21/02/2014: A rebound on Wall Street and Asia promises a positive end to the week

Market Overview

Risk appetite found an instant rebound yesterday as Wall Street recovered its prior day losses to bring the S&P back to within striking distance of the all-time high once more. The move on the S&P has not yet aborted the previous day’s negative technical signal that was a bearish key one day reversal, but the response has been very positive. There was not a great deal of news to drive the move, some of which was attributed to today’s options expiry.  However, Asian markets responded in kind and pushed strongly higher, with the 3% jump in the Japanese Nikkei 225 helped higher by a weaker yen overnight.

The US housing data is back in focus today with Existing Home Sales at 15:00GMT. Expectation is that the figure will show a decline of 3.5% which would further muddy the water of what has become a mixed outlook for housing in the US recently. There is also UK Retail Sales to watch for at 09:30GMT and Canadian CPI at 13:30GMT.

Chart of the Day – FTSE 100

For months, the FTSE 100 has been a laggard in terms of performance versus other major indices such as the S&P 500 and the German DAX. However the weakness of early morning yesterday was completely turned around and now following on from the strong gains in Asia overnight, the open to trading today has put the index within striking distance of the key January high at 6867. Momentum indicators such as the RSI and MACD look strong so expect a serious test of the high. There is good intraday support now in the band 6750/6810. The high from May 2013 at 6875 is the highest the FTSE 100 has been this millennium.

FTSE   21022014

EUR/USD

Having made the break above the resistance at $1.3739, the Euro has been sliding for a couple of days. After the sharp early decline of yesterday morning, the Euro bulls managed to find support around the intraday support at $1.3680 to close mid-range on the day. The bulls will also point to an uptrend that dates back to the 6th February and the support of the rising 200 hour moving average which has now been used as support on three separate occasions this month. However, adding to an uncertain near term outlook, the shorter intraday moving averages have rolled over, whilst the momentum indicators have merely unwound an oversold position back to neutral and there is a band of resistance building at $1.3725. look for a breakout from the range $1.3680/$1.3725.

EURUSD   21022014

GBP/USD

Cable continues to drift slowly back as it retraces the bull run from early February. The daily chart shows a series of corrective days without any serious selling pressure hitting the rate. The move suggests that this is a positive correction as it allows the momentum indicators to unwind without any serious damage and should ultimately prove to be the precursor to the next leg higher. The intraday chart shows that $1.6603 is the 38.2% Fibonacci retracement of the previous bull run which is also coinciding with an old key high. The intraday hourly moving averages have rolled over with the 89 hour moving average at $1.6682 currently a decent gauge as a series of lower highs has been left, the latest at $1.6697.

GBPUSD   21022014

USD/JPY

The yen has weakened again overnight as the rate ha pushed back above the pivotal 102 yen mark to push within striking distance of the crucial 102.83 resistance once more. With the intraday RSI nearing 70 and the Stochastics momentum showing signs of fatigue, the move needs to continue higher in the early European trading otherwise it is in danger of once more failing under the key 102.83 resistance. The daily chart shows little real appetite for the upside break, with moving averages still flat and momentum fairly muted. So until there is a break above 102.83 this remains a range play and the likelihood is for a retreat once more back towards the 102 pivot level.

USDJPY   21022014

Gold

Gold is developing into more of a consolidation phase rather than an outright correction. A strong recovery yesterday afternoon snapped two days of losses and has now formed an intraday consolidation pattern between $1307.46 and $1324.90. Intraday hourly moving averages have flattened off and momentum indicators are increasingly neutral, reflecting the consolidation. The daily chart continues to suggest that this recent pull back from the $1332.10 is just unwinding an overbought position before further gains are seen.

Gold   21022014

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