28/05/2014: Low volumes and stunted Treasury yields suggest caution for equity markets

Market Overview

Wall Street continues to push higher into new all-time high ground with yesterday’s move being fuelled by the improvement in the US durable goods and housing data. Asian trading has also been positive overnight, while European markets are also slightly higher in early trading. There are slight caveats to the bullish outlook. The move has come on light volume, whilst US Treasury yields seemingly remain anchored just around 2.51%. This would suggest an element of caution with regards to chasing these markets higher.

Forex trading shows the dollar is trading stronger, specifically against Sterling, and the Aussie and Kiwi dollars. The slight strengthening of the yen today against the dollar may suggest a slight move towards safer haven currencies today. Traders have not got too much data to focus on today, with the exception of German unemployment which is forecast to be 6.7% at 8.55BST and Eurozone confidence which the consensus has pencilled in for -7.1 at 10:00BST.

Chart of the Day – AUD/USD

The support at 0.9200 has held strong as the Aussie dollar has started to recover once more. The Aussie has now posted four straight days of higher lows as daily momentum indicators turn up again. This has resulted in a buy signal on the Stochastics and turnarounds for the RSI and MACD. The recent lows have also come at the neckline support of the big three month base pattern. There could now be a return towards 0.9320 which has been a pivot level for the Aussie over the past month. Furthermore, the intraday hourly chart shows that if there is a clean break above 0.9273 this would complete a base pattern which would imply a move towards 0.9337. The recovery would be called into question should the intraday lows at 0.9230 be breached but the outlook would remain intact until a breach of 0.9200.

AUDUSD   28052014

EUR/USD

Well if that was the technical rally for the Euro it did not last very long. The neckline resistance from the big double top pattern at $1.3671 capped the high yesterday almost to the tick with $1.3668. Daily momentum indicators remain negative and pressure on a medium to longer term basis shows a downside bias. However the Monday support low has been retested and largely remains intact with yesterday’s low at $1.3611 and this will be giving the bulls hope that all is not yet lost for the rally. Despite this though, it does not appear that there will be long to wait before the next breakdown as rallies continue to be sold into. The intraday momentum indicators have unwound and are again turning lower. Resistance comes in at $1.3660/$1.3668 and further weakness can be expected in due course. The next key downside support is at $1.3561.

EURUSD   28022014

GBP/USD

The outlook for the near term technicals has once again been muddied as the dollar buyers have looked to take over control on an intraday basis. This has resulted in Cable at a 7 day low as a slide towards a test of $1.6729 continues. Taking a step back on Cable may therefore be a good ideas near term as this messy period of trading plays out. On the intraday hourly chart, the lower high at $1.6881 and breach of $1.6800 suggests a downside pressure, but the daily chart is just corrective for Sterling and suggests an unwinding prior to further upside. These mixed signals could make for choppy trading near term.

GBPUSD   28052014

USD/JPY

The rate broke above 102 yesterday but the move could not be sustained as a high at 102.14 was left. The last two days have now formed two rather cautious candlestick patterns with 102 remaining a basis of resistance. Daily momentum indicators are reflecting a loss of upside momentum. The resistance at 102.36is the main cap to upside but this move still has a suggestion of a selling opportunity as the lower highs left over the past month remain intact and the falling moving averages are only now coming into play. The 89 day moving average has capped much of the upside over the past few weeks at 102.22 and a move above there would begin to change he outlook, however until then the sellers look ready to resume control in due course. Breaching yesterday’s low at 101.72 could begin the drift downwards again.

USDJPY   28052014

Gold

I have previously talked about the tightening Bollinger Bands which can often give way to a sharp breakout and yesterday there was a near text book move as the gold price saw a big sell-off which broke the key April low at $1268.24. This takes the price to a 3 month low and re-opens the downside once more. Look now for two days of trading below the 144 day moving average which has been so supportive, currently at $1278.60. This would confirm the bears taking over control again and suggest a test of $1237.94 which is the next key low on the downside. Daily momentum suggests downside pressure too. Now look at the od key supports to be resistance levels, with $1268.24 and $1276.60 being a big resistance band on an intraday basis.

Gold   28052014

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