25/06/2014: European equities follow Wall Street lower as forex majors consolidate

Market Overview

Yesterday was one of those unexplainable days where despite a series of positive data releases from the US, Wall Street closed strongly lower. Consumer Confidence, New Home Sales and the Case-Shiller Index all beat expectations, but the S&P 500 and the Dow both finished just over half of a percent lower, although volumes were quite light. There is a feeling that Iraq has the potential to be a drag and yesterday perhaps this was the first real sign of this being the case. This negative close spilled over into Asia markets with the Japanese Nikkei 225 also around0.6% lower. European equities have also started the day on the back foot.

Forex trading is showing little reaction though in early trading today with the dollar little changed against major pairs, with the exception of sterling which has continued its weakness from yesterday. This comes ahead of today final revision of Q1 US GDP which is expected to be cut even further to -1.8% (from the second reading of -1.0%). The data is due at 13:30BST and although this is largely expected, this would still not be a great number, however being extremely backward looking (and considering the more positive data on the US economy recently) it is likely to have been priced in.

Chart of the Day – DAX  Xetra

The last two weeks has seen the DAX build a consolidation pattern between 9810 and 10050. However, in that time there have been no positive daily candlestick patterns as a number of indecisive (doji) and negative (red) candlesticks have been posted. This suggests that the pressure is beginning to increase on the DAX. Having already in the last week broken the support of a 2 month uptrend, yesterday saw a close below the support of the 21 day moving average for the first time since 6th May. The medium to longer term outlook remains strong, and the key support is at 9810 (a previous breakout high) this remains intact, but the bulls are certainly not as strong as they were. The intraday hourly chart suggests the bulls need to maintain a sequence of higher lows with the latest at 9886.  A move back above 9971 would help to reinvigorate the buyers.

DAX   25062014


Having broken back above $1.3585 the Euro is once again in a mode of consolidation. Yesterday was a fourth straight day of almost zero sum gain as the period of indecision takes over. The momentum indicators are gradually unwinding back to neutral and there is still a suggestion that this ia merely a pause before the next bout of selling pressure. The rate has yet to make any meaningful challenge on the key neckline resistance at $1.3670 and any strength should still be seen as a chance to sell. The intraday chart is only slightly more positive with the support now looking to hold above $1.3585 and a sequence of higher lows in the past few days, but with such little ground gained if this is the rally it is a fairly disappointing one. Support arrives at $1.3582, $1.3572 and $1.3563. Above $1.3643 would give the bulls hope.

EURUSD   25062014


Sterling had a disappointing day yesterday, with the first really negative candle seen for at least two weeks. This came after Mark Carney’s (Governor of the Bank of England) slightly dovish change of tack. This is now putting the corrective pressure on, with cable back below $1.7000  once more. The first real test will be the old resistance turned support at $1.6920. A breach would suggest a deeper correction could be seen. As yet the momentum indicators are suggesting this move is unwinding some of the bull run but nothing too bearish. However below $1.69920 would probably change that outlook. The intraday hourly chart shows in more prominence the correction from yesterday. The last few days had seen  $1.7000 becoming a basis of support but the breakdown could now see it become resistance once more. Trading under all the hourly moving averages is putting pressure on the downside. It looks as though Cable is destined for a retest of $1.6920 and at that stage we will see how confident the bulls are.

GBPUSD   25062014


Very little has changes now for the past few days as Dollar/Yen continues to trades sideways with a very slight negative skew. The momentum indicators are increasingly neutral with moving averages flat. Nothing really to be gleamed from the daily chart. On the intraday hourly chart, despite the spike higher (following the positive US housing data) and then lower yesterday, you would say that the three week downtrend is still doing a job of resistance. However hourly moving averages are flat and momentum is also neutral. Dollar/Yen appears to have formed some sort of equilibrium between 101.80/102.20 and trading around that 102 pivot level that I have talked so often about. Until we get a break either way, this is one to avoid.

USDJPY   25062014


The daily chart shows that the gold price is back to an important junction once again. The price is now consolidating around the resistance of the primary downtrend which has been in place since October 2012 (currently comes in at $1327). A doji candlestick yesterday denotes that the bulls are uncertain whether to carry on the run higher. This may be ready to show in the momentum too, with the daily RSI having hit 70 and now beginning to lose impetus. MACD and Stochastics are still positive though. The intraday hourly chart simply shows a period of consolidation over the past few days. There needs to be a break above the resistance at $1330 which would take out the key April reaction high and also begin to break the downtrend. However, a breach of $1306 near term support would begin a retracement of the bull run and probably now confirm the loss of momentum.

Gold   25062014

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