Investor sentiment retreated yesterday with Wall Street indices pulling back from their all-time highs with the S&P 500 around half a percent lower, and the VIX index of volatility pulling higher off its lows around 12. Investors are still concerned over the continued decline in treasury yields as the 10 year falls towards 2.5% which could suggest a lack of confidence in the future growth in the economy. Asian markets were mixed to slightly lower, with the Nikkei 225 pulled lower by a stronger yen. The strength in the Japanese currency was also due to the strong Japanese GDP data overnight.
European trading has also begun on a cautious note with investors taking the lead from Wall Street and Asia. GDP data from Germany and France early this morning has also been mixed, with German growth up 0.8% on the quarter and beating the 0.7% estimates, whilst French GDP showed no growth with 0.0% for the quarter which was less than the 0.1% expected.
Forex trading reflects an improvement for the Dollar in early trading today with the Euro and Sterling both showing very slight weakness. However, we could be in for a rough ride today with two pieces of key inflation data with the second reading of April CPI for the Eurozone at 10:00BST and then US CPI for April at 13:30BST. The Eurozone is expected to hold its original 0.7% reading for April, while the US is expected to maintain last month’s 1.7% figure. Both of these could have significant volatility to FX markets today.
Chart of the Day – EUR/JPY
Having consolidated for several weeks, the volatility behind Euro/Yen has increased significantly in the past few days. The sharp selling pressure has seen a 14 month uptrend broken, daily momentum deteriorate, and the rate trade below the support of the 144 day moving average (a long term basis of support) for the first time since October 2012. A breach of key support at 139.91 has also been a significant breakdown which has opened the support at 138.75. It now looks as though rallies are being seen as a chance to sell. The intraday hourly chart shows resistance around 140.00 to 140.30 would be a good area to sell as hourly momentum unwinds a bearish position to help renew upside potential. Expect further pressure to the downside with a retest of yesterday’s low at 139.42 before further downside in due course. The outlook would need a break above 141 to improve.
A day of consolidation above $1.3688 followed another sharp move lower for the Euro. The daily chart shows the uptrend since July now decisively having been broken and the basis of support at the 144 day moving average, which has held the key lows since September, but is now topping out at $1.3697. This is now a key moment for the Euro. A break below the key April low at $1.3671 would complete a 10 week double top pattern and imply a medium term correction was underway. The intraday hourly chart shows a day of consolidation but the hourly momentum indicators are merely unwinding a bearish position to renew downside potential. A failure to breach even the first resistance at $1.3743 does not bode well either. It would need a break back above $1.3777 before the bulls could even contemplate a serious recovery was underway. Expect further selling pressure on the lows.
With near to medium term uptrends along with support levels being broken Cable now seems to be on its way back towards the 89 day moving average (currently rising at $1.6645) which has been the basis of support for the last two major corrections of February and March. A two week top pattern completed on a move below $1.6820 yesterday which implies a projected downside target of $1.6650, which would coincide with the 89 day moving average from the daily chart. There is now a series of lower highs in place and with all intraday moving averages in decline the outlook for a correction is growing. Hourly momentum indicators are in negative configuration and suggest that rallies should now be sold into. The initial reaction resistance is at $1.6818, also around where the neckline resistance of the top pattern. Look to use rallies as a chance to sell.
The 144 day moving average(at 102.29) has indeed turned from support into resistance as the strengthening of the yen (helped by the positive Japanese GDP overnight) once more has dragged Dollar/Yen back towards the support of the shallow uptrend again. The trend support has been used almost to the pip overnight as the support, but the test may continue as the recent price action has suggested a focusing of pressure on the lows of the range. Daily momentum indicators are not especially helpful at this stage, whilst intraday hourly momentum also reflects a choppy period of trading. Trading back below 102.00 is a concern for the near term outlook as this has become something of a pivot level recently, whilst hourly moving averages also provide downside pressure. This is a difficult period for calling Dollar/Yen, but it seems as though rallies towards 102.00 are failing and should be seen as a chance to sell.
Whilst gold has continued to trade in an uncertain manner for at least the past month, making directional calls increasingly difficult, the 144 day moving average has been bolstered as a basis of support at $1281 and could be the bedrock for a recovery. Now in the past few days there has been a series of higher lows on the daily chart with the latest at $1291.19. There is little that can be gleamed from the daily momentum indicators and the daily chart suggests there needs to be a clean break above $1315.60 before the bulls can gain real confidence and even then the resistance at $1330.90 is the key level to be negotiated. Moving intraday though we find the hourly momentum indicators taking on more of a bullish configuration, whilst the moving averages become supportive. To help gain conviction in a positive outlook there now needs to be support formed above $1300, at which point tests of upside resistance can then be plotted. A breach of $1288.64 would negate any bullish outlook once more.