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19/11/2014: Dollar finding support again in front of key FOMC meeting minutes


Market Overview

General market sentiment has turned more positive in the past day or so. The encouraging German ZEW economic sentiment helped to drive European markets higher yesterday, whilst the delay of the sales tax hike and call for a snap general election in Japan suggests that further supportive easing measures are likely to be seen. This helped to shake the S&P 500 from its recent slumber with another record closing high (its 43rd this year) and a gain of 0.5%. Asian markets have been mixed overnight, with the Bank of Japan standing pat on monetary policy, which was expected despite the technical recession as the significant increase in monetary easing had already been seen a few weeks ago. The European markets are again trading slightly positively during early exchanges.

In forex trading the curious trading pattern of one day of dollar strength and one day of dollar weakness continues, with today once more switching to a more positive day for the greenback. The US dollar is subsequently trading slightly higher against all the major currencies, with notable gains against the Aussie and Kiwi dollars and the Japanese yen.

With the Bank of Japan now out of the way, focus will turn to two western central banks. The Bank of England announces its minutes from the latest meeting at 09:30GMT. The expectation is for a 7-2 split against raising rates, but after the dovish Quarterly Inflation Report the risk is that perhaps on or even both of Martin Weale and Ian McCafferty have switched back towards the dovish camp. If this were the case it would put sterling once more under considerable strain. Then, this evening at 19:00GMT the Federal Reserve will announce its own minutes from the latest FOMC meeting. With Narayana Kocherlakota voting for continued QE in the meeting it will be interesting to see how dovish the debate was. This could be a big driver of dollar volatility later today.

In other economic  announcements, at 13:30GMT the US building permits (1.04m expected) and housing starts (1.03m expected) will be released.

Chart of the Day – DAX Xetra

After an incredible turnaround in the past couple of days the DAX looks to be breaking out again. The sharp rebound on Monday (on the back of a dovish Mario Draghi) completed a bullish outside day which has thrown the bulls back in control. As the gains continued yesterday, the range period of the past couple of weeks has threatened the 9467 rally high and after two such strong bullish candles it appears as though the bulls have the bit between their teeth. With early trading positive again today, a successful and supported break above 9467 would complete an upside range breakout and subsequently imply an upside target of 9780. Daily momentum indicators are positive, whilst the intraday hourly momentum also looks strong. The hourly RSI is around 70 and this will be an important test as throughout the range of the past couple of weeks, the RSI has consistently turned lower around 70. So it would be an important confirmation of the breakout if the hourly RSI started to consistently trade above 70. Initial support comes in at 9400 with support also in place around 9300.

DAX   19112014

EUR/USD

On a net basis the euro has actually rallied slightly since hitting the low of $1.2357 on 7th November, however in truth this has been a two week period of consolidation. Subsequently it means that I can write different reports every day but the general theme is not really changing. The overriding fact is that the euro is consolidating under the resistance of a 3 month downtrend and the $1.2600 neckline of a head and shoulders continuation pattern. Momentum indicators on the daily chart are unwinding gradually but the fact that this continues to occur without any real price recovery suggests that the indicators are simply unwinding an oversold position and are simply moving to renew downside potential for the next leg lower. The intraday hourly chart basically shows a two week range play with a series of rallies and sell-offs. The key resistance near term remains $1.2577 with support at $1.2441 and $1.2397. With yesterday’s rally rolling over again at $1.2545 expect the range to continue for now.

EURUSD   19112014

GBP/USD

As the euro has become a range play, sterling just keeps on falling. The outlook for Cable remains incredibly weak and the series of bearish candlesticks on the daily chart just will not let up. The drift lower since last week has gradually been slowing, however the support at $1.5590 is coming under serious threat once more and even on the hourly intraday chart the momentum indicators do not give the bulls much hope. There has been another lower high at $1.5680 that has been left from yesterday’s peak which becomes the immediate resistance, whilst $1.5735 is also now key near term. Rallies continue to be sold into and the sellers remain firmly in control. A breach of $1.5590 would open the August 2013 low at $1.5426.

GBPUSD   19112014

USD/JPY

There has been a complete turnaround in sentiment on Dollar/Yen since early Monday morning in the hours after Japanese GDP had so disappointed (although you would hardly notice it on the daily chart). Since then we are back to slow and steady gains with momentum indicators extremely strong and showing little sign of any let up in the bull run. The rate has once more overnight broken out to new multi-year highs and is on the way towards 117.95 (October 2007 resistance). However on the Fibonacci projection previously calculated, the 161.8% level comes in at 119.07 and is a viable target area still. The intraday hourly chart shows the hourly RSI moving up towards 70, which over the course of the past few days has tended to result in the intraday moves running out of steam. Subsequently perhaps chasing Dollar/Yen at these levels may not be the best plan, perhaps waiting for an intraday dip into the support band 116.35/117.00. This would allow any immediate overbought momentum to be unwound and upside potential renewed. Key near term support is now 115.44.

USDJPY   19112014

Gold

Another strong day for the gold price has resulted in the price starting to pull away from the support band now around $1180.70. The momentum indicators continue to show an improving outlook near term. Ideally the gold price would break and hold above $12000 which would be a psychological barrier removed but that could not be done yesterday and it subsequently remains in place. The intraday hourly chart shows a breakout from a small range pattern above $1194 (which implies $1207 today) with the old breakout resistance becoming supportive. The recovery looks to be on track and this move has been a slight consolidation, however hourly momentum indicators are positive and look ready for a move higher today. The key pivot level at $1180.70 remains in place.

Gold   19112014

WTI Oil

The bearish outlook on WTI does not seem to be showing any real signs of revering any time soon. Having found resistance for a third consecutive day in the old support band $75.85/$76.40, there was an intraday sell-off that has now left a bearish outside day. This suggests that the sellers remain firmly in control and the chances are that the bottom of the range is once more in range. Today the range low comes in at $72.20. Daily momentum indicators remain incredibly weak and any rallies are being sold into. The hourly intraday chart reflects the failure at the key resistance and a close below Monday’s reaction low at $74.71 is yet another bearish development. Using any intraday bounce today as a chance to sell for further weakness towards the trend channel lows. Above $76.40 resistance is $78.10 before the key overhead supply around $80.

WTI   19112014


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