Geopolitical tensions took a positive turn yesterday as dovish words from Russian President Putin over the conflict in eastern Ukraine and a the process for a change of prime minister in Iraq allowed the markets to breathe easier. Despite sluggish GDP figures from the Eurozone and a surprise jump in weekly jobless data, Wall Street markets posted another solid gain. With Asian markets also solid overnight, European indices have taken on a mildly positive outlook at the open.
The words of Vladimir Putin in Crimea concerning the conflict between the Ukrainian government and pro-Russian separatists had a mildly positive influence on the market yesterday. Stating that the Russians would do everything in their power to end the conflict as soon as possible seemed to suggest an improvement in the geopolitical tensions. We can only hope that his words are followed by positive action, as undoubtedly, if Putin really did want this conflict to end, it could be done very quickly.
With very little real movement so far, the dollar is trading mixed against the major currencies as the European traders begin to take control of forex trading, however there is quite a lot of data due today that could have an impact on the direction of these pairs. Traders will be focusing on the second reading of UK Q2 GDP at 09:30BST, although little surprises are expected with +0.8% growth for the quarter again forecast. More interest could come this afternoon, with the announcement of US Industrial Production at 14:15BST, where the capacity utilization number will be of particular interest. Coming after the disappointing retail sales numbers earlier in the week, the University of Michigan consumer sentiment number will also be interesting at 14:55BST. An improvement to 82.5 from the previous 81.8 is expected.
Chart of the Day – NZD/USD
A sharp move to the upside in the last two days have allowed the bulls to start to think of the next bull leg. The move has broken a sequence of lower highs in the past week and at the same time breaking the downtrend from the July peak. Interestingly, the move has left a low at 0.8406 which was almost to the pip the key low that was posted in June. The momentum indicators are also giving some reversal signals. The RSI recently bounced from 30, which was the same level that it reached in June. The Stochastics have also been bullishly diverging recently and also is now giving a crossover buy signal. Furthermore, the MACD indicator is also today giving a bullish crossover buy signal. This suggests the reversal signals are racking up now. The more conservative traders may want to wait for a push above the reaction high at 0.8534 to confirm the move, however it looks as though a rally is underway. A move below the key support at 0.8400 would abort the recovery argument.
Another day, another neutral candlestick pattern on the euro. This has now made six days out of the past seven where there has been an intraday dip below $1.3350 before the bulls have supported the price. All the while, the support of the low at $1.3330 remains firm and the bullish divergences on the momentum indicators remain intact. Furthermore, the MACD lines have now given a bullish crossover buy signal. Unfortunately it would appear as though this will be a long and drawn out phase of a rally. The intraday hourly chart shows a sideways range has formed over the past few days as attempts to take the rally higher have been rejected. Look for a sustained move above $1.3400 as a sign that the bulls are able to hold on to gains, however the real recovery needs a move above $1.3445. Although I still believe that the rally will come through eventually, for now, the price action suggests that we will have to wait for a bit more confirmation before getting excited about a euro rally.
After the precipitous decline of the previous session, yesterday’s trading day could be taken as quite a positive one. Closing not far from the high on the day and back to the old support around $1.6690. The question is that whether this old support is considered to be broken enough to now be new resistance. The breach of the support took Cable to a new low dating back to early April and whilst it was only an intraday breach, it was still a bearish move. The momentum indicators are still a problem as they are all in significantly bearish configuration and the only real positive taken can be that the RSI remains oversold. The outlook for Cable is weak with the strength of the four week downtrend extremely corrective. The bulls will hang on the fact that the price currently trades over 100 pips below the resistance of the downtrend (c. $1.6805) and there is room for a rebound. This may be the case but the intraday hourly chart shows resistance at $.16754 to negotiate and the fact that any rallies continue to be sold into.
The dollar bulls remain firmly in control as a fourth consecutive day of higher traded low and higher traded high was posted yesterday. The support is now strengthening at 102.30 and the chart is shaping up for another test of the resistance levels within the range. The dollar is now approaching a test of the initial resistance at 102.80, and a close above this level would be seen as a significant step towards a sustained bull move. There is also the intraday resistance at 103.00 to overcome as well. However, looking at the intraday hourly chart there is a positive set up with hourly momentum indicators all in bullish configuration and the price using the rising moving averages as the basis of support. There is still much to do to break the shackles of the long trading range, but there is now a good set-up for the bulls to give it a stern test.
The consolidation phase continues as yet another intraday move to test the resistance at $1322.60 is rejected. The daily momentum indicators are only just on the positive side of neutral, and trading above the moving averages gives gold a slight bullish bias. However, the number of candlesticks with long upper tails is growing and this is becoming a touch concerning now. This suggests the bulls do not have the stomach for a push higher. Gold needs to rally above $1322.60 and more importantly $1324.44 in order to suggest that the bulls have really got near term control. The intraday hourly chart shows a trading range between $1305/$1322.60 that needs to be breached. Again there is a slight bullish bias on the hourly momentum indicators, but without the successful breach of resistance, going long too soon could prove to be a risky game. Above $1324.44 opens $1345, however if the support at $1305 fails there could be a retreat back towards the $1280 support.