29/07/2014: The dollar continues to strengthen while equities and gold consolidate

Market Overview

A fairly sedate beginning to the week saw Wall Street markets closing around flat, not helped by a slightly disappointing set of Pending Home Sales from the US. Asian markets were also rather subdued with only slight gains on the Nikkei which was helped a further weakening of the yen amid the Japanese retail trade data which came in light of expectations. European markets are trading marginally higher in early exchanges.

The US dollar continues to strengthen in forex trading as the greenback makes gains against all the major currencies, with the Kiwi dollar remaining under considerable pressure again today. Traders will be watching out for the Case-Shiller house price index which is due at 14:00BST and the US Conference Board Consumer Confidence which is due at 15:00BST and is forecast to improve slightly from 85.2 to 85.4. However, in front of a huge next three days for economic announcements it is likely that traders will want to keep their powder dry for the battles ahead.

Chart of the Day – DAX Xetra

The downside pressure on the DAX is mounting. In just over a week the German index has closed below its primary uptrend on three occasions and yesterday was a second in a row. With the sellers beginning to gain control the bulls have got a fight on their hands. The index has also just closed below its rising 144 day moving average which is only the fourth time this has occurred in 2014. Momentum indicators are becoming firmly camped with a negative configuration, whilst the falling 21 day moving average (now 9784) has just capped a recovery for the second time in two weeks. The support band around 9600 is decent, but another weak session today could signal a decline towards the next band of support at 9400. The neat term outlook would certainly suggest that any rallies are now being used as a chance to sell.

DAX   29072014

EUR/USD

As yet there is little real sign of any imminent recovery for the euro. The last four weeks have been characterised by a stepped decline with consistent downside pressure dragging the price lower. Momentum indicators remain weak and any sign of a rally seems to be quickly snubbed out as the sellers remain in firm control. The RSI below 30 will give the bulls hope of a rally at some stage, but as yet it is not forthcoming. Even the intraday hourly chart shows the consistent bearish pressure with the 89 hour moving average a constant barrier to gains. The hourly MACD lines have recently unwound to neutral and are beginning to turn lower once more as the sellers look to be taking over as the European trading gets going. It would take a recovery above $1.3475 for any sort of recovery to get going. There is little reason to do anything other than sell any strength for further downside towards the $1.3375 target from the original 10 week double top pattern.

EURUSD   29072014

GBP/USD

After 8 consecutive days of declines, there are tentative signs of some support for Cable. After the first positive trading day since 15th July, the rate is now into its third day of trading above the late June reaction low at $1.6950. Interestingly this is happening with the RSI back to around 40 which was where the latest key reaction low from early June. The intraday hourly chart shows that there is now a barrier forming at the $1.7000 level where there have now been three failed attempts to break through in the past three days. Hourly momentum indicators have recently turned lower and suggest that the European trading is slightly on the back foot early on. With a 50 pip trading band now having formed a break either way should lead the next move. With the trend your friend, the balance of the indicators continue to suggest that this move will be lower, but for the meantime we await the next break.

GBPUSD   29072014

USD/JPY

The recovery in Dollar/Yen has continued overnight and is pushing on the old pivot level around 102.00. The intraday hourly chart shows that the break above resistance at 101.80 has been a key near term move. The outlook has become more dollar positive with the break and there is now a tendency for the corrections into the 101.70/101.80 support area to be bought into. This near term improvement is also backed by the hourly RSI and MACD indicators. The question is, that into the eighth day of recovery, in a pair that historically has been unable to put any real strong of gains together without a retracement, how much further can this go? The 89 day moving average (now 102.03) has capped the previous two recoveries and there is significant overhead resistance around 102.30. It might be prudent to stay close to the profits of any long positions as the sellers could easily return once more. A move back below 101.70 support would probably signal the end of this bull phase.

USDJPY   29072014

Gold

The safe haven attraction of gold once more returned on Friday, however the price has since then started to settle once more. The rally has come once again in the resistance band $1305/$1310 and this is where the near term barrier has formed. There is significant uncertainty over gold still, with momentum indicators largely neutral, however the longer term bulls will still point towards the confluence of the 55, 89 and 144 day moving averages which remain the basis of support. Playing gold on a near term basis has become a news-driven trade (on Ukraine/Russia mostly) but the recovery bulls will still be in good voice. The reaction low at $1287.50 has become the basis of support. A move above $1324.44 would re-open the upside.

Gold   29072014

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