After a disappointing session where Wall Street sold off into the close, trading during the Asian market hours also felt the pressure of the sellers. US markets reacted negatively to the minutes from the latest meeting of the Federal Reserve which included a discussion over an early interest rate rise which gave a more of a hawkish leaning than previously thought.
However, the main reason for pressure overnight has come with two of the three largest economies of the world putting out weak data. Despite the continued monetary stimulus of 7 trillion yen per month, the trade deficit in Japan widened, which poses questions of Prime Minister Abe’s three arrows. Furthermore, the China HSBC Flash manufacturing PMI fell further into contraction territory to 48.3 which was well below the 49.5 that had been expected. Stocks markets felt bore the brunt of the bears, pushing the Japanese Nikkei falling by over 2%, not helped by the strength of the yen which had pulled Dollar/Yen back below the pivotal 102 mark. Early European trading looks to be paring some of the recent gains.
A series of flash PMIs out of the Eurozone this morning could drive sentiment (the Euro is under pressure after French numbers have disappointed, German numbers have been mixed), however the major focus for currency investors will be the US inflation data out at 13:30GMT. The consensus forecast suggests that the number is set to slightly increase to 1.6% which could help to support the dollar today. US Lead Indicators are also announced at 15:00GMT which could also have an impact.
Chart of the Day – S&P 500
A worrying development for the bulls as a bearish key one day reversal was formed yesterday. This has come as the S&P failed to break to a new all-time high above 1850.84, instead turning lower at 1847.50 to close well below the low of the previous session. This signals a concerning change in sentiment which could induce another near term bout of selling pressure. The intraday hourly chart shows a small top pattern having formed as the S&P sold off in the final hourly of trading yesterday, below the intraday support at 1834 to imply a correction towards 1820. There is a reaction low at 1809.22 which is the next key support within the recent run higher.
The medium term outlook has improved following the break above the latest key reaction high at $1.3739. However, the intraday chart shows that the rate has just begun to consolidate now as some overbought momentum unwinds. The Euro has quickly retreated back into the support band between $1.3680 and $1.3720. This band needs to hold strong to maintain the positive near term outlook, however a failure takes the rate below the 200 hour moving average and opens a deeper correction towards $1.3640 and possibly $1.3560. We wait for the move to calm down before determining if this is another buying opportunity or not.
Following the culmination of the bull run that took Cable to the multi-year high at $1.6822, the rate has undergone a retracement phase. However, the strength of the daily chart suggests that any decline which comes back to form support once more should be viewed as a medium term buying opportunity. In the past couple of days, the intraday hourly chart shows that the drift lower has developed into a consolidation phase between $1.6635 and $1.6740. The prospect of a move back towards the 38.2% Fibonacci retracement at $1.6603 (of the bull run from $1.6250 to $1.6822) is still possible. The rolled over intraday moving averages add to the corrective near term outlook.
The consolidation underneath the increasingly key resistance band at 102.83 continues on the daily chart. This, coupled with the resistance of the falling 21 day moving average (currently at 102.19) are now proving to be significant overhead barriers to gains. The downside pressure overnight came following the larger than expected Japanese trade deficit. This has dragged Dollar/Yen back below the 102 pivot level and now has breached the reaction low at 101.78. With intraday hourly momentum indicators increasingly weak and the moving averages turning lower, there could now be further downside towards the next key low at 101.37.
After the strong run higher seen over recent weeks, a correction is not necessarily bearish for gold. The daily momentum indicators are still unwinding and a move back towards the support band $1295/$1300 could help to renew the medium term upside potential for the next bull leg towards the base pattern at $1350. A fairly quiet day of consolidation yesterday, has resulted in the appearance of a series of lower highs now in place, with the latest at $1322. However a low has been left at $1308.34 as the price picks up once more. With the 55 hour moving average having rolled over and providing resistance at $1317.42, the rally could be set to once more run out of steam.