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21/01/2014: Traders remain positive in front of the IMF’s latest economic outlook


Macro overview

In the absence of trading on Wall Street yesterday, China continued to dominate the thoughts of traders in the Asian markets today. A move by the People’s Bank of China to ease monetary conditions to help avert a credit squeeze has boosted markets. With Chinese equities making gains, the Nikkei was also higher as will often happen on a weaker Japanese Yen which has climbed back above 104 against the dollar. European markets have been subsequently given a positive handover as the bourses look to make continued gains. The German ZEW economic sentiment survey is expected to show continued improvement at 10:00GMT today and could help to drive sentiment this morning. Furthermore the IMF gives its latest World Economic Outlook and is expected to upgrade its forecast for global growth in 2014, although attention will be paid towards comments over the prospect of deflation. Yen traders will be mindful of the monetary policy statement from the Bank of Japan overnight tonight.

Chart of the Day – EUR/JPY

The weaker Yen overnight has helped pull Euro/Yen higher, but the daily chart continues to suggest this one is in correction mode. Yesterday the rate broke under 140.47 to hit a 6 week low as the correction continues. The 21 day moving average has recently turned lower and is now providing resistance at 142.70 as rallies are now being sold into. The Hourly chart shows a rally into a resistance band 141.66/142.16. If this move fails to overcome 142.16 then the pressure will begin to ramp up again and the temptation will again be there to use this move as another chance to sell.

EURJPY

EUR/USD

An overnight drift lower and early moves today suggest that yesterday’s bounce was merely a technical rally with downside pressure on the Euro once again resuming. EURUSD is now confirming the broken uptrend on the daily chart as the outlook continues to deteriorate. Under $1.3506 the next key support on the daily chart comes in at $1.3398. Traders will be mindful around 10:00GMT for the announcement of the German ZEW economic sentiment but the outlook for the intraday technical suggest that a retest of yesterday’s low at $1.3506 will be seen. Yesterday’s high at $1.3568 is the resistance as the hourly chart now uses the falling 55 hour moving average as the basis of resistance.

EURUSD

GBP/USD

The outlook remains uncertain after Friday’s spike higher. With the US today returning from public holiday there should be more indication of whether this move will be confirmed. On the daily chart the cable bulls need to back the move and see a break above Friday’s high at $1.6457 to then test the reaction key high at $1.6517. Technical indicators are towards the positive side of neutral currently but showing nothing definitive. The hourly chart shows the consolidation since Friday morning, with the support at $1.6394.

GBPUSD

USD/JPY

In front of tonight’s crucial monetary policy statement from the Bank of Japan, weakness in the Yen is resuming today. The move higher overnight in USDJPY has now re-opened a test of Thursday’s high at 104.92. There are still key overhead resistance levels to negotiate but the rate will now look to hold back above the 21 day moving average (@ 104.56) which has been a very good gauge in the past few months. The hourly chart shows well the move above the intraday ceiling at 104.48 as a test of 104.92 is eyed. Expect increasing caution as the BoJ approaches tonight though.

USDJPY

Gold

The steady recovery so far seen in 2014 was put on hold yesterday as gold hit the resistance of the 12 month downtrend. This is now an increasingly pivotal time for gold as the battle for control continues. The hourly chart shows a series of lower highs in the last 36 hours which has pulled the price lower. However, there is a good band of support around $1244, with the rising 200 hour moving average supportive, also around $1243.69.

XAUUSD

Author: Richard Perry

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