26/06/2014: Risk appetite rebounds as markets bet on the Fed maintaining loose monetary policy

Market Overview

Bad news is good for the markets again. Or at least it was yesterday with the news that Q1 GDP for the US fell by 2.9% at the final reading and the weather related impact was much worse than previously thought. Although the run rate for Q2 growth suggests a sizeable rebound, the market has taken it that this disappointment of Q1 will mean that the Fed will not be raising rates any time soon. Equity markets on Wall Street subsequently bounced back to close around half a percent higher, which has also helped to fuel slight gains in Asia, with the Nikkei around 0.3% higher. European markets are also in positive territory in early trading.

The disappointing data and expectation of the Fed retaining loose monetary policy hit the dollar yesterday. The greenback has managed to be relatively steady in early forex trading today, although it does retain a slightly negative skew against most of the major pairs. The only significant move seen has been with a jump of over 30 pips in the Kiwi dollar.

There is not too much for traders to be watching out for today. Sterling traders will be watching for the Bank of England’s Financial Stability Report for anything that could attempt to take the steam out of the housing market in the UK. Other than that, there is the Weekly Jobless Claims at 13:30BST (311k expected) whilst overnight there is also Japanese CPI which is expected to increase from 3.4% to 3.7% in May.

Chart of the Day – S&P 500

Well, if that was the wobble for the S&P 500, it did not last very long. A bearish key one day reversal (a move to a new high that is rejected and then closes below the previous day’s low) on Tuesday suggested that the bulls were losing control. If yesterday’s reaction was anything to go by then this may not quite be the case (yet). However, despite the rebound and apparent lack of confirmation, Tuesday’s bearish pattern is arguably still intact, and will be until the high at 1968.14 is taken out. Anyone who watched my webinar yesterday would have seen that bearish key one day reversals happen a lot on the S&P 500, and often help to call the top of a trading period. This time, we will have to wait and see how the market reacts in the next few days as most technical indicators remain bullish on the S&P 500. It may be too early to call a top (or even “the” top) but if nothing else, this technical one day trading pattern is a big warning signal that the bulls are a bit nervous and are ready to take their profits.

S&P   26062014

EUR/USD

The near term outlook for the Euro seems to be one of recovery now. Support is being found above the basis around $1.3585 and technical indicators are gradually edging higher. However the key overhead supply waiting at $1.3670 is yet to be negotiated and this should prove to be a significant barrier to the recovery. This is also now where the 144 day moving average is now at, an indicator which has historically played a significant role as a basis of both support and resistance. The intraday hourly chart is actually now fairly positive with a series of higher lows in place with $1.3600 and $1.3585 featuring as support. It would appear as though the Euro is on course for a test of $1.3670 again. I would think though that this is where the rally will begin to flounder once again.

EURUSD   26062014

GBP/USD

It was a disappointing day yesterday really, in the context of the weaker dollar Cable could not make any real headway. This comes as the market battled with competing forces of a sterling negative Mark Carney dovish  and the dollar negative US Q1 GDP and Durable Goods data. However the chart is suggesting that Cable continues to trade above the key support at $1.6920 and if this can now build then the outlook will become sterling positive and this will be seen as another opportunity to buy. The intraday hourly chart suggests that there is still work to be done for the bulls as the four day corrective move continues. The $1.7000 level appears to be acting as resistance and could easily become a key pivot level now. Near term support at $1.6950 protects the key $1.6920 breakout support.

GBPUSD   26062014

USD/JPY

In a period of no overall control, even a slight grabbing of the reins is noteworthy. And so it would seem as though the yen strengthening (or rather dollar weakening) yesterday has begun to pull dollar/Yen lower. Furthermore it is worth pointing out that the 200 day moving average (at 101.68) is now doing a job once more as the basis of support. It is difficult to get excited about this chart though whilst it continues to trade in the range between 101.57 and 102.20. The intraday hourly chart is still showing a slight downside bias with the 3 week downtrend largely intact and the rate trading below the hourly moving averages. However until the range low at 101.57 is broken decisively then it would be best to continue to play the range that has been in place since 12th June.

USDJPY   26062014

Gold

Gold has entered into a fourth straight day of consolidation as the bulls continue to hold on to last week’s gains. The longer term chart continues to show the underside resistance of the primary downtrend in place since October 2012 is putting a cap on the gains however the profit-takers have not moved in yet. Despite the RSI reaching overbought, the MACD and Stochastics are both still rather positive. On the hourly intraday chart it is clear that there is a near term support now coming in for gold now between $1306.50 and $1310. A failure of these supports could induce a quick retracement of the gains back towards $1285, but for now the support is holding. The dollar weakness from yesterday helped to induce the support but the immediate outlook is not especially decisive with two consecutive “doji” candles denoting uncertainty with the prevailing trend. Can the bulls hang on? I am not so sure.

Gold   26062014

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