The bond markets are having a big say on the sentiment across other asset classes for the moment. Yesterday’s slight easing of the selling pressure on Treasuries has abated to take the pressure of equities near term. This is being seen through the slight rebound on European equities this morning. It is a big day for economic data across the regions and is likely to drive a day of higher volatility, with Eurozone growth data, the inflation report by the Bank of England and also US Retail Sales. The release of German GDP has knocked some of the wind out of the sails of the euro, as the quarterly data missed expectations with the growth of +0.3% (below the +0.5% that had been forecast). Eyes will now be turning to the announcement of Eurozone-wide data to see if this will feed through.
European equity markets have started mildly positive after a late bounce back (from early weakness) on Wall Street saw the S&P 500 closing -0.3%. Asian markets were flat to slightly higher overnight. Forex markets are trading fairly mixed today with a flurry of key economic announcements in the offing.
The UK unemployment will be a driver of sterling at 0930BST. The rate continues to fall (expected at 5.4%) but the more interesting data point is likely to be the average weekly earnings growth which is expected to pick up to 2.1%. The Bank of England’s Quarterly Inflation Report at 1030BST will be the main driver of sterling volatility today though, with focus on the inflation and growth projections. Eurozone GDP at 1000BST is expected to show that the region’s growth continues to improve, to +0.5%, although this may now be a tough ask seeing as German GDP missed just earlier. US retail sales at 1330BST will be the main dollar driver with an expectation of just +0.2% (down from +0.9% for the month last time).
Chart of the Day – AUD/USD
The Aussie has recovered once more to be positioned strongly for a test of the key resistance that starts coming in at $0.8030. This has been a key ceiling on the Aussie since late January and remains the big resistance that is preventing a significant upside breakout for the Aussie. There has previously been an intraday break of the resistance but this failed at $0.8075 and there has never been the closing breakout which is needed on a move of such importance. This time around the momentum indicators are quite mixed in their outlook. The RSI is now consistently finding lows above 50, whilst the MACD lines are also positive. However, the Stochastics are a touch subdued which leaves me a little concerned. There has already been one failed attempt I Asian trading hours which has fallen over at $0.8010 today. It is also concerning that the hourly momentum indicators are all suggesting that the Aussie has turned into a more corrective mode near term. A move back below the intraday support at $0.7947 from yesterday would signal another failed attempt. A failure of the support band $0.7860/$0.7880 would see the bulls lose control within the range once more.
The return of the bulls has not been entirely convincing, but there is still a sense that the buyers are still in control. The slightly disappointing end to what had been a strong day for the euro resulted in a close just above half way up the candle. That means that today’s price action becomes even more important that the bulls can continue to push on. The signs are decent so far with the buying pressure through the Asian session. The one main concern I still have for my bullish outlook is the Stochastics which are falling away slightly. However, the RSI and MACD are holding on to their bullish outlook for now and this is more encouraging. The hourly intraday chart shows the problem from yesterday which was a failure to breach the Non-farm Payrolls resistance high at $1.1290. This is the first priority today. Hourly momentum looks positive with a low posted around $1.1200. A reaction above $1.1290 would continue the run higher and re-open $1.1390.
The breakout above $1.5550 has been confirmed by a second daily close above. This confirms a bullish breakout and suggests that a test of $1.5785 and $1.5825 will be seen. Immediate momentum is increasingly strong with the RSI over 70, but after six straight days of gains there is going to be the prospect of a corrective day coming soon. I would be looking t use this corrective day as a chance to go long. There is now good support for a minor correction back at $1.5500/$1.5550. The intraday hourly chart show positive hourly momentum indicators across the board and the bulls remain firmly in control. I am confident of further gains and see any corrections as a chance to buy. Expect a volatile morning though with UK unemployment and also more importantly the Bank fo England Quarterly Inflation Report, whilst Retail Sales from the US this afternoon should ensure an interesting day.
The failure for Dollar/Yen to breakout has once more been seen as another two to three day upswing has fallen over once more and the price is currently looking to retrace back towards the 119.40 pivot level again. The daily momentum indicators are neutral and showing little sign of any imminent breakout. The price has now not traded outside the Bollinger Bands since 20th April, and with the bands broadly flat (between 118.65/120.38) this suggests looking to trade the pair from one band to the next. The intraday hourly chart shows another way of trading Dollar/Yen, using the extreme moves on the RSI, where a move to 70 is a sell and towards 30 it is a buy. The resistance is now strengthened between 120.20/120.30.
Can yesterday’s strong bullish candle finally fire the gold bulls into life? I remain sceptical as there is very little on the momentum indicators that suggests any stored up bullish intent building. The move has so far failed to breach the initial resistance around $1200 and this needs to be breached today to begin to build some momentum. Looking at the hurly chart is apparent that the main move of yesterday played out very quickly in the morning only to then spend the rest of the day in consolidation mode. This has done little to dispel the suggestion that gold is forming a tighter range between $1179/$1200. Hourly momentum indicators suggest that the price remains rangebound for now. Above $1200 opens resistance at $1215.
The bulls are back. The support around $58.30 has held firm and the outlook has significantly picked up with a strong push back above the resistance at $59.90. I was concerned that the uptrend may have been breaking, however the consolidation has simply helped to renew the bullish outlook. The daily RSI has now spent the past 4 weeks above 60 which suggests the momentum remains strong and this is positive for further upside pressure. The other concern that I had was that on the hourly intraday chart there was a potential head and shoulders top pattern forming which could have dragged the price back towards $54.00, however the break back above $59.90 has now extinguished that threat. There is now a good band of near term support between $59.50/$59.90 to use as an area to look for buying opportunities should the price correct back again. A move back above near term resistance at $61.30 now looks to be re-opening the $62.58 spike high. The daily chart still implies a target of $65.00 from the big base pattern.