Traders will still be trying to catch their breath after a volatile session yesterday driven by key US economic data. The GDP announcement kicked off the key moves with a much weaker than expected 0.2% which sent the euro shooting higher and subsequently resulted in a 450 pip loss on the export heavy German DAX. The FOMC announcement took some edge off the moves into the close but still the moves have been incredible. The FOMC was interestingly fairly in line with the expectation that it would remain data dependent and also noted that some of the recent shocks and data weakness were “transitory” and appear likely to be temporary. The market has taken this as a signal that whilst the data is not ready yet for a rate hike there is still even the possibility of a June tightening (although still rather unlikely and the expectation remains Q4).
Wall Street took the GDP data fairly badly but pared some of those losses to end down just 0.4%. Asian markets not only had the FOMC but also the BoJ to contend with. The Bank of Japan also did not move on its monetary policy, maintaining its 80 trillion yen per month of asset purchases. Taking all this into consideration, Asian equities suffered significant selling pressure with the Nikkei 225 down 2.6%. European markets have bounced slightly at the open (with the DAX helped by a slight correction on the euro).
In forex trading the huge selling pressure on the US dollar yesterday is beginning to unwind slightly as the euro and sterling have come off their highs following the FOMC. In fact the US dollar is regaining some lost ground against all forex majors with the exception of the yen which has strengthened since the BoJ announcement to stand pat. Another key mover is the Kiwi which is the biggest mover on the day after the Reserve Bank of New Zealand signalled no change in interest rates but tried to jawbone the Kiwi lower (successfully it would seem) by suggesting potential for a rate cut.
Traders will be looking at a range of Eurozone data including Spanish GDP, German unemployment and most importantly the flash Eurozone CPI at 1000BST which is expected to rise to flat (from -0.1%). Also today there is the US core Personal Consumption Expenditure data which is the Fed’s preferred look at inflation, at 1330BST which last month came in at 1.4%. The Fed would like to see this data start to rise back towards 2.0%. Weekly Jobless Claims also at 1330BST are expected to improve slightly from last week’s 295,000 to 290,000.
Chart of the Day – DAX Xetra
I have been talking about a prospective head and shoulders top completing on the DAX for over a week. After some consideration in the past few days a sharp move to the downside yesterday has seen the price fall below the key support of the March reaction low at 11,620 (with a closing break too). This now gives an implied corrective target of 10,850. With daily RSI, MACD and Stochastics all in corrective configuration, this could now begin a near term slide. I would still see this as a near term correction within the larger bull trend (I would also stress that bull market corrections tend to undershoot their downside targets). My eye immediately goes to the original 100% Fibonacci projection level that I still have on my chart around 10,950. I would now wait for a near term pullback rally towards the neckline at 11,620 and then look for a selling opportunity. The intraday hourly chart shows a resistance band now at 11,620/11,684 and a rally today could get there if it gains a bit of traction. It would need a move above 12,079 to abort the rally now.
There was an incredibly strong day yesterday for the euro. With a daily range of well over 200 pips there was a gain of almost 150 pips which took the pair through several key resistance levels. The old levels of $1.1035, $1.1050 and even $1.1100 did little to hold back the move which came after the disappointing GDP data was released. It was interesting that the FOMC announcement in the evening took a little of the shine off the breakout, but technically the day was still very strong. Has this been a big game changing day? Whilst the key resistance were taken out easily I think the test will be on a correction. For this not to be a false upside break the old resistance now needs to hold as support. So $1.1035/50 is now a key support area today. The intraday hourly chart shows the reaction low of $1.1074 after the FOMC will also be supportive. The recent bull run over the past week has also taken support at the 55 hour moving average (currently $1.1000). The bulls will be eyeing a move back above yesterday’s high at $1.1187 to continue the run higher.
The bull run continues higher with a seventh completed bullish candle in a row. This was another strong day which has taken Cable ever closer to the key resistance at $1.5550. This is the level that needs to be broken for the bulls to be considered in control and to seriously suggest that the bear trend is at an end. The momentum indicators have been on a tear and the RSI is now up at 70. This therefore is a big test and will be an indication of what market Cable is now in. If this is a bear market rally traders will see the RSI at 70 and consider it an ideal profit-taking opportunity. However if it is a more sustainable bull run then they will be comfortable with it up at these levels. Already in the wake of the FOMC, Cable is around 90 pips off its high and the Stochastics have crossed over. The intraday chart shows a move below $1.5390 (post FOMC spike low) is an initial support while $1.5345 is also a key level as the near term momentum indicators move correct. Furthermore, the rising 55 hour moving average is also at $1.5345 which has also been a good basis of support. Failure of these levels could usher in some profit-taking. Above $1.5500 directly opens a test of $1.5550.
Although the range between 118.30/120.84 remains in play, the downside pressure is mounting on the key support. The pair is now consistently now finding resistance under the 119.40 pivot level as the bears once more eye 118.30 support. However in spite of considerable selling pressure on the dollar yesterday due to the GDP data, the support remains intact. For this reason we still have to play the range with short term positions advisable. The hourly RSI remains an excellent near term trading indicator with overbought/oversold signals consistently proving successful. However it has to be said that there is still a bearish bias to the outlook near term. Yesterday’s rally high came once more around the 119.40 pivot with a lower high at 119.15. For now the slightly lower high at 118.50 is intact but there is a growing sense of a test of 118.30 now.
Despite the huge selling pressure on the dollar in the wake of the GDP data gold was still unable to get any real traction. In fact after two positive candles this must be actually rather disappointing for the bulls. The range play between $1175/$1124 therefore continues. Daily momentum indicators remains extremely neutral, with RSI and MACD basically flat and the gold price trading around flat moving averages. The intraday hourly chart shows that the outlook is again fairly uncertain, but a fall back below the support at $1198.80 would take be a near term breakdown (i.e. still within the range) that would target the lower parts of the range again. The resistance at $1215.00 is now protecting a test of the $1224.10 high.
Having made the upside break above the key resistance at $54.24, WTI has been consolidating for around to weeks. However, driven by the weaker than expected US GDP data and a decline in the EIA oil stocks inventory build, the price has posted a strong bullish candle to breakout above the near term resistance at $58.41 but also some resistance from December at $59.00. The bulls seem to be in control of the oil price for now, and with the breakout above $54.24 completing a base pattern that implies gains towards $65.00 the outlook continues to improve. With little real resistance until around $69.50 there seems little reason why the oil price cannot continue higher. The intraday hourly chart shows that there was a slight dip back last night into the close (in the wake of a slightly hawkish FOMC statement) which could now be seen as a near term chance to buy if we can see support building between $57.80/$58.40 today. The reaction low at $56.55 is seen as a key near term support now.