12/02/2014: Markets remain buoyant after Yellen goes for continuity

Market Overview

Investors are once more looking up rather than down following Janet Yellen’s testimony to the House Financial Services Committee. In successfully convincing investors that she was as dovish as Ben Bernanke, the outlook for the Federal Reserve’s monetary policy is apparently one of “continuity”. This means a steady reduction in asset purchases and the expectation that interest rates will remain at record low levels for a long time. There is nothing more that the market could really have wanted and the reaction has been decidedly positive, with many stock markets closing at the high for the day.

The positive outlook was also assisted by the House of Representatives agreeing to pass a suspension of the US debt ceiling until 15th March, while there was also a huge positive surprise in Chinese trade numbers which included 10.6% export growth in January. Asian markets were strong and also pass the baton to the European trading in a positive mood.

The main impact today will be from the Bank of England which gives its Quarterly Inflation Report at 10:30GMT. The expectation is that governor Mark Carney will have to revise his forward guidance which he first gave back in the summer. Dampening down expectations of an early interest rate hike in the UK would though help to put the reins on the recent rise in Sterling.

Chart of the Day – EUR/JPY

The rally for the Euro in the past week has dragged Euro/Yen back to the resistance of the corrective downtrend and suggests it is now back to a key level once more. The falling 21 day moving average (now 139.85) has capped the upside on several occasions over the past month and could be doing so once more as the rate just drifts back in early trading. The downtrend remains intact, while there is also the resistance of the old lows within the January sell-off at 140.28. Momentum indicators are giving mixed signals with the RSI unwound to neutral, but there has just been a crossover buy signal on the MACD. The break this corrective sequence, Euro/Yen would need to breach the reaction high at 141.25 and ideally 142.41. Intraday support comes in at 139.13.

EURJPY   12022014

EUR/USD

Having broken through the top of the downtrend channel to open a test of the key lower high at $1.3739, the Euro needs to sustain this momentum for the bulls to regain control. However, finishing yesterday towards the day low and uncertain early trading is threatening this February recovery. Unwinding back into a band of support between $1.3590/$1.3640, the rate needs to pick up once more off the rising 89 hour moving average (currently $1.3628). On the positive side, the hourly momentum indicators all look to be turning higher once more, with a crossover buy signal on the Stochastics and close to one on the MACD. There is a reaction low at $1.3607, with an overnight high in place at $1.3646.

EURUSD   12022014

GBP/USD

The outlook for Cable continues to improve as the rally on the daily chart continued yesterday. The immediate barrier of the resistance of the underside of the old uptrend on the daily chart capped the gains yesterday and today comes in around $1.6500. However, on the intraday hourly chart we see support continuing to come in at higher levels and with the rate yesterday pushing above the 61.8% Fibonacci retracement level of the late January sell off, the suggestion is that a push back towards the high at $1.6066 will be seen in due course. Overnight support came in at $1.6439, with the 50% Fibonacci level now supportive at $1.6428.  Watch out for 10:30GMT with Mark Carney’s Bank of England Inflation Report as there could be some significant volatility.

GBPUSD   12022014

USD/JPY

Yesterday, amid Janet Yellen’s promise of continuity in the Fed’s monetary policy, the Dollar continued its slow and steady move back towards the key breakdown resistance at 102.83. However in Asian trading the rate has just slightly backed away, but will look towards the 89 hour moving average which has become the basis of support for this five day recovery, currently at $102.30. The support at 101.97 is taking on increasing near term significance. However there is a recovery uptrend intact and the dollar continues to look higher towards 102.83.

USDJPY   12022014

Gold

Gold confirmed the breakout above the key reaction high at $1278 that was seen in the early hours of yesterday, to continue to take aim at the next resistance level at $1294. However, having completed the base pattern on the daily chart now, the gold price first needs to break and sustain a move above the 144 day moving average (currently $1292). This has been the barrier to the last two major rallies and a move above would validate the base pattern and open the way above $1300. The intraday chat needs to hold above the reaction low within the recovery at $1276.57 to maintain the current move. However, with hourly momentum indicators in positive configuration and with upside potential, gold has the potential for further sustained gains.

Gold   12022014

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