19/05/2014: Traders see a cautious start to the week as M&A activity continues

Market Overview

Despite the decent gains on Wall Street into Friday’s close, today’s Asia session was fairly mixed. Markets were weighed down by concerns over tensions between Vietnam and China, whilst the yen strengthened after positive manufacturing data out of Japan which pulled the Nikkei lower. However, the early European trading shows cautious gains ahead of a day light on economic data. M&A remains in the news with Pfizer making another improved bid for AstraZeneca (although the board of AstraZeneca has again rebuffed the bid), whilst in the US AT&T has made a $48.5bn bid for DirecTV.

Forex trading though is looking rather dollar negative early in the European session with the Euro, Sterling and Yen all showing strength against the greenback.

Chart of the Day – AUD/USD

The daily chart shows quite a benign period of trading for the Aussie dollar, with a series of neutral candlesticks have been posted and momentum indicators are in a fairly sedate position. In March a large base pattern was completed above $0.9140 and suggests that there is an ongoing outlook of Aussie dollar strength. However the intraday chart shows how important the pivot level around $0.9320 is playing. For the past six weeks the major support, which became resistance and subsequently support again, has formed around $0.9320. Despite the recent rally for the dollar against the major currencies, the pivot, which is now support at $0.9320 has remained intact. Therefore with the daily chart still suggesting Aussie strength and the importance of $0.9320, any move towards there should be seen as a chance to buy for a retest of the $0.9408 high. Support at $0.9250 protects $.09200.

AUDUSD   19052014

EUR/USD

After the sell-off following the ECB press conference, with two days of consolidation the Euro is finally starting to find some support. The key low at $1.3647 has yet to be tested again as momentum indicators begin to flatten off. The Euro is also forming the support around the 144 day moving average, which is around where the last four big corrections have built from, so there is some hope for the bulls. However, there is much overhead resistance in the way of a recovery for the Euro and this current price action has a look of just another lower high being formed. There needs to be a break above $1.3733 which is the first reaction high, however the intraday hourly chart suggests that $1.3774 is the real resistance that needs to be overcome. At the moment though with intraday momentum indicators still in bearish configuration the downside pressure remains on the Euro.

EURUSD   19052014

GBP/USD

The daily chart suggests that Sterling is beginning to regain some poise once more. The six day correction looks merely to have been a correction within the big bull market, with the key medium to longer term moving averages all rising, as support has formed at $1.6729 and buying pressure seeming to resume. The intraday chart shows a slightly less bullish outlook, with the two week head and shoulders top pattern dominating the hourly chart, while the recent bounce has now merely unwound Cable back to the resistance of the top neckline around $1.6830 where it has stalled. With hourly momentum indicators beginning to roll over, this could simply be the pullback to the neckline which is another chance to sell. The two week top still implies a target of $1.6660. Watch the rising 21 hour moving average, as this has supported the two day rally and if the top neckline remains intact as resistance, the 21 hour ma could begin to be breached and turn lower. Initial support is at $1.6800 and then $1.6780. A move above $1.6874 would significantly improve the outlook.

GBPUSD   19052014

USD/JPY

Despite the support at 101.30 remaining intact over the last couple of days the bearish pressure has not gone away, if anything it is increasing. The shallow uptrend support on the daily chart has now broken down with Friday’s session entirely below it. There is little sign of any recovery at the moment as the yen strength continues to drag Dollar/Yen towards the key support band 101.17/101.30. A breach of the support opens the critical low at 100.76. Momentum indicators are poor and suggest that any rally that may set in should be sold into. The intraday chart paints an equally worrying picture for the bulls with hourly moving averages and momentum indicators in bearish configuration and suggesting that this could be time for the breakdown. It would need a rally above Thursday’s high at 102.11 to improve the picture, but the daily chat suggests that the bulls would only really be able to breathe a sigh of relief above 102.36.

USDJPY   19052014

Gold

The past 5 weeks has seen gold trade within an increasingly tight range as consolidation has taken hold. Trend lines have converged and Bollinger Bands have become increasingly tight (which is often the precursor to a big move). However for now the consolidation continues, with momentum indicators almost entirely in neutral configuration and moving averages flattening off. There is very little to be taken from the intraday hourly moving averages or momentum either with largely a similar story. In this instance it becomes difficult to predict and costly to trade. Subsequently in times like these it becomes prudent to stand aside and wait for the next trend to formulate. The key support comes in at $1276.60 with resistance at $1308.80.

Gold   19052014

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