20/05/2014: Markets continue to consolidate, with an eye on UK inflation

Market Overview

There was another day of light gains on Wall Street which also came with light volume. This gave Asian markets a slightly positive outlook, despite the declaration of martial law in Bangkok which impacted on Thai stocks. The Japanese Nikkei 225 was also helped higher by a slight weakness in the yen ahead of a two day meeting of the Bank of Japan which is expected to stand pat on monetary policy. After a mixed day yesterday in Europe, equity markets however are once more showing only cautious gains in early trading.

After a disappointing day for the dollar yesterday, forex trading early in the European session are showing a slight recovery for the greenback today, showing flat or gains against most of the majors. Gold remains supported above $1290.

Traders will be looking out for UK CPI inflation today at 09:30BST which is forecast to show a slight uptick to 1.7% from 1.6% last month, which could help to bolster support for Cable. Fed members Plosser and Dudley are both due to speak this afternoon on monetary policy and this could help to give an indication of the latest views from the FOMC.

Chart of the Day – S&P 500

The S&P 500 remains rangebound as the lows once more come in around the rising 55 day moving average (at 1868) and which has been used as the basis of support for the last three corrections. This retains the generally bullish configuration on the momentum indicators and there is the suggestion that the 1902 high will be retested. However, the intraday hourly chart is much less bullish and implies a more neutral outlook. It also suggests that if this two day rally does not turn into a breakout into new high ground, that the bulls could be getting a little tired once more. Hourly momentum indicators are already beginning to roll over and suggests there could be a lack of drive in the market. There is initial resistance around 1890. The initial support comes in around 1869 and 1860 before the 1851 key low.

S&P   20052014


The Euro continues to consolidate following the big sell-off. The basis of support continues to be the 144 day moving average on the daily cart whilst the momentum indicators which had turned into more bearish configuration look to just unwind slightly. However there is a lack of conviction behind the recovery at the momentum and on the intraday hourly chart there is sizeable near term resistance at $1.3732 which is holding back Euro/Dollar from completing a head and shoulders reversal pattern. However even if this pattern were to complete there is still the significant resistance overhead at $1.3774 and it would still just seem to be a position to sell into strength. The near term support at $1.3684 protects a retest of the recent low at $1.3647.

EURUSD   20052014


The recovery rally on Sterling seems to be beginning to roll over and run out of steam. Just as it seemed as though the bulls were fighting back on the daily chart a weak candlestick pattern was posted yesterday, while today’s price action has also been rather tentative. The intraday hourly chart shows us just why this is the case. Cable has unwound back to the neckline resistance of the two week head and shoulders top pattern, around $1.6830. I spoke yesterday of watching the 21 hour moving average for how the recovery was progressing and it seems as though it has now fallen over. Also, the 200 hour moving average which had provided support on the April bull run is falling at $1.6841 and looks to be a barrier to gains. Furthermore the hourly momentum indicators are moving into a weak configuration now and suggest the downside pressure is building. A breach of the low at $1.6782 would re-open the low at $1.6729. Yesterday’s failure at $1.6844 may now have left a high below the key $1.6874.

GBPUSD   20052014


Perhaps an interesting turnaround is in process? After a few days of consistent downside pressure on Dollar/Yen, there has been an intraday recovery off 101.07 which has tried to form a bullish hammer candlestick pattern on the daily chart. However, there is still much to do to confirm the reversal (which would need a positive candlestick in today’s session probably including a close above yesterday’s high at 101.59). Also this would still be very early stages in a recovery as there are still several bullish arguments which have broken down in this chart, including the failure of both the 144 day moving average as support and the uptrend. The intraday hourly chart suggests that the resistance around 101.70 is now key to the near term recovery as this has capped the upside for the past couple of days, whilst 102 remains the key pivot level. With hourly momentum indicators still in weak configuration, for now this recovery can only be seen as just another chance to sell for a retest of yesterday’s low at 101.07.

USDJPY   20052014


Yesterday I spoke about the difficultly in calling gold on an intraday basis as the two trend lines have converged over the past few weeks. The ensuing price action depicted this almost perfectly with a $15 daily range that traded higher then back lower again to hit both trend lines on the daily chart. Something is going to have to give soon then, but with the uncertain trading phase continuing, it is more than likely to just continue sideways. Once more the intraday chart shows the price mid-range with hourly momentum indicators that give us little guidance. The one aspect that should be pointed out is the band of support around $1290 that has consistently been used as support over the past 6 sessions. This could become a new floor for the price and is something worth watching near term.

Gold   20052014

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