Investor risk appetite has begun to improve on the back of more positive US data which sent equity markets higher in both Wall Street and Asia. News of better than expected Weekly Jobless Claims in the US and the announcement that ratings agency Fitch had taken the US off “negative watch” (putting it back to “stable”) helped investor sentiment. The S&P and Dow bounced around two thirds of a percent to claw back the losses of the previous session, whilst shares in Shanghai were around 1.7% higher. Japan has been on national holiday to celebrate Vernal Equinox Day.
However, in forex trading, investor sentiment is not aligned with the usual risk appetite trades. The dollar continues to strengthen against most of the major currencies with the recent data (not to mention the FOMC) suggesting an environment for a positive dollar.
A tit-for-tat over economic sanctions is now beginning to develop, with both the US and UK increasing the number of individuals under asset freezes and visa restrictions, whilst Russia has also done the same to several high ranking US figures, including House Speaker John Boehner. This is still not really having a negative impact on investor sentiment yet, but is worth monitoring over the coming sessions.
Chart of the Day – USD/CAD
Having been in consolidation since late January, the Canadian dollar is once more under pressure. The CAD is already the weakest performer of all the major currencies in the past month, but now it has sharply weakened once more and is currently trading at a its lowest since July 2009 versus the US dollar. Wednesday’s break above the January high of 1.1224 confirmed an upside breakout from a triangle consolidation pattern and implies a target towards 1.1500 on the daily chart. The intraday chart shows the breakout resistance is being used as support as over the past day, the rate continues to find support above 1.1228. Intraday hourly momentum indicators have now unwound the stretched position and look ready for the next upside move. Above 1.1278 would re-open the upside. The support comes in at 1.1198 and 1.1150. The announcement of a disappointing CPI figure, under the 1.0% expected today at 12:30GMT would certainly not help the loonie.
The Euro continued its decline yesterday which had begun following the FOMC announcement on Wednesday. The outlook is now under pressure with a 6 week uptrend broken on the daily chart and move below the support around $1.3810 which now opens the next reaction low and the old support around $1.3700. The concern on the daily chart is also that the momentum indicators are now all in correction mode with a crossover on the MACD lines while the RSI and Stochastics also fall away. There has been a minor bout of consolidation overnight with the rate finding support at $1.3748, however there is a band of resistance now above $1.3808 to hold back a recovery. There is also the matter of a completed head and shoulders top pattern on the hourly chart (formed on the move below $1.3832) looming large which implies a downside target of $1.3700. With hourly momentum unwinding a weak configuration and all moving averages in decline, rallies should be used as a chance to sell.
The big uptrend on the daily chart that has supported Cable since August remains intact, but is being severely tested now. The rising 89 day moving average at $1.6471, which has been used as a basis of support for the big corrections, is also now fast approaching and the bulls will need to support Sterling soon otherwise the medium term outlook will begin to deteriorate. The intraday hourly chart shows a series of lower highs in place as the sellers remain in control. All moving averages are in decline and hourly momentum indicators are in bearish configuration. Although once more overnight in Asian trading the rate has seen some consolidation above $1.6478, the selling pressure is mounting once more in early European hours. There is sizeable overhead resistance around $1.6550 which would now be a chance to sell. I talked at length previously about the 38.2% Fibonacci retracement of the $1.6250 to $1.6822 bull run acting as support, so now attention turns to the 61.8% Fibonacci level at $1.6469. The next real band of price support comes in between $1.6380/$1.6425.
As I said yesterday, the improvement in the dollar since the FOMC meeting has merely re-affirmed the ranging period over the past few weeks. Whilst the long term trends continue to suggest dollar strength, the near to medium term outlook is far more uncertain. Daily technical indicators are once more almost entirely neutral and little steer can be taken. The rate is once more under the pivot level at 102.83. Even intraday the rate has fallen back into consolidation mode once more. With Japan on national holiday for Vernal Equinox Day the rate has barely moved overnight, but early morning there has been a renewed bout of yen strength which has pulled the rate back towards the support around 101.95. If support forms this could give a chance for a small intraday buy, but the signals remain very mixed and it would be a difficult call. A decisive move back above 102.83 would be needed for the dollar bulls to regain control.
After the sharp sell-off that gold has seen in the past few days, finally some signs of support. The daily chart also shows that this support is arriving right on the uptrend that has been in place since December, in addition to the support of the key reaction low at $1319.61. The daily chart also shows that the RSI is beginning to halt the decline around the 50 mark, exactly around where the lows were formed in January. This would suggest that if the bulls can continue to support gold around the $1320 mark, the move since Monday was just a bull market correction and should be bought. The longer this level remains intact the more important it will now become. Even on the intraday hourly chart there has been a breach of the downtrend, with the prospect of a small base pattern increasing. As the price is now consolidating, it needs a decisive more above $1335 to suggest continued recovery. The intraday momentum indicators suggest more needs to be done to secure a recovery but the early signs are there.