After a mixed close on Wall Street, Asian markets initially rose, only to culminate in a late session bout of selling pressure in the wake of weaker than expected retail sales and industrial output for China. The data pulled equities in China and Japan lower, but Australia remained positive after better than expected employment data. New Zealand has become the first country to tighten monetary policy with an increase in its main cash rate to 2.75% from 2.50%.
European equity trading has started in muted style once again with indices broadly flat, although the Euro and Sterling have been strong following sharp gains earlier in the Asian session
Focus will turn quickly to the release of US Retail Sales this afternoon at 12:30GMT (don’t forget US data is an hour earlier due to the Daylight Saving Time shift). The number is expected to be +0.2% and better than January’s -0.4%, although there has been some suggestion of a negative read through from the disappointing Chinese exports data earlier in the week. Other than that the weekly jobless claims are also out at 12:30GMT with an expectation of 330k.
Chart of the Day – EUR/GBP
An incredible turnaround for the Euro in the past few days has seen the downtrend that has been in place since July broken, however, there has also been a break above the key resistance at £0.8350 which has completed a base pattern. This now suggests further recovery towards the next key resistance at £0.8466 which is also around where the 50% Fibonacci retracement of the big July to February sell-off comes in at £0.8463. Momentum indicators continue to improve and moving averages are also turning higher. The intraday hourly chart shows little sign of the recovery abating, with momentum indicators firmly in bullish configuration and a series of higher lows being supported by the rising 555 hour moving average (currently £0.8347). The next key resistance on the daily chart comes with the 38.2% Fibonacci retracement at £0.8390 which coincides with the key high at £0.8392.
The past 24 hours has seen a complete turnaround in the Euro. Having spent the first two days of the week drifting calmly lower, the rate has gone once more on a huge run higher. This move has seen the rate once more break above Friday’s high at $1.3915 to take the Euro to the highest since October 2011. The price resistance means little that far back but is up at $1.4247 anyway, so the next level to be concerned with is the round number resistance at $1.4000. The daily RSI is back up to over 69 (highest since October 2013) and is stretched but the strength of the trend suggests this is a sign of strength rather than an immediate reversal signal. Hourly intraday momentum indicators are also positive, if a little overbought. Intraday resistance is at the overnight breakout level at $1.3914 and $1.3895.
The weakness yesterday saw the completion of a downside break below the key support at $1.6581, which suggests further weakness towards $1.6480. However, there has been an attempt by the Cable bulls overnight to change the outlook once more. A spike higher through $1.6653 (which now becomes the support) has dramatically improved the near term picture, with Cable now at a two day high. However, a move above the resistance at $1.6683 is needed to would take the rate back above the falling 200 hour moving average and take Cable back into mid-range once more to suggest a neutral outlook. Hourly momentum indicators have improved but have still got some way to go before they can be considered to be in positive configuration once more. For now, this chart still has s legacy of downside pressure to cope with.
Having tested the support at 102.83 for several days, the pressure finally told yesterday and there was a breakdown. The old support now seems to be acting as a basis of resistance in the near term, whilst the outlook is now being questioned. The move below 102.83 arguably has completed a top pattern which suggests weakness will be seen towards 102.20 now. The shorter intraday moving averages have turned negative and the intraday hourly momentum indicators have also taken on a bearish configuration. Resistance is in place with the overnight high at 102.86 and pressure is being once more put on the support around 102.50. With a series of lower highs in place over the last couple of days, the strategy seems to be increasingly one to sell into rallies.
In the last day or so, gold has just accelerated away again as it has moved strongly higher. The daily chart shows that the resistance at $1361.60 made little impact and the rally has key going overnight. This move is also going some way towards breaking the bearish divergences which have been a big caveat for gold in the past week. There is an immediate upside target from the break of the trading range $1328.86/$1354.80 which gives a projected target of $1383.74. The rising 21 hour moving average at $1368.48 has been a basis of support in the past 2 days, but there is a slight caveat on the hourly momentum indicators which have just turned lower and MACD lines have not confirmed the recent high and could suggests a near term loss of momentum.