Wall Street failed to really capitalise on a strong previous session and closed with only minor gains yesterday. The VIX index is now becoming something to keep an eye on as although it increased slightly yesterday, it traded for much of the day below 12 which is getting to be especially low and into the realms of complacency. One to watch certainly as Wall Street approaches all time highs again. Asian markets were fairly mixed as the Nikkei again benefitted from a weaker yen, but the concerns over the military coup in Thailand resulted in losses on the SET Index. Almost like a broken record this week, European markets are trading with very cautious gains early in the session.
Forex trading is also showing little real direction, with perhaps the only exception being a slight strengthening of the Aussie dollar today. Earlier yen weakness has been unwound, while the Euro shows little sign of any real appetite by the bulls, however part of this could be due to the uncertainty surrounding the fallout from the European parliamentary elections.
The second reading of German GDP which confirmed the +0.8% for the quarter has had little impact on the Euro yet, but perhaps the German Ifo business climate will instead at 09:00BST. Expectation is that the Ifo will fall slightly to 110.9 from 111.2. There is also Canadian GDP for April released at 13:30BST with an expectation of +0.3%, whilst the US New Home Sales are announced at 15:00BST which are expected to improve to 42k from 384k last month.
Chart of the Day – EUR/JPY
The medium to longer term outlook is now deteriorating with the rate trading decisively below the 144 day moving average for the first time since August 2013. However, after consistent declines over a two week period, An intraday rally in Wednesday’s session has been followed up by another positive session yesterday. This comes as the RSI is bottoming around 30 and the Stochastics are turning up following a crossover below 20 (ie. close to a confirmed buy signal). The neckline resistance of a top pattern comes in at 139.85 and there has been no real pullback seen yet, so there could be a rally brewing. However, any rally would merely be seen as another chance to sell as the bears are increasingly in control. The intraday hourly chart shows resistance around 139.45, whilst already it looks as though the bulls have got a fight on their hands to even engage a rally. I see any strength on Euro/Yen as a selling opportunity.
The Euro remains under pressure as we see for the first time now a close below the April low at $1.3671. This now means that a second close below today would confirm the formation of a large double top pattern that gives an implied medium term downside target of $1.3375. The daily momentum indicators are all in bearish configuration and there is little appetite for a recovery just now. The intraday hourly chart shows the sequence of lower highs as the drift lower has continued. Yesterday’s reaction high at $1.3687 is the initial resistance and any rallies should be seen as a chance to sell. Expect further pressure on the $1.3634 low with the next key low on the daily chart at $1.3561. The key near term resistance is at $1.3734.
The daily chart for Cable continues to look strong although the negative candle from yesterday’s session has been a blot on the copybook near term. Despite this minor correction that shows well on the intraday hourly chart, this looks to be another chance to buy. The rising 89 hour moving average (at $1.6853) now seems to be the basis of support for Sterling and the rate is looking to build once more after yesterday’s minor correction. The hourly momentum indicators have unwound and look ready to take off once more. A break above the near term resistance at $1.6880 would re-open the highs around $1.6920. A breach of the lows around $1.6850 would be disappointing for the bulls, with $1.6830 the next resistance but the positive near term outlook remains in place until a breach of $1.6800.
The sharp rally in the past couple of days has just shown signs of stalling overnight. The recovery in Dollar/Yen has brought the rate back towards the underside resistance of the old uptrend which now becomes resistance around 101.73. Furthermore there is a sizeable resistance band shown on the hourly intraday chart between 101.70/102.00. The overnight high came in at 101.85 and hourly momentum indicators have subsequently begun to roll over and suggest that the recovery may be running out of steam once more. Further deterioration could put pressure on the reaction low at 101.45. A break above 102.11 would be the first sign in over a week that the Dollar bulls may have some control back.
Proponents of candlestick analysis will look at the price movement in gold this week and note that the candlestick bodies (the difference between the open and the close) have had just a $2 range between $1291 and $1293. It has been the intraday price movement that continues to spike and then retrace towards where it began. This wold suggest an equilibrium price has been reached and investors are now waiting for the next major catalyst. The converging daily trendlines are now just $7 apart. We are getting little more from the intraday chart with hourly moving averages flat and momentum neutral. The support is now from Wednesdays low at $1283 and Thursday’s high at $1303.50.Perhaps we need to look elsewhere for the next direction. The latest events in Ukraine in addition to what should result in increased tensions following this weekend’s presidential elections could add back in the “war premium” to the price.