Wall Street indices showed the first cracks of a correction yesterday after the first really negative session since 20th May. The Asian session was also weak, with the Japanese Nikkei 225 under pressure amid a strengthening of the yen. European markets are cautiously flat in early trading .
Forex trading amongst the major pairs is fairly uncertain so far today leading to consolidation for the Dollar Index after yesterday’s slight correction. However there is one notable exception, with the New Zealand dollar over 100 pips (around 1.2%) higher. This came after the Reserve Bank of New Zealand hikes rates for a third straight month to 3.25% and the expectation is for further rate hikes to come. Australian employment data slightly missed expectations overnight but there has been little impact on the Aussie Dollar so far.
Risk appetite in financial markets is being eroded as the situation in Iraq is now spreading, with militant groups linked to Al-Qaeda taking control of the northern Iraq cities of Mosul and Tikrit. Whilst this does not have immediate impacts on oil supplies from Iraq, as most of the supply runs from the south, however this certainly has the potential to further destabilise a region already struggling to cope with unrest in Syria.
Economic data due to be released today includes US Retail Sales at 13:30BST which are forecast to improve to +0.6% (from +0.1% last month) and weekly jobless claims also at 13:30BST which are forecast to drop slightly to 309,000 (from 312,000 last week).
Chart of the Day – AUD/USD
A sequence of 7 positive sessions out of the past 8 has taken the Aussie dollar into the key overhead resistance band that includes the key highs between 0.9408/0.9461. These highs mark the top of a trading range that the Aussie has been in since late March. However with this move there is still upside potential with the momentum indicators. The daily RSI is in the low 60s, whilst the MACD lines have only recently started to take off, although there is one slight caveat with the Stochastics beginning to roll over. The intraday hourly chart continues to sustain a positive outlook, with the rate trading above the 0.9320 key near term pivot level, momentum indicators in positive configuration and overnight a correction finding support nicely around 0.9360. The outlook therefore remains positive with pressure continuing to build for a test of the key overhead resistance band.
Amid the selling pressure seen recently, there are just some slight signs of stability in the Euro as Asian trading has seen support start to build. This means that the low at $1.3520 that was posted early in yesterday’s session remains intact more than a day later, which is something that the Euro has been unable to sustain for several sessions. However the momentum indicators retain a bearish configuration and this could just be a consolidation before further selling pressure. The key resistance near term is around $1.3585 and any unwinding rally back towards here should probably be seen as another chance to sell. Ultimately expect a retest of the low at $1.3502 (from last Thursday’s ECB press conference) and $1.3475 which is the key February low. The bears would remain in control until a break above $1.3670.
The sterling bulls fought back yesterday amid the continued improvement in UK unemployment. This is now putting strong pressure on the resistance of the 5 week downtrend which currently comes in around $1.6815. However the momentum indicators retain a corrective configuration and with the resistance at $1.6844 intact this could just be another chance to sell. The intraday hourly momentum indicators have improved with the rally, but are now showing signs of tailing off again. There is a resistance around $1.6817 (10th June high) which is currently being tested and a decisive move above would be a sign of intent that perhaps there was something more in the recovery. However, until the move above $1.6844 is seen I am still expecting a retest of $1.6737 and then back towards $1.6700.
In the past day there has been a shift towards a stronger yen. This has resulted in the breakdown of several bullish factors for the daily chart. The support of a 3 week uptrend has been sharply broken, whilst the rate is also now trading underneath the support of the 89 day moving average. Momentum indicators have also now started to deteriorate again which is negative for the near term outlook. On the intraday hourly chart the breach of the initial support at 102.10 now has confirmed the development of a sequence of lower highs and lower lows since 4th June. The outlook is under pressure now with intraday momentum indicators in negative configuration, hourly moving averages turning lower and yesterday a breach of the 102.00 pivot level. Despite early gains, Dollar/Yen looks to be now changing to a strategy of selling into strength with old supports becoming new resistance between 102.10/102.20. It would need a move above 102.46 to breach the downtrend that is now forming.
The near term recovery in the gold price continues to hold its ground, however yesterday there was a “doji” candlestick (open and close at the same level to denote uncertainty). This may though just reflect a consolidation , so we wait to see if there is a close below yesterday’s low which would subsequently signal a shift in momentum. The intraday hourly chart shows that the price is almost up to the resistance of the old key breakdown level at $1268.24. This then begins a band of resistance up towards $1276.60, whilst the 144 day moving average is at $1277.20. Furthermore, the hourly chart also shows that the old resistance of $1257.50 is now the basis of support, whilst the rising 89 hour moving average is also supportive at $1256.90. Near term the strategy would be long for a move towards the key resistance band. However this would be trading against the overlying trends as I see this as likely to be the limit to a recovery as the medium term forces are bearish for gold and it is likely to merely be a bear rally prior to further weakness.