18/02/2015: Equities breaking out on the prospect of a deal for Greece although forex markets remain cautious

Market Overview

Market sentiment has picked up as it looks as though the Greek finance minister is ready to cede ground and move towards an agreement on an extension to the bailout. I suppose it is all down to politics in terms of how they word the agreement, but it looks like there will be one by Friday. With depositors withdrawing their money from Greek bank accounts and taxes supposedly not being paid, the financial plight in Greece will up the pressure on the Syriza government which perhaps means that its election pledges will need to be fudged. Financial markets are certainly looking to price in a deal now, with the S&P 500 seeing a second closing all-time high in a row, up 0.2% on the day. Asian markets were positive across the board although with several countries winding down now for the lunar new year holidays, volumes were light. European markets have also started the day slightly stronger.

In forex trading, we see a slight move into safer havens, with the major currencies just giving some of their recent gains back to the dollar. The gold price has stabilised in the past few hours after another day of losses yesterday. Central banks are the theme of today, with first of all the Bank Of England and then the Federal Reserve releasing the minutes from their latest meetings. The BoE is expected at 0930GMT to show a unanimous vote for keeping monetary policy flat, with the risk being that perhaps either Martin Weale and/or Ian McCafferty switch back again to voting for a rate hike, which would be positive for sterling. The FOMC minutes will add more meat to the bones of the improving outlook for the US economy. The release is at 1900GMT.

The other data out today includes the UK employment data at 0930GMT which importantly includes the average weekly wages growth (+1.8% expected). Also at 1330GMT there is the US Building permits (1.08m expected) and housing starts (1.07m expected).

Chart of the Day – FTSE 100 Index

Is this the day that FTSE 100 finally breaks through to a multi-year high above 6905 and tests 6950 which is the all-time high? Well, the index posted a bullish outside day yesterday, closing within 7 points of 6905 and has opened with an upside break today through 6905. A close above 6905 today would be a strong signal of intent. Technical momentum indicators look fairly positively set up now (although the RSI in the mid-60s is the level at which the index has consistently failed to make the break). The FTSE 100 has been on the brink for over three weeks now. The bulls will be arguing that at some stage the resistance has to give way. The support is being left at higher levels (yesterday’s higher low at 6820 is now important, whilst the highs are also creeping ever higher. This is the best opportunity with the technical set-up that FTSE 100 has had to breakout above 6905 and challenge the all-time high at 6950.

FTSE   18022015

EUR/USD

If you take a step back and look at the euro it has basically been trading sideways now for three weeks. It may have broken the downtrend in that time but still essentially there has been no real buying pressure and the momentum indicators have simply been unwinding from a deeply oversold position and ultimately this should help to renew downside potential. There has been little attempt to back the bulls in any discernible way as the resistance between $1.1500/$1.1530 remains firmly intact. It is as though the euro has spent all this time waiting for a catalyst. The uncertainty surrounding Greece and its debt program seems to be what traders are waiting for and with signs that the situation could be improving the euro has appreciated slightly (albeit once more not too significantly). The intraday hourly chart simply reflects a ranging position, with the RSI broadly spending its time moving between 30 and 70 meaning that there are opportunities to trade the oversold/overbought levels for the very near term traders. A move above yesterday’s $1.1448 high opens $1.1500. Monday’s low at $1.1317 protects a retreat back towards the range low at $1.1260.

EURUSD   18022015

GBP/USD

Although disappointed is probably too strong a word, the bulls would have been looking for a stronger reaction to the breakout last Thursday. There have been a mixture of rather weak candles since the move to a new 6 week high. This could though all be part of a near term consolidation that results in the next leg higher. The intraday hourly chart shows that this may be the case with a drift back into the support band $1.5300/$1.5350 having been seen to help unwind the hourly RSI unwind a it now looks to have renewed upside potential again. I would say that the $1.5300 support probably needs to now remain intact to prevent a bearish drift back towards the key support at $1.5200 now, which would represent the bulls having lost control again. With a slightly lower high at $1.5400 in place, a break back above this would reignite the bulls for a run on $1.5440. The caveat that I have in the back of my mind is that bear market rallies tend to undershoot their targets and the target from the base pattern is around $1.5500.

GBPUSD   18022015

USD/JPY

After those three corrective days the bulls have reacted well. The rate had unwound back to the support around 118.30 but seems to be bouncing once more. The momentum indicators have managed to remain on the slightly positive side of neutral (the Stochastics specifically have held on encouragingly) and with Dollar/Yen trading above all the moving averages the outlook is still positive. The intraday hourly chart shows the support around 118.30 very well (absolute support at 118.16) and with the pair rallying through the near term pivot level at 119.20 the near term outlook has certainly picked up. The bulls will now be looking to leave a marker in the ground with a higher low potentially between 118.80/119.00 and to then make a move on 118.87. The outlook is certainly improving on Dollar/Yen once more, but there is still much work that needs to be done for the bulls to be comfortable once more.

USDJPY   18022015

Gold

The bears made another statement of intent yesterday as the price decline now confirms my belief that the medium term outlook is becoming increasingly negative. Another strongly negative daily candle was posted as the breakdown of the Fibonacci retracement support at $1222 of 61.8% of the bull run was confirmed. This now suggests the likelihood of a full retracement to $1168 is now high. The RSI closed yesterday at its lowest level since mid-November, with Stochastics also in negative configuration. The intraday hourly chart shows a sharp fall as the support at $1216.50 gave way yesterday. This shows that this is now the overhead supply and that perhaps waiting for the gold price to just unwind slightly back towards $1216.50 would be a good chance to sell. There is around $20 of resistance up towards $1236.50. Expect further weakness to test the $1203.30 low from yesterday, but there is now not too much support until the key low at $1168.50.

Gold   18022015

WTI Oil

The volatility on oil continues. Just as it looks as though WTI is ready to follow Brent Crude and breakout, there is a sharp reversal intraday from, $53.69.. However there was another sharp intraday rebound that has suggested that the bulls have got an appetite for pushing the oil price higher. The daily chart suggests that the bulls will still be looking at the rising 21 day moving average (currently $49.07) which is acting as the basis of support for the dips. The intraday chart shows more of a trading range has formed over the past couple of weeks and therefore we could look to use the Fibonacci retracements (which have often been used as turning points during this ranging period) for key turning points. The 50% retracement of $54.25/$47.36 decline was the point at which the price rallied from yesterday, almost to the pip at $50.80. Although WTI is again close to a breakout above $54.24, it should not be called too soon. If the range continues, look to use the hourly RSI which can be used for classic overbought/oversold signals.

WTI   18022015

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