13/02/2014: Investors take a pause for breath after recent risk rally

Market Overview

After the recent strong run higher due to several significant economic events, investors can be forgiven for a pause for breath. With a lacklustre close on Wall Street followed by a similarly uneventful trading session in Asia, this is what we have got, with indices fairly mixed. However, the slight improvement in the strength of the yen proved to be a drag on the Nikkei which fell 2% overnight. In Australia, news that unemployment was the highest in a decade sent the Aussie dollar a per cent lower and back below 90 cents.

The Euro continues to claw back some of yesterday’s losses, helped by the German inflation data which was in line with expectations. However the recovery may be stunted as the political pressure in Italy continues to mount on Prime Minister Letta which could result in him leaving office less than a year after taking power. This uncertainty could have a negative impact on the Euro and provide a drag on Euro/Dollar, which is still coming to terms with yesterday’s sharp decline.

Retail sales data in the US could impact on the dollar this afternoon, while Janet Yellen testifies once more to Congress, this time to the Senate Banking Committee.

Chart of the Day – Silver

Despite the rally in the gold price to a 3 month high, silver has been in a trading band between $20.58 and $18.80 throughout the period and shows little sign of a breakout quite yet. There is a historic pivot level around $20.50 which once more looks to have capped the upside. The momentum indicators are once more rolling over, with RSI turning lower and Stochastics threatening a crossover sell signal.  Bollinger Bands are neutral and also point towards the continuation of the trading band. Yesterday’s high at $20.38 looks to be a resistance now in place. The intraday chart shows the price now seriously challenging the 9 day uptrend, with momentum indicators also showing downside pressure increasing. If silver is to push above the key resistance, the bulls will need sustain their impetus to support it.

Silver   13022014

EUR/USD

The sharp sell-off in the Euro from yesterday afternoon took the rate back into the downtrend channel that has been in place since late December. However the move has been entirely retraced, with the top of the channel once more being threatened. If the rate can manage a move back to retest Tuesday’s high at $1.3683 then the outlook for the Euro would begin to improve. This would also leave a potential higher low at $1.3561. The intraday charts show a move back above the pivot level around $1.3620 which has opened yesterday’s high at $1.3652 which guards the key reaction high at $1.3683. However, an immediate barrier to gains is the falling 55 hour moving average which is a basis of resistance around $1.3628.

EURUSD   13022014

GBP/USD

The huge gain from Sterling yesterday came on the back of the upgrade by the Bank of England to its growth forecasts for the UK. However, this has now put Cable within range of an assault once more on the key January high at $1.6667. As Cable breaks out again on an intraday basis, there seems to be little that can hold sterling back at the moment. However, there is a minor caveat with hourly momentum indicators being extended and look to have rolled over, with a crossover on both the MACD and Stochastics, while the RSI is also stretched. There is immediate support at $1.6597 but then little until the band around $1.6550.

GBPUSD   13022014

USD/JPY

The dollar recovery had taken the rate back towards a test of the key overhead resistance at 102.83, but over the past day, this move has seen a retracement. The uptrend on the intraday hourly chart that had been in place since 5th February has now broken as dollar/yen pulls back towards the support band around 102. This only goes to strengthen the barrier at 102.83 and poses questions over the validity of the dollar strength. A breakdown of the support at 102 would now complete an intraday top pattern and open for a further correction back towards the neckline of the previous base pattern at 101.77.

USDJPY   13022014

Gold

Yesterday’s gains took gold to the highest level since 8th November. However the resistance of the falling 144 day moving average still looms on the daily chart and this is the main barrier which is holding back the outlook for a sustained recovery towards the $1350 base pattern target.  A loss of impetus is though becoming a problem that as on the intraday chart there is a momentum is in decline as the price has fallen in Asian trading hours and continued early this morning. The intraday reaction low at $1283.79 needs to hold to prevent a small top pattern now being completed. The hourly RSI has fallen to its lowest in over a week and also needs to improve from here to prevent the deterioration of the near term outlook. Intraday resistances come in at $1292.81 and the key high at $1295.91.

Gold   13022014

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