatility is not so evident in the equity indices, which have been in more of a consolidation phase recently. The big loser once more today has been in gold which has today fallen to a new 7 month low.
Broadly though it has been a fairly quiet morning. The euro has pulled a touch higher after the in line inflation readings from Germany and France. The commodity currencies have all seen sharp selling pressure. The disappointing China inflation data has overridden positive Australian employment reading, to drag the Aussie dollar lower, whilst the suggestion that the RBNZ will curb its tightening cycle has put pressure on the Kiwi dollar, and the Canadian dollar is back to 1.1000 as the oil price continues to weaken.
The US session only really has Weekly Jobless Claims to focus on this afternoon with an expectation of 300,000 at 13:30BST.
As we move closer to the vote on Scottish independence, trading in UK assets will become ever more tense, which should result in increased volatility. The latest poll, which was released yesterday by the Daily Record, suggested that the “No” vote was regaining some of the lost ground. This has helped to drive a rally in sterling which can be seen on the reversal patterns on GBP/USD and EUR/GBP.
GBP/USD looks now to be building a recovery. A “Morning Doji Star” pattern (a 3 day bullish candlestick set-up) is being bolstered by another positive trading day today. The next key resistance is the $1.6282 exhaustion gap. If this can be closed (ie. a daily close above the level) then this would be a bullish signal. This morning, Cable came within 20 pips of filling this gap. There is also the $1.6280 resistance of the 38.2% Fibonacci retracement of $1.4812/$1.7191. The caveat to a recovery also comes with the significant fundamental uncertainty of the Scottish independence vote. Any polling that comes out suggesting a result that is too tight to call is sterling negative.
EUR/GBP has also been significantly volatile in the past few days and yesterday was no different. Having jumped higher on Monday and Tuesday, sterling fought back against the euro to leave a bearish outside day on EUR/GBP. This decline has continued today and if this continues then a retest of £0.7900 support will be seen. As with Cable though, the sterling volatility makes the conviction in a call not as high as it could be.
Gold is under the big pressure again today. The price has breached the support at $1240 and although the break is not yet decisive, a close below $1240 would suggest a rejection of the June low and then open the key December low at $1184.50. Momentum is very weak now, but the RSI is now just below 30 and beginning to suggest that immediate downside potential is becoming limited. The sell-off in gold has not been straight within the downtrend channel, but any rallies must be seen as a chance to sell. Initial resistance comes in at $1258 with sizeable resistance now between $1270/$1280.
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