Despite another weak close on Wall Street last night, Asian markets paused for breath overnight as investors await the outcome of the latest meeting of the Federal Open Market Committee. Emerging market currencies and stocks have come under significant selling pressure in recent days, amid concerns over the speed of tapering asset purchases by the Federal Reserve in addition to slowing Chinese growth and worries over credit liquidity. The Fed is expected to reduce asset purchases by a further $10bn on Wednesday. However, a deal has kept China Credit Trust Bank from defaulting which could have sent ripples through China’s shadow banking system. Also, the Turkish lira has been supported by reports that the central bank is to hold an extraordinary general meeting, which has helped to calm the nerves. Dollar/Yen has found some near term support which I has also resulted in support for the Nikkei 225 which was around 0.1% higher. Investors will be mindful of the first look at UK Q4 GDP today which is forecast to be 0.7% at 09:30GMT. There is also US Durable Goods at 13:30GMT and US Consumer Confidence at 15:00GMT coming before President Obama’s State of the Union address this evening.
Chart of the Day – S&P 500
Investors now have a decision to make. The sell-off is now back to some key support levels. The primary uptrend dating back to November 2012 was hit bang on yesterday, as was the rising 89 day moving average which has been a good gauge for corrections within the uptrend. The support of the old breakout level at 1775 (which successfully held in December) is also here. The intraday chart shows support at 1768 holding, with momentum indicators now looking to unwind from intraday oversold on the hourly chart. A 38.2% Fibonacci retracement of the recent sell-off comes in at 1801.
Yesterday’s push higher on the stronger than expected German IfO could not be sustained and an intraday lower high looks to have been left at $1.3716. The intraday chart has a look of retracement about it still and this could drag it back into the support band $1.3580/$1.3620. The daily chart shows two consecutive closes towards the low of the day as EUR/USD has now made three failed attempts at moving above the reaction high at $1.3698. The US data out this afternoon (Durable Goods and Consumer Confidence) could also have a bearing on this one today.
With UK GDP announced at 09:30GMT this could be another day with strong gains for cable. While the consensus expects 0.7%, with UK data covering the closing stages of 2013 having largely impressed the market GDP could be as high as 0.8% or even 0.9% which would certainly give cable another upside boost. Despite Friday’s bearish key one day reversal on the daily chart, the sharp correction retraced around 50% of the recent leg higher and the bulls have re-are re-asserted themselves. A push back above the recent high at $1.6667 would be needed to abort the key one day reversal and would certainly re-affirm the strength of the chart. UK GDP could be the catalyst today. Support at $1.6530 and $1.6472.
The big sell-off has shown some signs of abating with support coming in at 101.77, which is above the support band around 101.50 and ultimately could prove to be a good area to buy. With the old support at 102.84 now acting as the first line of resistance, this could become a near term pivot level which the Dollar bulls will certainly be keen on reclaiming. This battle is being played out clearly on the intraday hourly chart, with momentum indicators having unwound and the resistance being tested now. Above 102.95 would open the intraday reaction highs at 103.58.
With the dollar finding some support and markets settling down a touch overnight, the gold price has retraced some of the gains it has seen recently. The 200 hour moving average (currently $1251) has been a good basis of intraday support throughout January and once more has done a job overnight. The daily chart suggests that the bulls still have some work to do. Back below the key level of $1267, while the Stochastics are also now showing a bearish divergence which suggests that upside momentum is now waning. The bulls need a break back above $1278 and hold above $1267 to suggest that this is still any more sustainable than a bear market rally.
Written by: Richard Perry