11/11/2014: With little on the economic calendar volatility could be quite low

Market Overview

The bulls will be hoping that the market is not once more slipping back into the (slightly concerning) trend of gradual gains. This is a concern because often it is a build-up of small gains that are the precursor to a big correction. It is perhaps a bit too early to be talking about that though, with Wall Street around 0.3% higher and again posting record all time high with the S&P 500 at 2038. Asian markets followed with slight gains although the Nikkei outperformed as the yen has begun to weaken again. European markets are a little more sceptical with a markets all but flat after a decent day of gains yesterday.

In forex trading, the major pairs are all broadly flat, with the exception of Dollar/Yen which is around half a percent higher. There is very little by the way of economic data due today, whilst the US celebrates Veterans Day public holiday.  With the US off, this is likely to mean a rather sedate trading day for equities and forex alike.

Chart of the Day – EUR/GBP

Is the Euro building for another rebound against Sterling? The euro has spent the last week testing the key near term resistance around £0.7850 and although this level continues to act as a barrier on a closing basis, a three week downtrend has been breached as a battle for control continues. The Stochastics are an interesting indicator here as they have just confirmed a bullish crossover buy signal. This is the third such signal since the Euro/Sterling broke its big bear trend (back in July), with each of the other two successfully calling a euro rebound. Furthermore, other momentum indicators (RSI and MACD) are far more neutral this time around, suggesting a lack of selling momentum currently. If the euro starts to close above £0.7850 it would give further indication that the bulls are beginning to fight back once more. Taken across a 4 month period, EUR/GBP has been trading broadly sideways and this could be the beginning of the latest rebound for at least a retest of £0.7913. Key near term support is at £0.7795, with £0.7758 the key medium/longer term support.

EURGBP   11112014

EUR/USD

Yesterday was a disappointing day for the recovery bulls as it seemed as though the euro was simply reverting to type, with yet another rally being sold into. The day close coming just a few pips off the low suggests that the sellers are back and downside pressure is resuming. The intraday hourly chart now shows what looks to be the latest lower high at $1.2509, under the previous peaks at $1.2533 and $1.2577. The fact that this is all occurring under the resistance of the neckline around $1.2600 ties into the whole bearish argument which continues to play out for further downside towards an implied target of $1.2320 from the head and shoulders continuation. Continue to use any strength as a chance to sell as the bears remain firmly in control.

EURUSD   11112014

GBP/USD

The rebound appears to have been rather short lived as the selling pressure has quickly resumed. As with the euro, Cable closed just a couple of pips off the day low yesterday and with momentum indicators still very much in bearish configuration, further downside can be expected. This means a likely immediate retest of the $1.5788 low and weakness towards the next (minor) support at $1.5750. The intraday hourly chart shows that the bulls have really struggled to get any sort of a hold on Cable in the past week. Once again with a lower high being left at $1.5917 coming below the key band of near term resistance $1.5950/$1.6000 there is little of any positive note to take from this chart for the bulls. Using any strength as a chance to sell remains the only really viable strategy.

GBPUSD   11112014

USD/JPY

The dollar bulls remain in control. I spoke yesterday of the consolidation in Dollar/Yen and the potential for it to use the 100% Fibonacci projection level (at 113.77) as a basis of support and this seems to have been the case as the rate has bounced off 113.84 and has pushed through the recent rally high at 115.50. Momentum indicators retain a bullish configuration and there is little reason to suggest that there will not be further upside in due course. The intraday hourly chart shows a positive reaction in Asian trading early today with hourly momentum and moving averages both strong. Also, the rebound from 113.84 has merely strengthened the support in the band between 113/114. The move above 115.50 has opened a reaction high from 2007 at 115.92, but the next key resistance from that year is not until 117.94.

USDJPY   11112014

Gold

Yesterday’s price action should teach us that you should always look for confirmation, as the move does not bode well for the recovery of the gold price. Friday’s bullish key one day reversal is still intact, but the subsequent candle is could mean that the move may well have been rejected. A “dark cloud cover” candlestick (a move above the previous high which is subsequently rejected to close below over half of the previous day’s gains) is in serious conflict with the bullish rebound outlook. In the least it means that the resistance at $1180.70 has been significantly strengthened by yesterday’s peak at $1178.94. Daily momentum remains weak and it will be interesting to watch the Stochastics now as they had threatened to give a bull crossover (which in a big bear phase is a warning for short positions rather than an outright buy signal). The intraday hourly chart also reflects the loss of upside momentum in the very near term and a failure to get back above the pivot level around $1161.60 would ramp up the pressure on the recent low at $1131.85.

Gold   11112014

WTI Oil

The resistance around $80 is strengthening. Early gains yesterday have fallen over once more under the resistance (at $79.85) and the sellers have seemingly regained control with a bearish outside day. Momentum indicators remain very weak and suggest rallies will be sold into. The falling 21 day moving average is a decent guide now (currently at $80.50), whilst the resistance from the descending triangle downtrend also comes in around that level. The triangle continues to target $75 which is also the crucial support from the four year sideways trading band, so the pressure is mounting with very little appetite for buying still. Expect a retest of the recent low at $75.84 before further weakness towards $75. The resistance at $82.88 remains the abort level for the bearish triangle.

WTI   11112014

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