The increase in sanctions thrust upon Russian individuals and companies resulted in a cautious session on Wall Street resulted in just tentative gains for the S&P 500. This move also coincided with a slight decline on the VIX Index back towards 14 which reflected the cautious optimism. There was a mixed session in Asia, with Japan closed for a public holiday, although there are likely to be gains on the Nikkei tomorrow with the recent weakening of the yen. European trading has also been fairly muted in the early moves.
Forex trading has seen a fairly middle of the road performance from the dollar so far against the majors. Strength for the European major currencies has been tempered by the weakness for the yen and the commodity currencies.
The economic announcements really begin to ramp up today, kicking off with a first look at UK GDP at 09:30BST which is expected to show a 0.9% improvement for the quarter and 3.2% year on year. German inflation is announced at 13:00BST, whilst there is also consumer confidence for both the Eurozone and US at 15:00BST. This should be the first of several increasingly volatile days for the forex markets.
Chart of the Day – EUR/JPY
The rate has once more used the support of the 12 month uptrend (which is currently at 141.19) and now looks to be breaking out of a consolidation phase. If the Euro can now start to build support above 142 then the next resistance is not until the April highs at 143.47. Momentum indicators are also confirming the improvement with Stochastics advancing strongly and now also the daily RSI pushing higher. The intraday chart shows now resistance just under 142 has repeatedly held the Euro back over the past few weeks. There is minor resistance around 142.65 to negotiate before a move to the highs. The reaction low at 141.66 now would be seen as the initial key support.
After an initial slight pick-up for the dollar as traders returned following the weekend break yesterday, the Euro bulls appear to have resumed control, now having posted four consecutive higher closes. An intraday break above $1.3865 yesterday has opened $1.3905. I am still mindful that the momentum indicators such as the MACD and Stochastics are being slow to react to the gains in the price and leaves me reluctant to chase this higher for now. The intraday hourly chart is though more positive with all moving averages rising in bullish sequence and momentum indicators looking positive. The bigger corrections are still by and large using the 55 hour moving average (currently $1.3844) as the basis of support. There are two reaction lows from yesterday to concentrate on. The unwinding low at $1.3838 is initial support, while a breach of $1.3813 would change the outlook to a corrective one.
As I warned yesterday in the Morning Report video on Cable, the choppy nature of trading leaves me concerned about false breaks. The prospect of the largest UK corporate acquisition (AstraZeneca) by a US company (Pfizer) meant that Sterling/Dollar pushed higher in early trading. However, as this proved to be a bit of a knee jerk reaction with a retreat back into the trading band once more. The technical indicators are beginning to look tired of this consolidation and are beginning to threaten a correction. Stochastics have drifted back below 80, suggesting a loss of upside. Intraday hourly indicators are neutral again and it looks as though traders are now settling in for the bumpy ride ahead. This might be understandable with the raft of crucial macroeconomic data approaching, starting off with UK GDP today. Key support comes in at $1.6775 and $1.6760, while yesterday’s peak at $1.6856 is resistance.
Sign of a turnaround as the dollar snapped a three day streak of losses, in the process breaching the previous day’s high. Perhaps just as significant is that the rising 144 day moving average once more has been seen as the basis of support (currently 101.96). Interesting also is that having not shown any sign of deterioration in the recent correction, the daily Stochastics have given a bullish kiss (where they have converged only to then turn higher once more). The intraday hourly chart shows there is much overhead resistance in place between 102.64 to 102.72 while the pivot level at 102.83 is also not far off. However the reaction yesterday will give the bulls hope for further upside. Support comes in at 102.21 and 102.02.
Yesterday’s price action is a concern for the bulls but not disastrous, yet. A failure to hold on to a break back below $1300 gives off a poor signal for the potential recovery. Also, daily momentum indicators are still quite weak with the MACD still under the neutral lines and the RSI unwound to neutral. The correction now back from $1306.11 is now threatening the initial support at $1289.99, which is important for the bulls to retain hope of a recovery. A sustained breach would now complete an intraday top pattern and suggest a deeper correction back towards $1274. The 144 day moving average should also be seen as a gauge for the bulls at $1282.