There has been renewed selling pressure overnight as the Federal Reserve chose to ignore the potential impact of bearish forces and pushed ahead with its tapering programme. The Federal Open Market committee reduced its asset purchase facility by a further $10bn to now stand at $65bn per month. The Fed also failed to mention emerging markets in its statement, choosing instead to focus on the domestic economy. Reaction in Asian trading was not positive with the Nikkei falling by 3% to a two and a half month low. Selling pressure and the flight into safe haven assets was heightened on confirmation that the HSBC flash PMI in China was in contraction mode below 50 and slightly down from the initial reading, at. 49.5. The Yen has strengthened whilst gold is also higher. European markets have taken on the hangover and are also lower in early trading. There is little respite for investors as a heavy week of data continues today with the release of Q4 Advance GDP for the US at 13:30GMT. In light of the resumption of selling pressure overnight, markets will need the US to hit the expectation of 3.2% annualised. Other key data includes German unemployment at 08:55GMT, German inflation at 13:00GMT and Japan inflation at 23:30GMT.
Chart of the Day – S&P 500
The S&P had a sell-off in reaction to the Fed continuing to taper asset purchases and it is now right back to test the support of the primary uptrend once more. This correction over the past week is becoming increasingly important for the longer term outlook, with December’s low at 1768 under threat also. The daily RSI is once more back to 35 which is around where the key support tends to be formed, while the Stochastics (another momentum indicator) are also close to another crossover buy signal – the previous 3 buy signals since August have all signalled longer term buying opportunities. This pivotal test of support could turn out to be another big buying opportunity.
The Euro continues to flounder under the resistance band around $1.3700. Yesterday afternoon the comments from ECB’s Noyer that a rate rise would be “negative” in addition to the further tapering by the Fed should ensure continued downside pressure. Intraday we can see the drift more clearly, with a series of lower highs in place. The latest at $1.3677 and $1.3684. The rate looks to continue to test the downside levels with yesterday’s low at $1.3602 under pressure in early trading. Hourly momentum continue to look corrective and a move back towards the key intraday pivot level around $1.3580 looks likely now.
Yesterday, cable failed to retest the $1.6667 key high and has now left a slightly lower high in place at $1.6624 as a drift back has taken hold. With supports on the intraday chart breaking down, a retest of the low from 27th Jan at $1.6472 looks increasingly likely. The 200 hour moving average has been a good gauge of support for the past week or so, but this has now just been broken. The 61.8% Fibonacci retracement of the move from $1.6308 to $$1.6667 comes in at $1.6445 and this is a level that would need to hold in order to prevent the likelihood of a full retracement. With the first look at US Q4 GDP this afternoon coming, a strong number could accelerate the correction in Cable.
The flight into safe have assets has resumed after the announcement of further Fed tapering. This has pulled Dollar/Yen significantly lower once more and back below the key near term pivot level at 102.83 on the daily chart. The support around the 101.50 level which was the former breakout level from last July continues to be a medium term pivot level. A test of Monday’s low at 101.77 held late last night and there has been a slight strengthening of Dollar/Yen in Asian trading hours. Daily technicals remain positive but be mindful that these supports hold in the near term. The intraday recovery is on but there is now a band of resistance between 102.80/102.94.
Theoretically the gold price should be in decline on the announcement that the Fed continues to scale back its asset purchases. However, investors are far more concerned over the impact on emerging markets and the flight to safe haven assets is the greater pull. Intraday then gold has picked up again and left a low at $1248.90 and this becomes the near term important support. The 200 hour moving average (currently at $1254.50) is trying to reclaim its role as the near term gauge. Resistances come in at $1269.54 (the rally high in the wake of the Fed announcement). On the daily chart, the rising 21 day moving average which has been the basis of support throughout January now comes in at $1245.95.