Trading sentiment has improved significantly in the past 24 hours. The ceasefire that has been struck between Putin and Poroshenko has given investors cause for optimism. However, I remain sceptical that it will last, the ceasefires of last year never really did a great deal to prevent the conflict from spreading(also quite what Putin is agreeing to is a mystery to me seeing as Russia is still not officially involved in the conflict). Still though markets, especially the DAX have been positive as a result. Wall Street closed in positive territory with the S&P 500 up 1.0%. Asian markets have been mixed, with several showing gains, but the Nikkei 225 was slightly lower, down 0.4%, as the yen strengthened overnight amid comments from the Bank of Japan yesterday. European markets are again trading slightly higher today.
There has been a lot of action in the forex trading markets in the past day. There has been a big move away from the dollar as the Bank of England signalled a slightly more hawkish tone and engaged a sterling rally. The euro was also not to be left behind and also began to rally. There has been a sharp strengthening of the yen too as the Bank of Japan has alluded to the fact that additional stimulus may not be forthcoming. Overnight we have seen the continuation of these moves, even the Australian dollar is stronger, with the Canadian Loonie the only major currency not to gain against the dollar today.
The main feature of the morning’s announcements will be the growth data across the Eurozone. We find out today how the region performed in the final 3 months of 2014. The expectation is that +0.2% GDP growth was achieved, the announcement is at 1000GMT. The only other really important piece of economic data is the University of Michigan consumer sentiment data at 1500GMT which is expected to improve very slightly to 98.2 (from 98.1).
Chart of the Day – FTSE 100 Index
Will the FTSE 100 ever breakout into new high ground? Well first of all it needs to breach 6905 resistance and it is having a significant struggle to achieve that. Once again I have my doubts that it will be able to breach the resistance. The candlesticks for the past week have been all rather disappointing. A series of negative candles with long lower tails suggests that although the bears have been present, they cannot quite grasp the ascendency. However this has resulted in the momentum indicators losing the upside impetus. The RSI is once again failing around the mid-60s (a feature of all the previous failures at the key resistance), the MACD lines are in the process of crossing lower, and the Stochastics have confirmed a sell signal (with a small bearish divergence too). It is increasingly concerning how the FTSE 100 is trading, however there is still a 40 point basis of support which remains intact at 6732/6773 and whilst this remains the case, anything is possible. Minor gains have been posted at the open today, but I am concerned though that this is a similar consolidation that was present in late November prior to a sharp correction. (I am also concerned that amidst a day when the DAX rallied over 1.5%, the FTSE could muster just 0.2%.
After a pretty turgid few days the euro has finally started to get some upside traction. The daily chart shows a strong bull candle yesterday and this has been followed up by further gains early today in the Asian session. Today’s move has taken the rate above the 21 day moving average, but there is still much resistance overhead that needs to be breached for the bulls to really begin to feel traction to the upside. Between $1.1485 and $1.1530 there is the barrier of four consecutive daily highs to be breached that mark the failure of the initial attempted technical rally. However, momentum indicators continue to pick up, with the RSI now at the highest since mid-December and Stochastics and MACD also improving. The intraday hourly chart shows the rate consolidated around $1.1400 but is now pulling clear. This is therefore the initial support, with further support at the old top of the consolidation of the recent days at $1.1360. Look to use any intraday weakness into support as a chance to buy for a retest of the overhead resistance around $1.1500.
I have been talking about the importance of the support at $1.5200 holding and that I saw the Bank of England’s Quarterly Inflation Report as being a potential break to the consolidation and this has played out. However the upside move since seen has really started to see the sterling bulls gain traction, at least for the near to medium term. A breakout above the $1.5350 resistance has finally been seen and this opens the way towards the next resistance at $1.5485 (and to be honest there is not much in between). Cable finally seems to be pulling clear of its downtrend and that mean that the dollar bulls have lost control for the time being. The momentum indicators all confirm the bull run with RSI, MACD and Stochastics all at their highest level since July. This all suggests that a recovery is underway. Quite how far it goes remains to be seen but the initial target range must be the $1.5485/$1.5620 band of resistance. The previous breakout highs $1.5300 and $1.5350 now become supportive.
After all the breakout of the dollar and the strong run higher, Dollar/Yen pretty much turned on a sixpence yesterday as reports emerged that the Bank of Japan saw additional stimulus would be “counterproductive”. This has resulted in a “bearish engulfing” candlestick pattern being posted on the daily chart (which is a powerful reversal signal). It now remains to be seen whether this is backed up today by further weakness in Dollar/Yen to confirm the reversal and the initial signs are that it will as downside has continued in the overnight Asian session. The daily momentum indicators have started to turn lower, but only really the Stochastics are giving a negative signal (a bear crossover). The hourly chart shows an almost entire retracement back to the bottom of the old flag pattern at 118.30 which is now a key near term support. The series of lower highs left over the past ay means that 119.20 (again coinciding with the top of the flag breakout) has formed the basis of resistance. A move back above 119.20 would muddy the corrective waters, whilst a breach of 118.30 would suggest continued weakness back below 118.00.
I am going to have to suspend my medium term outlook that was previously positive and put gold on “negative watch” for a move to a negative medium term outlook. The reason being that the key support I have been noting at $1221 has been breached but a rally back above it has complicated matters. However the near term outlook remains negative. The downtrend formed sine the $1306 high is intact and currently comes in around $1254. There are a series of consolidations at successively lower levels on the intraday hourly chart and once more the rebound looks to be trading up towards the bottom of the previous congestion zone between $1230/$1245. It is within this band at which I would expect the next lower high to be formed and the downside pressure to resume. Hourly momentum indicators are in negative correlation and suggest that rallies are a chance to sell. A move above the downtrend at $1254 is needed to negative the near term bearish outlook which is now seriously threatening to turn into a medium term bearish outlook.
The daily fluctuations and volatility in WTI Oil are significant and mean that it is difficult to call oil on an intraday basis with any real conviction. Stepping out into the daily chart gives us a clearer picture though. The 21 day moving average which had been a good basis of resistance has now turned up to become a basis of support at $48.50. The 21 day ma has caught the 2 recent sharp declines on WTI and has helped to maintain the potential for the recovery. However the resistance of the big downtrend is looming large now and today is falling at $52.15 so something will have to give very soon. Trading above the 21 day ma gives the bulls hope (with support from the recent reaction lows at $48.05 and $47.36). However the downtrend resistance could be telling. This means that in the next day or so there will either be a bullish signal (breaching the downtrend) or a bearish signal (breaching the 21 day ma). A close below $47.36 puts the bears back in control again.