25/09/2014: The dollar bulls return with force to reverse earlier losses in the week

Market Overview

With dovish comments from Mario Draghi, sentiment on the equity markets has turned around again. The S&P 500 and the Dow both closed just under a percent higher as there was also a positive read on the US New Home Sales. Asian trading was also boosted by the news that there had been a change at the top of the Peoples’ Bank of China which was interpreted to improve the prospect of further stimulus. The Asian indices were broadly positive led by the Japanese Nikkei which was around 1.2% higher, aided by a weaker yen. The European markets however, have just started the day mildly negatively.

The hints of further stimulus by the ECB and the PBOC, coming with the strong improvement in US housing has driven dollar strength once more in forex trading. The greenback is stronger against all major pairs today, with notable gains against the commodity currencies of the Aussie and Kiwi dollars.

There is not a huge amount of data to drive markets today, until the Durable Goods Orders for August at 13:30BST which are expected to improve by 0.6%. The weekly jobless claims also at 13:30BST are expected to hold below 300,000 but come in just slightly above last week’s number, with 294,000 forecast. Overnight tonight (at 00:30BST) we get the Japanese CPI data which is forecast to come in at 3.3%.

Chart of the Day –EUR/JPY

The sharp euro rally (or should that be yen weakness) that lasted almost a couple of weeks has rolled over now and is at a near term important level. A retracement is now back to the support band around 139.20/$139.30. This was an old breakout high within the recovery and marks the first real test for the euro rebound. The daily chart shows the momentum indicators are beginning to exhibit a corrective configuration, with the RSI and Stochastics both having topped out. With a neutral medium term outlook there could easily be a correction back towards the key near term support at 138.00. The intraday hourly chart shows the sideways consolidation that is underway around the 139.20 support and a reaction low from yesterday around 139.00. The corrective pressure is mounting and a breach of the support could quickly see a return to 138.00. A move above 140.20 resistance would re-open the recent high around 141.20.

EURJPY   25092014

EUR/USD

Betting against a falling euro seems to be a sure way to lose money at the moment. There is simply no let-up in the selling pressure, as once more a consolidation has been sold into and we see a move to a new low. The 61.8% Fibonacci retracement level has already been breached as the Euro has quickly fallen below the July 2013 low at $1.2750 and the April 2013 key low just underneath at $1.2745. This is now an incredibly important breach as the problem is that the euro is rapidly running out of key support for a full retracement back towards $1.2040. The next key low is the November 2012 low at $1.2660. Momentum indicators are so bearish and the RSI has simply unwound to give it further downside potential. The intraday hourly chart suggests the previous low at $1.2814 is now a basis of resistance. Any rallies, even if they are intraday, should be seen as a chance to sell.

EURUSD   25092014

GBP/USD

The problem with bear market rallies is that ultimately they are simply just a correction within a bearish trend and they are unwinding oversold momentum. This could be the case once more for Cable as yesterday’s turnaround from $1.6415 (the second day in a row that has been the peak) came as the dollar began to strengthen again. The momentum indicators are still suggesting this is a bear rally, with the RSI falling over around 50 and the MACD lines still below neutral. The big test for this sterling recovery and whether this is anything more than a bear market rally will come with the old resistance turned support of the gap at $1.6282 is being tested today. The intraday chart shows the uptrend that had formed over the past couple of weeks has been broken and is $1.6282 is consistently breached the next supports come in at $1.6250 and $1.6160. A move above $1.6415 would be needed to re-engage the bulls.

GBPUSD   25092014

USD/JPY

Blink and you would have missed it. Any corrective force from a strengthening yen has been reversed and Dollar/Yen is once more looking to retest the highs again. The daily chart shows two consecutive candlesticks of long lower tails and a close near the high, suggesting a lack of conviction in the bears and some good support coming in at 108.24.  I had expected a near term correction that would ultimately be another chance to buy, but it seems as though the bulls have fought hard to maintain their gains, keeping intact the strong trend through September. Another impressive aspect is the strength of the momentum indicators which are incredibly bullish. Any correction should be seen as a chance to buy, with the 4 week uptrend support now coming in at 108.10, while the intraday chart shows good support around 108.50. Expect further pressure on 109.45 resistance and then on towards the 110.65 high from 2008.

USDJPY   25092014

Gold

It seems as though Tuesday’s rebound is being seen as merely a blot on the copy book as the gold price resumes is downside trajectory. Yesterday’s negative session has continued with selling pressure once more today and a retest of the low at $1208.36 is increasingly likely. Momentum indicators maintain a very negative configuration and suggest that any rallies such as with Tuesday are a chance to sell. This will continue to be the case whilst the price trades underneath the resistance of the key June low at $1240.60, whilst the barrier of the underside resistance of the old downtrend channel comes in at $1238. The intraday hourly chart shows a lower high at $1225.80 from yesterday, whilst there is also a near term pivot level around $1220 that has formed too. Look to use any intraday rebound as a chance to sell as a move towards the implied move from the trend channel breakdown at $1200 is increasingly likely, prior to further downside towards the key December 2012 low at $1184.50.

Gold   25092014

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