27/01/2014 – Emerging Markets woes amid continued flight to safety

Market Overview

In front of this week’s crucial meeting of the Federal Reserve, Asian markets have continued to fall on Monday. Fears that the FOMC will cut its bond buying programme by a further $10bn, coupled with concerns over both credit conditions and slowing growth in China have seen a recent flood into safe haven assets. The Japanese yen continues to strengthen which is weighing on the Nikkei 225 which was a further 2.5% lower.  Equities in emerging market countries with current account deficit problems such as Turkey and Argentina are also the focus of the selling pressure, while gold has been seen as a safe port in a storm. European markets are subsequently coming under a bit of pressure in early trading. Focus will also be on today’s German Ifo business climate at 09:00GMT and the New home Sales in the US at 15:00GMT, while earnings from Apple will also be of interest.

Chart of the Day – EUR/GBP

Is this the latest bounce to be a chance to sell again? The minor bounces within the 6 month downtrend have all been struggling at the 55 day moving average (currently £0.8333). Momentum indicators remain in bearish configuration and this rally has just unwound the RSI towards neutral and renews downside potential. A move above the latest reaction high at £0.8348 would begin to suggest that there might be something more in it for the Euro bulls. The big downtrend resistance comes in at £0.8384.

EURGBP

EUR/USD

With the medium term outlook now with increased uncertainty following the sharp gains over the past couple of sessions, the resistance around $1.3700 has become increasingly pivotal. Moving averages are looking to run up once more and if the Euro can sustain a break above this resistance, the outlook would become increasingly positive once more. With barely any movement in Asian trading hours, there is still  the prospect of a retracement of at least some of the sharp gains from Thursday. Sub $1.3662 could open the correction, with minor support at $1.3623 beyond.

EURUSD

GBP/USD

Having posted a new high dating back to April 2011 on Friday, a sharp intraday reversal has left a bearish key one day reversal on cable and has left resistance at $1.6667.  However the decline has already retraced 50% of the recent push higher and has been held up by good support in the band $1.6475/$1.6517 as the buyers are looking to try and regain control again. A move above $1.6556 would re-open the upside. Although there is the New Home Sales data at 15:00GMT this could be more of a consolidation ahead of a huge week of economic releases.

GBPUSD

JPY/USD

Amid the continued concern over taking on risk, investors are showing little real appetite to buy Dollar/Yen yet which is beginning to confirm the break below the key previous support at 102.83. This level will need to be overcome for the outlook to change from its current corrective one. Intraday technical studies are merely unwinding from oversold, while the Stochastics have already rolled over which could limit any bounce. However there is a good band of support around 101.50 that can be used as a floor as the bulls regain their composure.

USDJPY

Gold

Despite the expectation of continued Fed tapering, with the flight to safety currently being seen, gold is being seen as a major beneficiary. This continues to drive the gold price higher with three days of gains now which are going some way towards changing the bearish outlook. However, there is still much for the bulls to do before we get excited on a longer term basis. For now a second close above the resistance at $1267 would be a good start, with the next rally high to be negotiated at $1294. A bearish divergence on the hourly RSI is a slight concern for the upside potential of this 3 day run. There is good intraday support in the band $1255/$1260.

GOLD

Written by: Richard Perry

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