Daily Market Overview
A positive close on Wall Street flowed into the Asian trading session which saw markets in Japan, Korea and Australia all close higher. The move has been helped by a number of factors. The strong US Consumer Confidence reading from yesterday is certainly supportive for trade in the Asian economies, while news that the ECB was not ruling out additional forms of stimulus (possibly QE or negative interest rates) were also supportive. China remains a difficult case as Monday’s weak flash PMI data has led to speculation that the People’s Bank of China could cut the Reserve Requirement Ratio to help stimulate the economy, but there is also suggestion that two rural banks could be close to becoming insolvent. For now it appears to be all quiet on the eastern front, as the geopolitical situation in Russia and Crimea has dropped down a notch or two on the list of concerns for traders. This should remain the case whilst it would appear that there will be no need for further sanctions.
European markets are trading positively early in the session. Forex trading will continue to be focused on the comments out of the ECB yesterday which could be a drag on the Euro. There is little data to focus on this morning, but the US Durable Goods Orders will be keenly watched at 12:30GMT. January’s number was impacted by the harsh weather in the US, so traders will be hoping for a rebound in February.
Chart of the Day – DAX Xetra
After the sharp decline of early March, there is an increasing sense that the DAX is building a reversal. A confirmed move now above 9376 would complete a head and shoulders reversal pattern that would suggest a move back to the 9721 February high. The hourly momentum studies are bullish, while the 55 hour moving average which has been a good gauge of both support and resistance throughout March is supporting the corrections at 9270. The next resistance band above the neckline breakout comes at 9437/9543. The gains made in yesterday’s session have left the key intraday support at 9181 and 9156.
The Euro has been increasingly choppy in the past couple of days. Euro/Dollar could come under renewed pressure after a series of ECB officials came out with dovish statements, including ECB President Mario Draghi who talked about short term real interest rates becoming more negative, noting that the ECB stands ready to take additional monetary measures to maintain price stability. The intraday chart shows the rate trading sharply between $1.3748 and $1.3875, however there is a sense of a resistance band coming in around $1.3845 which is just above the $1.3832 neckline of the top pattern which remains the overriding hourly chart influence. The rate is also now finding resistance under the falling 200 hour moving average, currently at $1.3851.With a drift lower in Asian trading there is a downside bias which suggests a test of the range low in due course.
Although the UK CPI data was in line with expectation, but the Retail Price Index (another calculation of inflation in the UK) came in slightly ahead of expectation and this helped to support Cable yesterday. This is allowing the medium term bulls to hang on but increasingly by the skin of their teeth as the uptrend since August and the 89 hour moving average remain under threat. Daily momentum continues to fall away and suggest rallies are being sold into. On the intraday hourly chart the Fibonacci retracements of the $1.6250/$1.6822 bull run continue to be the basis of support and resistance. The 50% level is the barrier to gains at $1.6636 and once more overnight this has been doing just that. There is a basis of price resistance around $1.6640 also in place, while the falling 200 hour moving average continues to act as a basis of resistance for any pushes higher. The series of lower highs dominates this chart and suggests that rallies should be sold into. Expect a move back towards the 61.8% retracement at $1.6489.
Looking at Dollar/Yen for the past few days has been incredibly frustrating as the rate has become ever more entrenched in its trading band between 101.95 and 102.68. It is very rare that you will find a pair as widely traded as Dollar/Yen that is becalmed on almost all technical indicators. The intraday hourly moving averages are all flat and the momentum indicators all neutral. Traders clearly waiting for something, but with geopolitics in Crimea calming down, perhaps they are waiting for Japanese inflation tomorrow night to give them direction. In the meantime, the only way to trade this is to play the range. Anything towards the lower 20bps of the range (101.95 to 102.15) is being bought, while anything towards the upper 20bps (102.48/102.68) is being sold. Until we breach one of the two key levels on this chart it is the only way to play it.
With the broken uptrend and the move under the support at $1319.61 the downside has been opened. The daily momentum indicators remain in corrective mode and the sellers remain in control for now. Minor intraday support has formed overnight which is holding off the immediate selling pressure, but there is resistance around $1320 and with hourly momentum indicators quickly unwinding the stretched bearish configuration, downside potential is being renewed. A retest of yesterday’s low at $1305.59 can be expected as the near term sellers regain control.