24/02/2014: Risk appetite on hold as investors make a cautious start to the week

Market Overview

After an uninspiring end to trading on Wall Street on Friday, a disappointing session Asian session has left European traders with a cautious outlook on Monday morning. A dip in Chinese house prices and a strengthening of the Japanese yen put pressure on Asian equities which has now spilled over into the early European trading, although the German Ifo Business Climate (at 09:00GMT) which came in slightly above expectations is giving a small boost.

It would appear as though investors are choosing to ignore any potentially positive impact of the G20 meeting of finance ministers over the weekend. The meeting included the encouraging step for the G20 to announce that it would like to increase global growth by a further 2% in the next five years. However, this will need to be followed up by action on a country by country basis, with no apparent penalisation for failure to achieve this. So it appears as though the market is taking this news with the usual degree of scepticism.

There is not a great deal of economic data out to help drive the markets today. At 10:00GMT there is the final January inflation figure for the Eurozone, which is expected just to confirm the original 0.7%. Traders will be contemplating the impact of the freezing weather in the US this winter, with tomorrow bringing more housing data and consumer confidence.

Chart of the Day – DAX Xetra

Last week we focused on the S&P 500 which had completed a bearish key one day reversal. The DAX showed a similar move to the downside and despite a subsequent recovery, the DAX continues to trade underneath the resistance now in place at 9696. This is a concern with the FTSE 100 and the CAC 40 both having stronger near term charts. This may suggest that investors remain unsure of a retest of the key highs will be seen as momentum indicators begin to roll over. The good news from the German Ifo Business Climate (108.3 versus 108.2 exp) is failing to filter through to stocks. The warning signs for a correction are building. A break above 9696 would re-open the 9794 all-time high once more.

DAX   24022014

EUR/USD

Despite the rate having been trading sideways for almost a week, it remains in an uptrend channel which has been in place since 6th February. However, a squeeze between the support of the uptrend (currently around $1.3720) and the resistance at $1.3773 is underway. The support at $1.3720 is increasingly prevalent as this has also become a pivot level in recent days. A break below would instantly open the low at $1.3701 and the key intraday low at $1.3685. A move above $1.3758 would be positive intent. Hourly momentum indicators remain neutral but are beginning to show sign of life for the bulls.

EURUSD   24022014

GBP/USD

The rate continues to consolidate in the drift back towards the 38.2% Fibonacci retracement at $1.6603. Intraday hourly momentum indicators all remain in corrective configuration, with the moving averages also drifting lower. The downside pressure continues, but the daily chart continues to suggest that this is a near term correction before the bulls regain control to push Cable higher once more. The significant resistance on an intraday basis to watch for now is the high from Friday afternoon at $1.6724, while a move above $1.6740 would clear out a lot of the intraday supply on the way back for a retest of the high once more.

GBPUSD   24022014

USD/JPY

The price action on Friday has only acted to strengthen the key overhead barrier at 102.83 as a rally once more failed, this time at 101.81. This keeps intact the range period as intraday moving averages and momentum indicators fall away once more. Thursday’s low at 101.65 is the initial key support area. The more the price action can build support above the 102 yen level which has acted previously as a pivot, the more the upside pressure will build on 102.83. However for now, we continue to play the range.

USDJPY   24022014

Gold

Price action over the past couple of sessions has favoured the bulls once more and although the consolidation continues, the pressure is growing for an upside breakout back above $1332.10. The daily chart continues to show the base pattern which targets $1350, whilst also showing that this pause for breath is merely a bullish consolidation within the recovery. Daily momentum remains in strong configuration, while studies on the intraday hourly chart show that the upside pressure is mounting with positive moving averages, and the hourly RSI and MACD consistently in bullish configuration. The low at $1307.46 is increasingly key.

Gold   24022014

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