29/01/2014 – Risk appetite improves as Turkey hikes rates to stop the rot

Market Overview

Emerging Markets continue to dominate the headlines. Having given indication of special measures to stop the run on the Lira on Tuesday, last night the Turkish central bank raised interest rates to a whopping 12% (a 425bps rise from 7.75%) in an emergency meeting. Whether the market believes that this is enough to stop the longer term selling pressure remains to be seen. However, in the near term it has gone some way towards supporting the Lira which has strengthened significantly in the hours since. There has also been a knock on effect with Wall Street futures significantly higher and Asian stocks rallying overnight, whilst the positive sentiment has also spilled into European trading this morning. In Japan, the Nikkei 225 was well over 2% higher, after the improvement in risk appetite saw the Yen weaken once more against the Dollar, back firmly above the resistance at 102.84. Investors will today turn their attentions towards a more familiar theme of recent months, tapering of asset purchases by the Federal Reserve. The result of its two day meeting will be announced today at 19:00GMT with expectation that it will reduce its asset purchase facility by a further $10bn o now sit at $65bn per month. Furthermore, investors will be keen to hear what the Fed’s latest views are on the economy in its accompanying statement. Other data that is due today includes the US oil inventories at 15:30GMT and the monetary policy decision by the Reserve Bank of New Zealand at 20:00GMT.

Chart of the Day – USD/TRY

With Emerging Markets dominating news flow in recent days, the volatility in the Dollar/Lira has been significant. The range of around 1100 ticks on Tuesday was the largest since 2008.  The daily chart has shown a bearish key one day reversal and a sharp retrace meant. The 61.8% Fibonacci retracement of the move between 2.0225 and the spike high at 2.3900 is at 2.1629 which has held almost bang on, with the low at 2.1619. There is also s a support band between2.1545/2.1945. If this band of support is broken the rate could easily continue to pull back towards the 89 day moving average at 2.0671 which has been supportive of the corrections for several months. Ultimately though this move just looks to be corrective and once it settles down the dominant uptrend will resume for further gains in Dollar/Lira.

USDTRY   29012014

EUR/USD

We highlighted yesterday the failed attempted break above $1.3700 resistance area on the daily chart which suggests that there is an element of uncertainty with the recent recovery. Today the drift backwards is continuing. There is another lower high now in place at $1.3688 which has been confirmed by the failed move yesterday which peaked at $1.3685. The shallow drift backwards has turned the intraday momentum indicators increasingly neutral with moving averages flattening off. This suggests that investors are searching for direction still.

EURUSD   29012014

GBP/USD

Despite an initial dip following yesterday’s UK GDP figure which although was in line with expectation, was arguably a slightly disappointing number, there has been little damage to the overall strength of the daily chart. Trading above all rising moving averages and with momentum remaining in positive configuration the outlook remains positive. The hourly intraday chart shows that cable has settled back I the past 24 hours to its level before the GDP release. Furthermore, an overstretched momentum position (on the hourly chart) has been nicely unwound and looks ready to challenge yesterday’s high at $1.6624. A successful breach would re-open the high at $1.6667. Support comes in at $1.6558, while $1.6534 needs to hold to maintain the near term positive outlook.

GBPUSD   29012014

USD/JPY

The recovery in Dollar/Yen has continued overnight. The move back above the old key daily low at 102.83 is an important near term signal as it re-opens the way towards the next resistance at 103.84.A nice uptrend is now forming over the past couple of days, backed by positive configuration on the momentum indicators and increasingly supported by the 21 hour moving average. Increasingly this chart looks as though the recent dip was just another chance to buy as the Dollar bulls look to resume control. Watch for 19:00GMT tonight and the Fed to potentially give this chart a further boost.

USDJPY   29012014

Gold

Tuesday’s rally looks to have been the near term peak at $1278, which basically at the 38.2% Fibonacci retracement of the $1433 to $1184 sell off. The last couple of days has seen a drift lower with the first test being the 21 day moving average at $1243, which has supported the previous two corrections within the January recovery. If this fails then the outlook for the recovery is under significant threat and a test of the $1231 reaction low will be seen. The bearish divergence on the Stochastics (momentum indicator) also suggests a loss of upside impetus. With a series of lower highs now on the hourly intraday chart and momentum indicators in bearish configuration, near term support formed at $1248.90 is increasingly important.

Gold   29012014

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