A new all-time closing high on the S&P 500 and a strong of positive data out of Japan could not inspire Asian investors leaving a mixed session. The S&P 500 closed 0.5% higher at 1854 as investors felt supported by the comments of Fed chair Janet Yellen reiterated that the central bank would continue on its path of tapering asset purchases and that it was mindful of the weather related negative impact on recent data. The dollar has come under pressure as this suggests that the Fed could be flexible in its tapering if the data in the US deteriorates and threatens to pull the recovery off track once more.
Overnight, the Japanese yen strengthened after CPI inflation data came in at 1.4% and slightly above expectations and industrial production was also stronger. This strength of the currency impacted negatively on equities, with investors also concerned with the political tensions in the Ukraine. Despite the mixed handover from Asia, European investors are looking more positively in early trading.
The release of February’s flash CPI for he Eurozone will get a lot of attention this morning. The expectation is for 0.7% inflation, while there are concerns of an undershoot after indication that prices out of Germany were under downside pressure (although the early release of a positive surprise in German retail sales may go some way towards offsetting this fear).
Chart of the Day – EUR/GBP
Once more the Sterling bulls looks to be back in control as the big downtrend intact since July 2013 continues. The daily chart has again fallen over under the falling 55 hour moving average (currently £0.8282) as the sellers of EUR/GBP look to drag the rate lower again. The intraday chart shows a key pivot level now having formed around £0.8220, which is where the rate fell over again yesterday. The break back below £0.8200 should now ensure that there is a move back to test the key low at £0.8154.
Yesterday’s price action just shows that the outlook remains fairly choppy for the Euro. A downside break below the support at $1.3685 looked to be quite clean only for a sharp spike higher brought EUR/USD back into the consolidation pattern once more. The daily momentum indicators however show that the upside impetus is being lost as the Stochastics head lower and the RSI and MACD indicators begin to fall away.
The intraday hourly chart shows that as the 200 hour moving average (currently falling at $1.3725) had provided the support to the corrections during the rally it could now become the basis of resistance as it capped yesterday’s rally and appears to be doing a similar job today. There is now a key resistance now in place at $1.3726 and as the rate has drifted back overnight the band $1.3685/$1.3700 becomes increasingly important near term. If the bulls can hold on to this range then they can begin to think that yesterday’s dip was an aberration.
The daily chart continues to show the consolidation phase that Cable is currently in, trading above the $1.6603 support area. Technical indicators remain positive and this continues to look like the bulls pausing for breath before a further assault to the upside. The intraday hourly chart is far more choppy, and is now littered with corrections and rallies with an uncertain outlook. Despite this, the early moves today have been positive once more and Cable has shot above the resistance at $1.6626. While this move may be overdone very near term with the hourly RSI over 70, the bulls will now looks to build support above $1.6700.
The outlook is increasingly turning towards one of Yen strength as yesterday’s price action rallied Dollar/Yen back towards the resistance of the underside of the old intraday uptrend with the price subsequently falling away once more. Breaking the 101.65 low overnight suggests that downside pressure is growing towards 101.37. Intraday hourly momentum indicators are now forming a bearish configuration and the hourly moving averages have all turned negative. There is still a sense that 102.00 performs a pivot role and any oversold rally back towards 102.00 should be seen as a chance to sell.
There is a battle now going on for the bulls to hold on to the positive outlook. The uptrend in place since 6th February is now being seriously tested as the price begins to consolidate sideways. The outlook for the daily chart still seems perfectly fine, with only a slight concern over the MCD lines which are tailing off now.
However the intraday hourly chart shows more of an uncertain picture developing. The break below support at $1331.10 in the previous session was a warning sign, while the momentum indicators are becoming increasingly neutral and no longer backing the bulls. The trading range that has formed over the past 48 hours is now a key feature of the intraday chart. A successful break above $1336.10 is needed to regain bullish control. However, a turn lower below the 200 hour moving average (currently around $1326) and the supports at $1323.59 and $1322.09 would begin to open a correction back towards the key intraday support at $137.46.