25/03/2014: Sentiment shows signs of improvement on hopes of Chinese stimulus

Market Overview

The prospect of fresh stimulus from China prevented a sell-off in Asia that would have followed weakness on Wall Street. This is also what is behind early gains on European markets. The disappointing Chinese HSBC Flash PMI yesterday has led to speculation that the Chinese government would step in to protect a slowing economy after the HSBC reading showed a third straight month of contraction.

Although risk appetite has settled, it remains to see how long this lasts, with the political tensions with Russia showing little sign of improving. The G7 countries met yesterday and opted to suspend Russia from the G8 until it changes course over the Ukraine. The concerns have become that Russia may begin to encroach into eastern Ukraine which has a large population of Russian speakers, just as it did in Crimea.

Forex trading will be impacted by the UK inflation today at 09:30GMT, with expectation that the number will fall from 1.9% to 1.7% amid falling petrol prices. This would put pressure on Sterling which has been losing ground against major currencies in recent sessions. The release of the Conference Board Consumer Confidence this afternoon at 14:00GMT could impact on the dollar and equities alike. Also at 14:00GMT there is the release of US New Home Sales.

Chart of the Day – Silver

The sell-off has now spilled over into a second week as the price continues to show consistent weakness. The breach of the key pivot level at $20.50 suggests further downside, with daily momentum indicators suggesting continued weakness with downside potential. The next key support is now not until $18.97. The intraday hourly chart shows a consistent downtrend over the past 7 days, all moving averages in decline (the 55 hour moving average at $20.17 is the basis of key resistance) and momentum indicators in bearish configuration. The hourly RSI has unwound back to a level where the selling pressure has resumed within the downtrend, whilst the price has fallen over once more, having seemingly peaked at $20.07, under the resistance band $20.10//$20.23. The overnight low at $19.84 can at least be expected to be tested prior to likely further losses.

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EUR/USD

A strong move higher to $1.3875 in the US session yesterday that took out several intraday resistance levels looks to have settled overnight back to around where the barriers to gains are on the daily chart. The old 6 week uptrend, the 21 day moving average ad the neckline resistance of the top pattern are all around $1.3820/40 and this is likely to therefore be an opportunity to sell once more. This resistance at $1.3875 will now be key for the near term outlook. Asian trading has been indecisive overnight but the rate has just drifted off once more, leaving hourly momentum indicators with a corrective outlook. A retest of yesterday’s low at $1.3759 can be expected.

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GBP/USD

The outlook for the daily chart continues to be corrective, with momentum indicators all falling away, the support of the uptrend since August 2013 creaking under the pressure and a series of lower highs in place. The latest lower high seems to be yesterday’s $1.6534 which was retraced within minutes to leave Cable back within its trading band that it had spent much of the day in. The intraday hourly momentum indicators suggest there is increasing likelihood of further downside, with MACD lines rolling over around neutral, RSI unable to sustain a move above 50 and Stochastics in decline. With negative moving averages converging this chart looks to be building for the next big move. It looks as though the move will be lower. The intraday support at $1.6459 provides a thin support. The target from the top pattern on the hourly chart formed below $1.6580 is $1.6380.

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USD/JPY

Any ideas would be welcome? No, seriously, as I said yesterday, Dollar/Yen has once more settled into a sideways band and is increasingly neutral, with the rate having traded sideways for over three days now. The daily chart shows momentum indicators almost entirely in neutral configuration. Even the intraday technical studies are inconclusive, with moving averages having converged to flatline, while momentum indicators are also giving little guidance. We must just hope for a breakout to provide us with a lead then. The previous resistance was at 101.95 and has now become the support, whilst the post-FOMC high of 102.68 acted as resistance again yesterday. The problem with backing a move to the upside is that the historic pivot level of 102.83 is just overhead. Early moves in the European session suggest a slight downside bias, but as yet nothing seems overly decisive with Dollar/Yen currently.

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Gold

The gold bulls continue to struggle as another support has been breached. Yesterday the support of the uptrend that had been in place since the December low, was broken. This now means pressure on the next reaction low within the uptrend at $1307.46. Although the Stochastics are beginning to show signs of bottoming, the RSI and MACD lines remain in correction mode and further downside looks likely. For a while I have spoken of the possibility of a correction back towards the $1300 level which I would see as a chance to buy, but the next real support under current levels is not until $1294. The intraday hourly chart shows the series of lower highs within the sell off and the near term bears in control, with momentum indicators in negative configuration. With the rate falling over again overnight there is now a band of resistance between $1316.50/$1319.61.

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