30/04/2014: Yen strength and lower equities suggests caution ahead of a big day of data

Market Overview

With a round of solid gains and another decline in the VIX index of volatility, Wall Street served up a reasonable handover. However Asian markets have been unable to decisively run away and given a mixed session. On its return after a public holiday, the Nikkei was held back by a stronger yen after the Bank of Japan held monetary policy steady. European markets are trading slightly lower in the early exchanges today. However, traders will quickly now have to refocus on the data ahead on a day packed with key releases.

Forex trading has a slightly risk averse feel today. The yen has strengthened on the BoJ standing pat, while the US dollar is showing slight strength against most of the other major currencies. The early weakness in the gold price is also reflective of a stronger dollar.

The announcement of Eurozone GDP will dominate the morning for European traders. The expectation is for 0.8% up from 0.5%, but the potential for a miss has been heightened by the disappointing German inflation data from yesterday which has resulted in banks such as RBS and Barclays to cut their forecasts slightly. The ADP employment report (often seen as a guide for Non-farm Payrolls on Friday) is announced at 13:15BST and is expected to be 210,000. Attention then quickly turns to GDP at 13:30BST with Canada expected to be 2.5% for February (in line with the last reading) whilst US Q1 GDP is expected to be 1.2%. Finally then comes the announcement following the meeting of the Federal Open Market Committee at 19:00BST. There will be now press conference or updates to economic forecasts and aside from the expected further tapering of $10bn of asset purchases to $45bn, it could be a fairly dull announcement.

Chart of the Day – EUR/GBP

The steady decline on the day chart suggests that the sterling bulls remain in control here as Euro/Sterling eyes another test of the £0.8193 low. Yesterday’s bearish outside day (when there is an initial move to the upside early in the session only for sentiment to turn on its head and to close below the previous low – this came after the German CPI data) suggests the selling pressure is mounting. Momentum indicators remain in bearish configuration and it seems as though any rallies are being seen as a chance to sell. Expect a retest of the February low at £0.8154 (the announcement of Eurozone inflation today at 10:00BST could be the catalyst if it is a weak number). A move above yesterday’s high at £0.8258 flips the near term bearish outlook.

EURGBP   30042014

EUR/USD

At a very near term level, the announcement of lower than expected German inflation has turned the outlook for Euro/Dollar completely on its head. However, it could be argued that at this stage the daily chart has had little overall impact. Over a two week period the Euro has just been trading in a sideways band of less than 100 pips and is still looking for direction. The daily RSI and MACD certainly reflect that assertion, whilst the Stochastics have suddenly turned more corrective which suggests that the low at $1.3783 will be tested. The intraday hourly chart shows a bad of support now in place between $1.3783 and $1.3800. The hourly RSI and Stochastics are both in oversold territory and suggest that immediate downside may be limited and in the past few minutes the European traders have come in to support the Euro slightly. Initial resistance is now around $1.3840. However, technical aspects of this chart may become quickly obsolete with the announcement of Eurozone CPI at 10:00BST, then US GDP at 13:30BST and of course FOMC tonight at 19:00BST.

EURUSD   30042014

GBP/USD

It is all still rather slow going for Cable, as the rate struggles to make sustained headway. The low volatility trading period is now into its 10th session and still shows no sign technically of any imminent breakout. Even the daily Bollinger Bands are still wide at around 300 pips (a narrowing of the bands is often the precursor to a significant break). Despite the daily momentum indicators flattening off and looking tired, they are giving no real sell signal with any conviction. The slow, very slight ebb higher continues. The intraday hourly chart shows a gradual posting of higher lows, with the latest at $1.6775. You still get the impression Cable traders are waiting for something to act as a catalyst. The GDP data and Fed decision could be that catalyst.

GBPUSD   30042014

USD/JPY

For all the positive signals that had been developing over the past two sessions it turns out to have been little more than a bluff as the Asian trading overnight has completely wiped out the gains from yesterday and the indecision over the outlook has returned. The decline overnight following the Bank of Japan decision to keep rates on hold has strengthened the yen slightly but not enough to provide us with a decisive steer. The daily momentum indicators reflect this indecision with MACD almost dead flat and RSI at 50. The intraday hourly chart is giving us little steer either. The hourly momentum indicators are in correction mode as the rate has fallen back towards the support band 102.20/10.30 but the rate has merely unwound back to the moving averages. Once more it appears that Dollar/Yen is also waiting for a catalyst.

USDJPY   30042014

Gold

The gold chart is is filled with mixed signals still. Daily momentum indicators retain a slightly bearish configuration whilst the price has failed to be reignited since the bullish key one day reversal last Thursday. However the 144 day moving average remains a basis of support at $1282 and has now broadly flattened off. A move above the $1306.11 high would re-open the recovery, while the support of Thursday’s low at $1268.24 is the key support now to prevent a significant correction. I have talked previously about the importance of $1300 over the last few days and once more yesterday it was seen as a barrier to the recovery. Also note how the 55 hour moving average which had been the basis of resistance throughout the mid-April sell-off has once more become the basis of resistance around $1296. The intraday chart suggests that the drift lower looks to be building for a test of yesterday’s low again at $1285.99.

Gold   30042014

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