24/01/2014: Investors look to consolidate in a quiet end to the week

Market Overview

A sharp sell-off in the dollar has had a significant knock on impact on global markets in the past 24 hours. The move came on the back of disappointing Chinese manufacturing data which put the reins on risk appetite.  This was then exacerbated by disappointing manufacturing and housing data from the US. A flight towards the safer haven assets has been seen, with gains for gold, the Japanese yen and US Treasuries. With Wall Street around one per cent lower, stocks in Asian markets also sold off, with the Nikkei over 2% lower (as so often happens when the yen strengthens).  The bulls will be left wondering today whether this is a minor blip or if it is the beginning of something morel concerning.  Despite this, having seen steady declines throughout the day yesterday, European markets are looking to bounce back in early trading. There may be some respite for the dollar against sterling today, with Mark Carney, Bank of England Governor, having moved to allay market fears of an earlier tightening of UK monetary policy by playing down the importance of the 7.0% unemployment target set by the MPC. This could put the brakes on the run higher for Cable today. On a day where there is very little economic data due, this leaves markets to further contemplate the significance of the disappointing data that we have seen out of China this week. This is likely to see appetite for risk remaining reduced for now and possibly a day of consolidation.

Chart of the Day – S&P 500

The sharp decline on Wall Street pulled the S&P 0.9% lower, however as things stand this is nothing overly different to the outlook. The move bounced off an uptrend dating back to mid-October, while the previous key breakout support at 1813.55 remains intact. The daily momentum indicators also remain in bullish configuration, albeit a little corrective but nothing too major. The intraday momentum indicators became a bit oversold on the hourly chart and the Stochastics have actually given a crossover buy signal. This could suggest that the support may return today. Immediate resistance comes in at 1832, with 1840 often acting as a pivot level intraday.

S&P500

EUR/USD

The dollar weakness seen yesterday resulted in a huge push higher on Euro/Dollar, with almost 150 ticks added on the day. This now takes it to a direct challenge of the resistance around $1.3700 and also has a significant change to the overall outlook, back above the old uptrend once more. On a quiet day for economic data there could be a near term period of corrective consolidation, with a band of intraday support between $1.3620/$1.3650. Once this plays out we may have more of an idea of how sustainable this sharp move higher is.

EURUSD

GBP/USD

The breakout on Cable to the highest since April 2011 has been maintained overnight as the long term chart strengthens. Intraday trends and technical studies remain in bullish configuration, while on the daily chart the same is the case. A hint of an overbought position may have developed on the RSI which at 68 very rarely gets above 70, so this may induce a near term consolidation and should lend caution for running long positions. There is a decent band of intraday support $1.6555/$1.6585 for any minor correction.  The comments from Mark Carney should theoretically drag Cable lower but we are not seeing this move yet.

GBPUSD

USD/JPY

In the context of how Dollar/Yen has moved in recent months, yesterday’s decline was huge. It also formed a big bearish key one day reversal on the daily bar chart – an extremely negative daily signal. Dollar bulls will be hoping for a repeat of the sharp sell-off and subsequent immediate bounce back from mid-January. There is key support at 102.83 on the daily chart, while intraday there is yesterday’s low at 102.95. A move above intraday resistance at 103.58 would complete a small base pattern and open for a recovery back towards the resistance band 103.84/103.95.

USDJPY

Gold

The sharp bounce on gold yesterday formed a bullish key one day reversal and seriously tests the bearish outlook for the near term. This move takes gold above the 12 month downtrend, however so far it has failed the break above the resistance at $1267.26, which is necessary to complete a base pattern.  Yesterday the price peaked at $1265.40 and is currently retracing the move as overbought intraday technicals look to unwind. The Fibonacci retracements come in at: 38.2% is at $1252.39, 50% is at $1248.38, 61.8% is at $1244.37.

GOLD

Written by: Richard Perry

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