18/11/2014: Sentiment remains uncertain ahead of the key German ZEW data

Market Overview

Yet another day of sideways trading on Wall Street has seen the S&P 500 complete a 42 record all-time closing high, albeit with the S&P 500 posting a gain of just +0.1% on the day. It seemed as though Wall Street traders were immune to the dovish comments from ECB President Mario Draghi that had benefited European indices such as the DAX. Perhaps it is because although Draghi mentioned the potential use of sovereign bond purchases, this was essentially nothing new. Despite this, European equities are higher and the euro is lower. Asian equities were mixed, although the Nikkei 225 rallied strongly (+2.2%) as the yen weakened. Market chatter suggests that following from the disappointing Japan GDP data there will be an 18 month delay to the sales tax hike and Prime Minister Shinzo Abe will call a snap general election. European indices are looking reasonably positive during early trading.

In forex trading, it seems as though the dollar is no longer able to put together any real sequence of gains. Once more the US dollar is under a slight amount of pressure, unable to continue higher after yesterday’s rebound. Despite the fact that the oil price remains under pressure, the Canadian dollar has strengthened well this morning, as has the New Zealand dollar. The Japanese yen is broadly flat.

There are some key European data points to watch out for this morning. The UK CPI will certainly have an impact on sterling at 09:30GMT. With wages recently rising above prices in the UK for the first time in several years, the release will be keenly watched, with an expected increase in CPI to 1.3% (from 1.2%). The German ZEW Economic Sentiment at 10:00GMT has been a negative influence on both the euro and DAX in recent months and has been falling for every month this year. However this time around the number is expected to increase to 0.9 (from -3.6). For the US this afternoon there are lesser data releases such as PPI and the National Association of Home Builders housing market index, both of which could impact on sentiment.

Chart of the Day – USD/CHF

There are conflicting time horizon outlooks going on for Dollar/Swiss. On the one hand there is a well-defined bullish uptrend in place since mid-August (note the bearish downtrend on Euro/Dollar over the same period), however the intraday chart shows a near term corrective sequence. The daily chart shows all moving averages rising in bullish sequence, whilst the medium term outlook for the momentum indicators (RSI and MACD) remains positive. Interestingly though over the past 8 days, the correction that has pulled Dollar/Swiss back towards the support of the 3 month uptrend is nicely unwinding the Stochastics on the daily chart. This is in keeping with the view on the intraday hourly chart which shows a series of lower highs in the last 8 days, with the outlook on the hourly momentum more corrective. This would all suggest that although yesterday’s day low was again around the support of the 3 month uptrend, any weakness should still be seen as a chance to buy. Expect pressure back on 0.9688 before a move back towards the key high 0.9740 again.

USDCHF   18112014

EUR/USD

The choppy and uncertain trading on the euro continues. There has been very little overall gain made for over a week now, however the medium term outlook remains under pressure. The daily chart shows the key resistance still in place with the neckline of the continuation top pattern around $1.2600, whilst yesterday’s high was to the pip at the previous reaction high of $1.2577 and has only gone to strengthen the resistance in the area. Furthermore, the resistance  from a downtrend dating back to August also comes in around $1.2600. The mid-afternoon sell-off coincided with Mario Draghi’s dovish comments and whilst there has been no precipitous selling pressure yet, this should also help to cap any upside. With the intraday hourly chart showing minor resistance around $1.2510, use rallies towards here as a chance to sell. Expect a retest of the lows at $1.2397 and then $1.2357 in due course.

EURUSD   18112014

GBP/USD

Unless you had been following other forex pairs, you could be forgiven for not realising that there was a dollar correction on Friday. The rebound on the daily Cable chart appears almost insignificant as the downside pressure has looked to resume. The momentum indicators have barely registered any pick up as the bearish outlook remains firmly in place. I talked yesterday about bear rally upside targets failing to hit their targets before the selling pressure returns and with the selling pressure returning in the morning it was a classic case in point. The low of $1.5591 has not yet been retested, but it appears likely that it is only a matter of time now. The intraday hourly RSI is back up around 50, whilst the hourly MACD lines have unwound back to neutral and hourly Stochastics are running out of steam again. There is resistance in place at $1.5736 but any rallies continue to be sold into and further weakness on Cable can be expected.

GBPUSD   18112014

USD/JPY

The intraday price action was incredibly interesting yesterday. The Japanese GDP data drove an initial flight to safety of the Yen (driving Dollar/Yen lower) but despite for a time threatening a bearish candle, the day ended strongly. Presumably it took several hours  for traders to realise that bad Japanese economic data is good for Dollar/Yen as it means the Bank of Japan would be required to engage more QQE. Technical indicators remain very strong and the drift higher continues. The possibility of now having left another higher low (at 115.44) is high, however to confirm this to be the case there needs to be a break to a new multi-year high again, above yesterday’s high of 117.04. It seems as though yesterday’s dip is being regarded as merely a slight wobble in the bull run. Any weakness seems to continue to be seen as a chance to buy. Further support comes in at 114.88.

USDJPY   18112014

Gold

Having broken through the key $1180.70 resistance on Friday, the gold price has since been consolidating the move. The suggestion is that traders are in keen debate over their next move. This could be a near to medium term crossroads. A basis of support formed above $1180.70 will provide confidence and whilst the momentum indicators continue to improve the outlook will become harder. Previously I have been a constant “sell into strength”, but the configuration of the momentum indicators suggests there could be something more in the rebound. Stochastics are rising strongly now, MACD have given a bull cross. I see two important near term factors needed for me to back this as a recovery. A move above the psychological resistance at $1200 and what would also be key for me would be the RSI moving above 60 (which was where it got to in mid-October before the sell-off. The other factor is not to get too carried away quite yet, as the move has only unwound the price back to the falling 21 day moving average. If the price begins to consistently trade back below $1180.70 then the recovery will be threatened again.

Gold   18112014

WTI Oil

Friday rebound in the oil price seems to have already run out of steam around the resistance band of the previous range $75.85/$76.40 (which is shown very well on the intraday hourly chart). The daily momentum indicators are still in extremely negative configuration and suggest that any rallies should continue to be used as a chance to sell. The downtrend channel is around $5.50 in depth, currently between a low of $72.75 to a high of $78.25, so the WTI oil price is currently around half way up the band. However with the rebound now falling over, whilst hourly momentum indicators suggest a loss of impetus already in the rebound. Using any strength back towards $76 looks to be a good chance to sell now for an expected retest of the recent $73.25 low. There is resistance around $78 on the hourly chart, but the daily chart suggests the key near term resistance is now at $80.

WTI   18112014

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