20/06/2014: Trading once again looks fairly cautious for a potentially quiet end to the week

Market Overview

Conflicting signals for the market meant that a session on Wall Street which saw the S&P 500 posting another all-time intraday high, failed to muster too much gain to close just a tenth of a percent higher. The supportive monetary policy of the Federal Reserve which was more dovish than the market had been anticipating has pulled the dollar lower and pushed equity markets higher. However this positivity is countered by the tensions in Iraq which have resulted in President Obama sending in 300 military advisors and talk about air strikes. Upside is likely to continue to be slow going whilst this remains the case.

Asian markets were fairly muted overnight too as the Nikkei 225 could stalled amid the stronger yen. European markets are trading with a slightly negative skew in early trading. As the European session gets underway, forex trading shows that the dollar remains under pressure, trading slightly lower against all major currencies. With no standout moves, there is just a broad sense of dollar weakness, although the gold price has pared some of its gains from yesterday.

It is a quiet end to the week for economic announcements, with the only real exception being Canadian CPI which is due at 13:30BST and is expected to show a similar move to US inflation in rising from 2.0% to 2.1%. Eurozone Consumer Confidence at 3pm is expected to improve slightly to -6.5 (from -7.1).

Chart of the Day – EUR/JPY

The Euro has been on a slow recovery throughout the week as Euro/Yen has rallied back towards 139. However the progress is slow going and the momentum indicators suggest this move is merely corrective within the bear phase that has been running since March. The series of lower key highs (the last coming around the key neckline resistance at 140) suggests that there is likely to be another peaking of the price before further weakness is seen, with a minor resistance level around 139.40. The intraday hourly chart shows the recovery, with a small base pattern completing above 138.55 which gives an implied target of 139.40 which coincides with the minor resistance on the daily chart, so this could be an area to start thinking about the renewed shorting position. It would need a decisive break above 140 to suggest this is anything more than a bear rally. Support now comes in at 138.55 and then the key low at 137.66.

EURJPY   20062014

EUR/USD

Since the Fed confirmed its supportive monetary policy on Wednesday evening, the Euro has found some strength. However, the move is likely to be short-lived. The daily chart shows a move into the next band of resistance between $1.3585 and $1.3670, however the overhead supply and resistance at the top of this band is significant and should be the limit to any rebound rally. The intraday hourly chart shows the move above $1.3585 completed a week long base pattern, however, the implied target of this base is at $1.3650 and is still below the key resistance. The intraday chart outlook is showing an improved outlook, however the overhead supply from the daily chart is the major influence here. A failure of the reaction low at $1.3599 would re-open $1.3585 which is now supportive, but ultimately expect a resumption of the weakness with this rally being sold into.

EURUSD   20062014

GBP/USD

It was feeling a bit as though it needed a fundamental event to help push Cable through the $1.7000 barrier and so it proved. Cable yesterday pushed through the $1.7042 high from 2009 to take it to levels not seen since October 2008. There is now little real resistance in place until the $1.7500 area. Daily momentum looks very strong for Cable, although it is beginning to look stretched on the RSI which is no around 70, although the May high was achieved with the RSI reaching 73 so there is room for further upside. The immediate support is now around $1.7000, whilst the support at $1.6920 is stronger as it has been tested a couple of times since the upside break on the 12th June. The intraday chart looks good for buying a supported correction towards $1.7000.

GBPUSD   20062014

USD/JPY

The last few days have been typical of an outlook that is indecisive and difficult to call/trade. The daily chart shows all moving averages basically flat with momentum indicators almost entirely in a neutral configuration (although the Stochastics are leaning towards being more bearish than bullish). On the daily chart, the “doji” candlestick pattern from yesterday denotes uncertainty. The intraday chart shows a little more of the downside pressure, with the resistance of the 13 day downtrend continuing to play a role, whilst the pivot level around 102 capped the price action throughout yesterday’s trading. I have said for a while about Dollar/Yen being positive above 102 and negative below, and with it now trading below 102 once more I am leaning towards a more negative outlook. The downtrend resistance now comes in at 102.20 which is also a point of price resistance. Downside support at 101.57 and 101.41 could now come under pressure.

USDJPY   20062014

Gold

In the context of the past few months, yesterday’s price move higher on gold was incredible. With tensions in Iraq ever increasing and the dovish comments from the Federal Reserve on Wednesday, the gold price posted its largest one day rise in around nine months. The move has seen gold shoot through resistance formed throughout May and late April to add $46 for the day, and peak at $1321.90 overnight. This has a sense of being a bit of a short covering rally in reaction to the Fed, whilst physical demand remains soft. Technically, the RSI has instantly become overbought now and there is the overhead resistance of a downtrend that dates back to October 2012 which currently comes in at $1330. This should just be a good chance to sell and already overnight the price has come off the top. With resistance turning into support there is now a band of support $1303.50/$1315.

Gold   20062014

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