As we move into the new financial week, the trading outlook is on the positive side of neutral. Wall Street managed to edge some slight gains into the close on Friday which has helped to boost Asia overnight. A positive set of Japanese industrial figures helped the Nikkei 225 higher, but the index was held back by the continued strength of the yen. European markets are looking past any of the tensions in Iraq and opting instead to look on the positive side as investors ready themselves for a huge week that includes the key manufacturing PMI data, the ECB and Non-farm Payrolls. Keep in mind that due to the 4th July public holiday in the US this week, the payrolls data will be released a day early on Thursday.
Forex trading early into the European session shows a slight dollar recovery, although in the context of the downside pressure on the dollar in recent days, the move is so far minimal. There are a couple factors that traders will watch out for today. Firstly is the flash Eurozone inflation data. After the ECB last month engaged monetary easing, this data may not have the sudden impact that perhaps previously it might have done, however there would still be a sizeable reaction should there be a surprise to the expectation of +0.5% at 10:00BST today. There is also the Canadian GDP data at 13:30BST to consider, with a forecast improvement to 2.3% (from 2.1%).
Chart of the Day – AUD/USD
Despite two consecutive days of uncertain trading for the Aussie, the rate is within striking distance of key resistance at 0.9461. This is just another example of a major forex pair where the US dollar is at a key crossroads. The outlook for the US dollar against the Aussie does not look especially encouraging either. The rate has now spent 3 weeks trading above the key pivot level at 0.9320, while the momentum indicators are solidly in bullish configuration. The intraday hourly chart shows a positive configuration for a build up of support and a test on the key resistance. The daily chart would suggest that any move back towards the 21 day moving average at 0.9369 which has held the previous two corrections, should be seen as a buying opportunity. The bullish near term outlook would be deferred on a move below 0.9320.
After a strong green daily candlestick on Friday, a choppy euro has now managed to position itself within striking distance of a test of the key overhead supply and resistance at $1.3670. Daily momentum indicators continue to drift higher and although they are still merely just unwinding a bearish position, the recovery continues. The big question is whether $1.37670 will be the pivot point. Well, the intraday hourly chart has built a good outlook over the past 2 weeks through a series of higher highs and higher lows (with one slight aberration on 26th June). My feeling is that there is significant overhead supply around $1.3670 and this will limit the move, so any long positions built up should take that into account. However for now we must respect the recovery even though upside potential may become limited.
Trading above the key pivot level of $1.7000, Cable finds itself in bullish configuration. Momentum indicators remain strong, the RSI, MACD and Stochastics all showing a positive outlook. However, there still seems to be a reluctance to push on and I see that $1.7000 level as important for the near to medium term outlook. If it fails to hold on to a second move above it, then the bulls may begin to feel concerned that the move is not finding the buying pressure to support it. A breach of $1.7000 would then put pressure back on $1.6950. The intraday hourly chart has seen momentum unwind and now all hourly moving averages trading above $1.7000. this would suggest that now the new accepted trading level is above $1.7000 too and there should be an appetite for a move on the multi-year high at $1.7062. For this to happen in the near term, support at $1.7000 will need to hold.
The strength of the yen in the past few days is gradually seeing Dollar/Yen pulled ever lower in a series of lower lows and lower highs. Momentum is gathering strength to the downside and the bears are gaining control. Having broken below the support at 101.57, it is possible to derive a bearish flag downside target at 101.00. The indicator that could be telling though is a close below 101.30 which has only occurrd one in 2014 (on the day that the low at 100.74 was posted. Friday just held on to the closing support but there is early downside pressure again today. If Dollar/Yen can continue to hold on then it may be that the bulls are ready to return once more. It could be an interesting next day or so as the rate trades around this key 101.30 level. The intraday chart shows resistance at 101.48 and then 101.60.
I mentioned on Friday the incredibly tight closing range on gold over the past few days as the consolidation continues to dominate. This position shows little sign of abating still as gold has almost flat-lined in the past 7 days. The key factor on the daily chart is the primary downtrend since October 2012 which is now providing resistance at $1324, whilst daily momentum indicators are positive but stretched. The intraday hourly chart is almost entirely in a neutral state now. There is a key support around $1306, with the key resistance in just under $1326. Whilst current trading conditions continue, it is difficult to call a breakout to the price, however with the primary downtrend on the daily chart so prominent and a failure to continue the rally despite a weakening dollar, the feeling is still that there is still a downside bias over the medium to longer term.