19/02/2014: BoE and Fed meeting minutes to be crucial today

Market Overview

Investors endured mixed sessions both on Wall Street and then in Asia overnight after disappointing US housing data and then news that the People’s Bank of China chose to drain $8bn of liquidity from the economy. The slight strengthening of the yen induced some profit taking in the Nikkei which had been so strong in the previous session, but generally today was a mixed day for Asian equities.

Monetary policy comes back into focus today as the meeting minutes for both the Bank of England (at 09:30GMT) and the Federal Reserve (at 19:00GMT) are released. With both central banks needing to tweak their respective forward guidance recently the minutes will be interesting to see whether they can add more flesh to the bones. This could be a particularly volatile day therefore for GBP/USD.

In addition to this there is a look at UK unemployment (09:30GMT) whose importance has been diminished slightly following Mark Carney’s announcement that the rate would not be tied to the Bank of England’s forward guidance. The US also has housing starts and building permits (both at 13:30GMT). Dollar bulls would hope that recent signs of housing data beginning to deteriorate do not continue.

Chart of the Day – EUR/JPY

This is an interesting chart as yesterday saw a significant upside break. The move above 140.30 suggests that the bulls are beginning to regain control and the corrective phase could be coming to an end. A move above 141.25 would probably now confirm the change of outlook. The move on the daily chart has broken the 7 week downtrend, whilst also moving above the falling 21 day moving average which had become an excellent basis of resistance. Momentum indicators continue to improve.  There has been a slight slide in the rate overnight but the intraday hourly chart shows a good band of support between 140.00 and 140.30 which should be used as a chance to buy now.

EURJPY   19022014

EUR/USD

The Euro has remained strong followed yesterday’s break above the previous key reaction high at $1.3739, as it now tests the next resistance at $1.3775. The move above the key resistance has confirmed that the corrective phase for the Euro has been averted and has re-opened the upside once more. Daily momentum indicators are in positive configuration and show further upside potential from here. The intraday hourly chart clearly shows the strength with the rate trading towards the top of an uptrend channel which has been in place throughout February, with all moving averages rising in bullish sequence and hourly momentum in positive configuration. Any unwinding retreat back towards support around $1.3723 support should be seen as a chance to buy.

EURUSD   19022014

GBP/USD

After the strength over the past couple of weeks, with two days of declines, Cable is developing into a consolidation phase. The daily momentum indicators have rolled over, with a crossover sell signal on the Stochastics two days ago. On the intraday hourly chart the moving averages have rolled over and are now beginning to act as resistance. Additionally, in the past 36 hours, the hourly momentum indicators have begun to develop a negative configuration. So the prospects of a correction are increasing. A 61.8% Fibonacci retracement of the $1.6250/$1.6822 bull run comes in at $1.6603. Expect a volatile day though today with the meeting minutes for the Bank of England at 09:30GMT and the Federal Reserve at 19:00GMT.

GBPUSD   19022014

USD/JPY

Despite a dovish monetary policy update yesterday from the Bank of Japan Dollar/Yen failed to breach the key overhead resistance at 102.83. Until this happens the chart will continue to have a near to medium term corrective outlook. The overnight moves have seen the rate drift back towards the 102 pivot level once more as the resistance between 102.73/102.94 strengthens. If the decline continues and breaches the intraday reaction low support at 101.78 then this would re-open the key low at 101.37. With a series of intraday lower highs and lower lows over the past 24 hours, there is now a sizeable resistance band between 102.21/102.41. A dovish set of meeting minutes from the Fed tonight could increase downside pressure.

USDJPY   19022014

Gold

The gold price experience the first bout of profit taking for a couple of weeks yesterday as the recent strong run higher showed initial signs of a retracement. As the daily momentum indicators have rolled over, the RSI has given a sell signal and the Stochastics a crossover sell signal. This is probably a good medium term development as it will help to blow some of the froth off the top and help renew upside potential for the recovery. The intraday price action is holding up for now, but with the 55 hour moving average, which had been supportive, now rolling over and providing a resistance, a break below $1312.34 could open a correction back towards support around $1300. Above $1324.90 re-opens the rally high of $1332.10.

Gold   19022014

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