24/09/2014: Dollar remains under pressure amid improved safe haven flows

Market Overview

A series of concerns have hit investors on financial markets in recent days to result in a flow into safe haven trades such as US Treasuries, gold and the yen. Whether this move proves to be short lived though is tough to say at this stage but the initial reaction to news of air strikes on Islamic State targets in the Middle East. With the VIX index of volatility on S&P 500 options spiking higher traders are clearly looking for portfolio protection. This comes as the S&P 500 fell another 0.6% and is retreating back towards its support at 1978. Asia markets were choppy and mixed overnight, whilst the European session is following the lead from the US and is slightly lower.

In forex trading, the US dollar is once more under a bit of pressure, as the yen is strengthening once more, whilst there were also gains for the Aussie and Kiwi dollars after recent losses begin to find some support.

There is some important German data out today with the Ifo business climate released. The Ifo has been in decline since Q2 and after the PMI fell again yesterday, traders will be hoping that it will not confirm the expected decline to 105.8 at 09:00BST. Then we move stateside for the New Home Sales, which are expected to improve by 4.4% to 430k in the release at 15:00BST.

Chart of the Day – Brent Crude Oil

The technical outlook on Brent remains extremely weak as the downtrend channel of the past 3 months continues to drag the price lower. The latest rally has peaked out at $99.61 and a series of bearish candles suggest that the recent low at $96.21 will be breached before further weakness. The daily momentum indicators are in incredibly weak configuration and suggest that the downside pressure is still significant. With the low from April 2013 at $96.75 having been broken there is very little standing in the way of a correction back towards the June 2012 lows at $90.88 and then $88.50. The intraday hourly chart shows resistance around $97.50 and then again at $98.50. The bears would remain in control until a breach of the top of the trend channel, which is flanked by the falling 21 day moving average, currently at $99.56.

Brent   24092014

EUR/USD

Yesterday’s session just adds weight to the argument that rallies will continue to be sold into. An initial attempt to gains some upside traction was reversed at $1.2900 and a 50 pip decline again saw a close towards the day low. Momentum indicators continue to suggest selling into any strength, with the very slight bullish divergence on the RSI having very little impact on the euro whilst being so isolated. The intraday chart shows a series of lower highs in place now at $1.2930 and then $1.2900. Another consolidation threatens, with periods of consolidation traditionally seen as a pause for breath before the next bout of selling pressure. The support comes in at $1.2814, but a move back towards the 61.8% Fibonacci retracement level at $1.2786 and a likely test of the July low at $1.2750 should be seen in due course. The key resistance near term remains $1.3000.

EURUSD   24092014

GBP/USD

Now that sterling is settling down, there really is the prospect of some support having been formed as a gradual recovery has been seen over the past few days. Leaving the support at the old gap resistance at $1.6282, Cable has pushed through the old 10 week downtrend resistance as a steady recovery takes off. The daily momentum indicators all show improvement as well. The intraday hourly chart shows that an uptrend has formed over the past two weeks, and with the trend support now up around $1.6330 Cable has pushed above the barrier at $1.6400 to leave the next resistance at the recent recovery high at $1.6525. Intraday indicators are positive and with the recovery with all hourly moving averages rising in bullish sequence. There is further support at $1.6250 and $1.6160.

GBPUSD   23092014

USD/JPY

A day of mixed control saw the near term top pattern completed on a move below 108.47 which implies a correction back towards 107.50. I spoke yesterday about the need for another lower high under 109.19 perhaps to validate the top and a late recovery yesterday seems to have posted another lower high at 109.00 as Dollar/Yen began to weaken again. The intraday hourly momentum indicators are now in the least suggesting that the recent bull run is consolidating, whilst the MACD lines are suggesting more a correction. A move back under yesterday’s low at 108.24 would re-open the correction towards 107.50. Back on the daily chart there is no immediate cause for concern and I continue to believe that even if there were to be a pull back towards 107.50 it would be a good opportunity to unwind some of the overbought momentum for a chance to buy again for the medium term move towards 110.65.

USDJPY   23092014

Gold

The flow into safe haven assets helped to drive gold higher, but in the context of the daily range which saw a peak at $1234.80 the close at $1222.70 would have been a touch disappointing. This suggests a lack of conviction in the move. The intraday hourly chart shows the resistance band between $1234 and $1241 saw the sellers return once more. The technical outlook on a medium term perspective remains weak and the old key June low at $1240.60 and the resistance from the old downtrend channel are proving to be barriers to a recovery. I still expect this rebound to be short-lived and sold into before further weakness in the gold (driven also by a stronger dollar) back towards the initial target at $1200 and subsequently the $1184.50 December low.

Gold   24092014

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