17/06/2014: Sentiment being to improve for equities as the dollar rebounds

Market Overview

Another damp squib of a session on Wall Street has come despite a series of positive economic data yesterday. With industrial production and improving home building sentiment, the S&P 500 limped to a 2 point gain. Asian markets have been muted, although the Japanese Nikkei 225 reacted positively to an announcement of measures aimed at economic reform as part of Abe’s “Third Arrow”. Despite this, European equity markets have opened fairly positively after a few days of selling pressure.

After a few days of being under corrective pressure the Dollar Index has formed support in today’s early forex trading. This comes despite yesterday’s announcement by the IMF that it was downgrading US 2014 growth outlook from 2.8% to 2.0%. Trading positively across most of the majors, the greenback has notably gained ground on the euro, the yen and Aussie dollar.

Traders will be watching for crucial inflation data today, with Cable likely to be especially volatile. The UK CPI data for May is released at 09:30BST and is expected to just come down a shade to 1.7% (from 1.8%), with the US CPI following at 13:30BST (expected to stay flat at 2.0%). Aside from that European traders will be watching for the German ZEW Economic Sentiment forecast to be 35.0 at 10:00BST, whilst there is more US housing data with the May Housing Starts which are expected to show a 3.9% decline at 13:30BST.

Chart of the Day – EUR/GBP

After a sell-off that has seen the Euro fall against Sterling for almost two weeks solidly, There was the first sign yesterday of some light at the end of a dark tunnel. A green hammer candlestick pattern was posted on the daily chart which means a new low was seen but then was followed by a rally later in the session. This has come with the RSI at its lowest point since May 2012. However, it is far too early to call a rally of any real substance. The falling 21 day moving average has been capping the gains over the past 2 months and currently comes in at £0.8090. This hammer may just be a blip, but the Euro does look rather stretched to the downside still and could be an early warning sign that there is limited downside potential at these levels. There is also a key support coming in around £0.7960 which was the limit of yesterday’s downside. Perhaps just be careful with running the short positions without careful trade management here.

EURGBP   17062014


Although the selling pressure might have abated for now on the Euro, there is significant overhead supply which is still holding it back from embarking upon a significant recovery. Old support becomes new resistance and this seems to be the case with $1.3585 which had formerly acted as a floor two weeks ago and since being breached has become the new resistance. The momentum indicators remain firmly in negative configuration and show little sign of any meaningful recovery. They also suggest that rallies should be sold into. The intraday hourly chart shows a resistance band shows further resistance around $1.3600 and $1.3620 so there is sizeable barriers to gains here. Expect to see a retest of the support band $1.3500/$1.3510 in due course.

EURUSD   17062014


Yesterday there was a first breach of $1.7000 since October 2008, however the move was rather indecisive and overnight Asian trading has dragged Cable back lower again. The initial impetus has been lost a touch as the advance following the sharp upside break last Thursday has decelerated. The intraday chart shows a levelling off around support at $1.6950 as hourly momentum indicators have unwound. A 60 point consolidation has since formed in the past two days and if the intraday momentum continues to fall away, the risk is for a minor correction back towards the $1.6920 support. A breach of $1.7010 would reopen the next resistance with is around $1.7050 which is minor as it is over 5 years old.

GBPUSD   17062014


The outlook is becoming increasingly consolidated as a second consecutive “inside day” threatens to become a third day. The daily momentum indicators are flattening off around the neutral position, with the moving averages also turning neutral. This could be due to the fact that the yen is increasingly trading around the 102 pivot level which is also broadly mid-range between the large support band around 100.80 and resistance around 102.80. The intraday hourly chart is giving very little else in terms of direction, although the resistance of a 2 week downtrend is beginning to come into view around 102.30. This could add downside pressure in the coming days. Key support for the near term is at 101.60, with the resistance at 102.20 the initial upside barrier.

USDJPY   17062014


Despite a slight breach through yesterday, you would have to say that the 144 day moving average is once again looking to become the basis of resistance (currently around $1278). A reaction high at $1284.85 seems to have been posted as the gold price has fallen away in Asian trading today. If this high is conformed in place then the deterioration of the daily momentum indicators still look as though they have merely unwound a bearish configuration and this should be another chance to sell. The intraday hourly chart shows that a series of higher lows posted over the past few days has been broken on a move back below $1270, whilst the hourly momentum looks more negative than at any time over the past two weeks. A failure to retake the resistance band now in place between $1270/$1275 could be the signal to take profits in this recovery and for the medium to longer term bearish outlook to resume.

Gold   17062014

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