19/03/2014: Investors opt for caution ahead of tonight’s FOMC press conference

Market Overview

Risk appetite improved yesterday after a speech from Vladimir Putin suggested that Russia did not favour a breakup of the Ukraine, which subsequently calmed market fears of an escalation of tensions in the region. Equity markets posted a second straight day of gains and risk assets such as the yen and gold were no longer favoured. Wall Street closed higher as did the Nikkei, helped by a subdued yen.  Concerns over the health of the property market in Chin will become elevated with news that property developer Zheijang Xingrun defaulted on its debt. Chinese equities were around a per cent lower overnight. Traders have opted for a cautious approach in early European forex trading, with the dollar beginning to make ground once more.

There is much to ponder today with the UK dominating the economic announcements in the European session, with the Bank of England Meeting Minutes and Unemployment out at 09:30GMT and finance minister Osborne’s Budget speech at 12:30GMT.

However, overweighing all of that will be Janet Yellen’s first chairing of the Federal Open Market Committee and subsequent press conference this evening from 18:00GMT. Interest will surround the recalibrating of forward guidance. With unemployment so close to the 6.5% threshold they may scrap the threshold all together and go for a more qualitative measure similar to the Bank of England. Also there will be interest around the Fed’s forecasts and also expectations on when tightening may begin.

Chart of the Day – AUD/USD

The Aussie Dollar is trying desperately to complete what would currently be a 3 month base pattern that would open for further recovery. A two day close above 0.9130 would be the signal for completion. The outlook continues to improve with daily technical indicators in positive configuration. However the falling 200 day moving average has on 3 occasions over the past year acted as the basis of resistance and currently comes in at 0.9145. The intraday hourly chart does though give the bulls hope, with hourly moving averages all rising in bullish sequence and momentum indicators in positive configuration. There is a good band of support now between 0.9061/0.9103 that can be used as for any buying opportunities.

AUDUSD   19032014

EUR/USD

Despite the apparently choppy nature of the markets in recent sessions the Euro has managed to be remarkably resilient, posting a higher daily low in each of the past 5 sessions. Daily technical indicators remain in bullish configuration and corrections continue to be bought into. The intraday hourly chart shows an uptrend which can be derived from late February, hourly moving averages which are supportive and momentum indicators just on the bullish side of neutral. The support at $1.3877 looks to be taking on increasing importance on a near term basis as a breach would complete a small top pattern and suggest a correction back towards the key support band $1.3824/$1.3832. The overnight drift lower looks to be once more bought into and a retest of Monday’s high at $1.3947 can be expected before a retest of the key high at $1.3967.

EURUSD   19032014

GBP/USD

Yesterday saw a subtle move towards the downside which may become increasingly important for the near term. Cable which had previously been using the support around $1.6600 as a basis of support can no longer count upon this and with a dip to a new 5 week low, the bears are beginning to gain control of the near term outlook. Forming a second lower high at $1.6665 is now beginning to increase the downside pressure. The hourly chart shows an even starker move to the downside, with all moving averages falling in bearish sequence and the momentum indicators (RSI and MACD) taking on negative configuration. Cable has recovered from yesterday’s low at $1.6543 towards $1.6600 in early European trading. However overhead supply looks significant in this area and anything between $1.6600 and $1.6630 looks to be a chance to sell. With a significant amount of economic data set to impact on Cable throughout today this could be a volatile day.

GBPUSD   19032014

USD/JPY

The support of the key low at 101.17 remains intact which means that the sideways trading band is still in force. I am erring on the positive side with the support of a 13 month uptrend on the daily chart and the Stochastics threatening a crossover buy signal once more. The near term outlook though is uncertain. Dollar/Yen is now consolidating in a tight band between 101.17 and 101.95, with the shorter hourly moving averages beginning to flatten off and momentum indicators increasingly neutral. Despite Vladimir Putin’s speech yesterday not escalating tensions around the Black Sea, the Yen has remained fairly firm. The market’s perception of risk will determine the breakout of this range and it could be seen today. We may have to wait for the FOMC statement at 18:00GMT for it though.

USDJPY   19032014

Gold

After Monday’s sizeable correction, gold largely consolidated sideways yesterday. On the daily chart there is still an outlook that this is merely a medium term bull market correction, where the 21 day moving average (currently $1343.60) which has supported gold throughout the recovery is close once more. However, momentum indicators have just started to fall away slightly and need to be watched as this could be an early warning signal of a maturity in the uptrend. The intraday uptrend dating back to early February is though being seriously tested in early European trading, with the gold price back to the support band $1352.50/$1354.80. A breach of the support at $1350.19 would suggest continued correction towards $1337.69. However the longer the support holds, the likelihood that gold will begin to rise once more. Hourly momentum indicators are already on the recovery path. A move above $1364.10 forms an upside break. Caution needs to be taken though with the FOMC tonight as anything hawkish could see dollar strength and subsequently pull gold lower.

Gold   19032014

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