17/02/2014: Investors start the week in a positive mood

Market Overview

Investor sentiment has begun on a positive note as Friday’s upbeat close on Wall Street flowed over into the new week with gains in Asia overnight. Mixed economic news from Asia could not hold back a rally in the equity markets in the region. Japan recorded disappointing Q4 GDP data which was just 0.3% and well below the 0.7% expected by consensus. This will now add pressure on the Bank of Japan to perhaps step up its monetary policy initiative, with the latest statement on monetary policy set for tomorrow. The news could not hold back investors amid news that banks in China was at a four year high in January.

This positive handover all means that there is an upbeat start to the European trading day. Overnight, strong housing data for the UK could add to the recent gains for both sterling and help bolster stocks. There is little data due out today, and with the US also having a public holiday (Presidents Day) this should mean that volumes are quite light.

Chart of the Day – EUR/JPY

This is becoming a key time for the chart of Euro/Yen. Whilst the Dollar/Yen chart has shown a corrective outlook continuing, the Euro is much stronger here and is consistently testing the key 6 week downtrend on the daily chart. Over the past couple of sessions  the rate has been trying to break higher, while it is also pushing above the resistance of the falling 55 day moving average which has been an excellent gauge since the beginning of January. A break above the reaction high at 140.29 would suggest the bulls are beginning to win the battle which is becoming increasingly tight. The support at 138.63 is key to the downside in the near term.

EURJPY   17022014

EUR/USD

Euro bulls remain in control as the gains over the past three days continue. The daily chart continues to improve with moving averages and momentum indicators all advancing and the test of $1.3739 seems to be imminent. The hourly chart shows just an initial slowing of the upside impetus as European trading hours begin to take control. There is support in the band $1.3656 to $1.3681 which needs to hold, however with momentum studies in bullish configuration this would likely be just a consolidation before the next leg higher for the $1.3739 test, with a breakout then opening $1.3775.

EURUSD   17022014

GBP/USD

The strong run higher that Cable has been in place since the beginning of February shows little sign of abating yet after seven straight days of higher lows. There is a slight warning with the RSI now very close to 70, a level that it rarely gets above. This may suggest that immediate upside potential could become limited. This may impact Cable with a bout of consolidation, and a US public holiday could be just that excuse, along with some crucial inflation data for both eh UK (tomorrow) and US (Thursday). On the intraday chart there is initial support at $1.6744 and then around the $1.6700 area which could contain any consolidation. The overnight high at $1.6822 is the highest reading on Cable since 18th November 2009.

GBPUSD   17022014

USD/JPY

A fairly quiet day on Friday for Dollar/Yen but the slide on the daily chart continues as the downside pressure has continued. The disappointing Japanese GDP data did little to impact the rate overnight when it should theoretically weaken the yen with the prospect of looser monetary policy, but in early European trading the rebound in Dollar/Yen is beginning to come through. For this move to be notable from an intraday chart perspective, there needs to be a break back above the 101.97 neckline resistance and then above the 102.40 reaction high. If this were to be seen then the outlook would begin to turn back towards a more positive outlook. The falling 21 day moving average on the daily chart is the basis of resistance, falling currently at 102.51.

USDJPY   17022014

Gold

The move higher appears to be unrelenting as gold continues towards the implied target of the base pattern on the daily chart of $1350. Daily momentum indicators show the huge strength with the RSI now the highest since September 2012, but this could suggest that upside potential will begin to run out of steam and gold become susceptible to profit-taking. The intraday chart shows the potential for a correction, with the consolidation in Asian trading hours this morning encouraging momentum indicators to roll over. The support band between $1313/$1320 now becomes important to holding on to the bull run. On a medium term basis a correction could be healthy.

Gold   17022014

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