The volatility in markets continues to play out with the negotiations over Greece remaining unresolved and the prospect of a messy default on the IMF debt growing by the day. With over €2bn of capital flight out of Greek back this week, there are questions now over whether the banks will be able to open up on Monday morning. There is talk of potential capital controls and the European Central Bank will have to make another decision on the European Lending Authority headroom once again. An emergency meeting of the European leaders has been scheduled for Monday as the situation is now seemingly coming to a head.
All the while though, with the Fed more dovish than the market had anticipated, the accommodative monetary policy stance has given equity markets a boost, at least on Wall Street anyway as the NASDAQ has pushed to an all-time high. The S&P 500 closed 1% higher, whilst Asian markets were also strong overnight, with the Nikkei closing 0.9% higher. European markets have begun the day in mildly positive mode.
The fore markets are showing tentative signs of support for the dollar, whilst the Aussie is the worst performer, down over 0.3% on the day. The Bank of Japan sat on its hands as it continues with its existing programme of quantitative easing. Gold and silver are basically flat after yesterday’s strong gains. It is a quiet day on the calendar for economic announcements so with little to drive markets it could be a trading day for the technicals. There is though the UK public borrowing data at 0930BST which is forecast to be at £10.1bn. There is also Canadian CPI at 1330BST which is forecast to remain flat at +0.8% for the year.
Chart of the Day – AUD/USD
So near, yet so far. The Aussie has once more failed to confirm the break above the key near/medium term resistance at $0.7920. The intraday breakout yesterday was looking good for a while, but the bulls have been unable to sustain the move, resulting in a close below $0.7800 and the subsequent corrective pressure today. Interestingly, the RSI seems to have rolled over around 50, whilst the Stochastics are also in the process of rolling over again. The importance of this resistance is growing. For the past three weeks the Aussie has struggled to make the breakout but the range play continues. The hourly chart shows a near term pivot band around $0.7720 and a decisive breach would open a move back towards $0.7640 support.
The selling pressure on the dollar yesterday induced significant moves across forex majors yesterday but the movement on EUR/USD was extremely interesting as once again the pair looks to be failing as it approaches the key resistance level at $1.1466. The earlier rallies in June failed at $1.1380 and $1.1384, and whilst yesterday’s intraday move hit $1.1436 the late pull back has formed an indecisive candle which closed below the previous resistance at $1.1384 and poses more questions than gives answers. The subsequent early trading today is also indecisive. It is certainly reflecting the state of indecision that is coming with the fundamental factors surrounding Greece still. In fact, is the hourly chart is anything to go by then there could be an appetite for a reversal near term. A bearish key one hour reversal yesterday afternoon marked the top at $1.1436 and the hourly momentum indicators have subsequently moved into correction mode. A decisive move below the support at $1.1330 would open for further correction and the pivot around $1.1200 comes back into play again. With so much contradictory newsflow over Greece though, it is volatility that will be the only certainty in the coming days.
What a run in the past few days on Cable! The move is now into 8 days of gains out of nine, whilst there have now been two consecutive closes above the key resistance at $1.5814 which has taken Cable to an 8 month high. There is little reason why this run higher cannot continue to go higher, with momentum indicators strongly configured, however there are slight early signs of potential fatigue. Yesterday was the first day in five that Cable has not closed towards the high of the day. This may be a minor niggle but it is a concern with the Stochastics now starting to top out as a result. I would watch the hourly chart which has been posted higher lows on a daily basis for nine days in a row. If there is a breach of the reaction low at $1.5803 then a retracement could be on. Also with the hourly momentum indicators falling away a touch, watch the hourly RSI dropping below 40. The peak of yesterday’s high comes in at $1.5928 and a move above there would continue the bull run. I am now a somewhat cautious bull.
The sharp correction on Dollar/Yen since the FOMC announcement has once more come back to find support around the 50% Fibonacci retracement of the 118.86/125.85 bull run which is at 122.35. However, this is the second time that the pair has rallied off this support and the reaction subsequently has been positive. The daily momentum indicators continue their corrective slide but I see this as a near term correction which will be seen to form support before the next leg higher. I have been expecting this support to come around the 122.02 old breakout level but it is possible that with the strength of this 50% Fib level it may be that this is the basing process right now. I am subsequently turning neutral. It will be interesting to see how the pair copes with the 38.2% Fibonacci retracement level at 123.20 now. This has been supportive and is once again a basis of resistance. If there can be a decisive break through today then the bulls may begin to re-engage once more. Above 123.60 would also be another signal.
A hugely strong bull candle has completely changed the near/medium term outlook. Adding $15 on the daily close, the chart which had been corrective has now been all but neutralised once more. The push to $1205 and close above $1200 has made a significant turnaround which now means, once more that the gold price is once more considered to be a range play. To turn more positive though it would need the daily RSI to be consistently above 60, and the MACD lines pushing above neutral. It will also be interesting to see how gold reacts today as the dollar is beginning to find support again. The intraday hourly chart shows the importance of the support at $1192 now. The rally has just lost a bit of steam overnight and this is a level above which the bulls need to hold on to prevent the bearish drift taking over once more. The day after a strong candle can be just as important as it needs to be a confirmation of the move. A move above $1205 would now re-open the range highs once more.
As per usual, the range play continues and the consolidation over the last week has resulted in a series of neutral candles. This continues to create a neutral outlook for the WTI price. The hourly chart continues to show that the trading around the Fibonacci retracements is still a viable near term option. Having rallied from around the 61.8% Fibonacci retracement of $56.83/$61.82 which has formed support around $58.75, the key reaction low yesterday came around the 50% Fib level at $59.33. Hourly indicators are neutral and the market is very choppy despite the lack of direction. Continue to use rallies towards the range high as a chance to play the range, whilst dips towards the 61.8% Fib level at $59.74 are a near term buying opportunity. A decisive breach of $59.74 re-opens the range low again at $56.83.