22/01/2014: US dollar slightly stronger ahead of UK unemployment data

Macro Overview

After a the first increase in three sessions for the S&P 500, Asian markets were in the green overnight and have given European investors a positive handover to early trading. The Bank of Japan maintained its current stance on monetary policy, as expected, with no new easing measures announced. By sticking to its upbeat inflation forecasts, this suggests that there is no immediate prospect of further monetary easing by the BoJ. The Asian region also remained positive following the easing of credit conditions by the People’s Bank of China which pumped $42bn into the interbank market on Tuesday. UK unemployment and the Bank of England meeting minutes are the dominant economic data of the day. With unemployment expected to show further signs of improvement towards the Bank of England’s 7% target, markets have increasingly speculated over an earlier tightening cycle.  As the data comes out, Sterling investors will need to keep in mind the thoughts of the IMF yesterday which not only upgraded its expectation for UK GDP growth in 2014, but also warned against the early exit of ultra loose monetary conditions. There is little in the way of US or Eurozone data due today.

Chart of the Day – Silver

The correlation between gold and silver is high and with the silver price breaking below a support at $19.90 yesterday this could have a negative feedthrough for gold. The key resistance around $20.47 has remained intact despite an attempted recovery over the past few weeks and breaking this near term support now puts pressure on the key reaction low at 19.28.  The daily momentum indicators are rolling over with RSI and Stochastics in decline and the MACD line also close to a crossover sell signal. The intraday bounce from $19.65 yesterday has failed around the resistance band between $19.90/$20.00 and the downside pressure is resuming today.

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EUR/USD

Yesterday’s bounce in the Euro broke the intraday downtrend that has been evident for the past 5 days, however the move could not overcome the resistance at $1.3580 and the selling pressure has resumed. This strengthens the resistance and with momentum indicators on the hourly chart turning lower the selling pressure looks to be resuming again. The daily chart continues to suggest that the formerly broken support from the low of 9th January at $1.3547 has increased downside pressure. This is further increased by the shorter moving averages which are all now turning lower. The inference of all this is that selling into strength is a good strategy.

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GBP/USD

Yesterday’s move higher took cable above the key Friday high and now has opened a test of the important reaction high at $1.6517. The immediate move has just undergone some minor consolidation back towards the support of the breakout highs between $1.6450/$1.6460, shown on the hourly chart. The upside pressure could resume this morning though around 09:30GMT if the stronger UK employment data comes as expected. With little US data due, the focus will be on the strength of Sterling today and this should put a positive pull on cable. The key support intraday comes in at $1.6394.

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USD/JPY

The yen strengthened slightly overnight with no new measures announced by the Bank of Japan early this morning.  This has meant that the 104.92 resistance we talked about yesterday has remained intact and Dollar/Yen is back into the trading band once more. The immediate overnight support comes in at 103.94, with key support to be watched at 103.84. Yesterday’s rally high at 104.74 comes just prior to the key high at 104.92. This pull back in Dollar/Yen has brought the technical once more back towards neutral as this consolidation period continues. We still await a serious breakout.

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Gold

The pressure of the resistance from the 12 month downtrend pulled the gold price lower yesterday and once more the focus will be on whether the support can hold. The latest reaction low within this 3 week recovery comes in at $1234.10 and this will need to hold for this recovery to remain on track. Daily Stochastics have turned lower and the RSI is also beginning to decline which suggests that the buying pressure is beginning to wane now. The immediate intraday support comes in at $1235.68, whilst the 200 hour moving average we spoke of yesterday is now becoming a basis of resistance.

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Written by: Richard Perry

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