Investors have moved into the new week with a slightly bullish outlook. Wall Street closed in with modest gains on Friday to give the Asian markets a positive start to the week. Although Japanese industrial production was disappointing, perhaps in reaction to the introduction of tomorrow’s sales tax rise, the negative feed through to the yen allowed Japanese equities to see gains of around half a per cent.
The European session has begun with gains for the equity markets, although the forex trading pairs do not look quite so bullish. The prospect of the Eurozone flash inflation data for March, due this morning at 10:00GMT could result in some consolidation early this morning. The expectation is that Eurozone CPI will fall further to 0.6% (from 0.7% last month) which would put added pressure on the ECB to ease monetary policy after Mario Draghi and Jens Weidmann above alluded to this as a potential course of action in the past few weeks.
Chart of the Day – S&P 500
The daily chart suggests a period of sideways has taken hold with the S&P now in a range between 1840/1884. Daily momentum indicators remain in positive configuration, but with a corrective outlook. However the hourly intraday chart suggests perhaps a little more caution is necessary. The hourly moving averages have converged and are now provides overhead resistance, whilst Friday’s reaction high at 1866.63 came with the MACD lines in negative configuration and the RSI now failing to push above 60. This suggests that the technical traders are not going to push this higher for now and the chart could be waiting for a fundamental event to drive it. With such a plethora of market moving data this week perhaps this is understandable.
Despite bouncing on Friday from $1.3704, the Euro still has a corrective look to the chart. Daily momentum studies continue to drift lower, with the Stochastics looking negative. However, Friday’s price action has managed to breach the barrier of a 4 day downtrend with the movement in Asian trading hours overnight one of consolidation. The resistance to watch is the Friday high at $1.3772 and subsequently $1.3778 which would signal the first real move above a lower key reaction high for several days. The intraday hourly momentum indicators have unwound to neutral but retain a negative configuration. Continue to expect downside pressure on $1.3704, below which re-opens the key low at $1.3641. This chart could be set to consolidate in front of the crucial Eurozone CPI data.
The remarkable improvement in Sterling shows little sign of abating yet, as the daily continues to make gains with now 4 consecutive higher daily lows. The Momentum indicators are turning positive, with the MACD lines turning higher to cross around the neutral line which is a positive development. A move above the resistance at $1.6665 would now open $1.6716. The intraday hourly chart also shows a strong picture, with a series of higher lows in place suggesting that corrections continue to be bought into. The latest key reaction low was Friday’s $1.6597, while Cable has also turned higher once more from the overnight low at $1.6625. Hourly momentum indicators retain a bullish configuration and this correction looks to be another chance to buy.
After several days of very little direction, Dollar/Yen made a strong move to the upside on Friday which is improving the outlook for the chart. Much still needs to be done to convince that this move is sustainable though, with the legacy of the 102.83 pivot level still holding back the advance. However there are finally signs of life in the daily momentum indicators, and if the dollar can hold above the support at 102.68 then the outlook will increasingly be looking towards the March high at 103.75. The overnight price action is consolidating, despite the disappointing Japanese industrial production number (which should help to bolster support in Dollar/Yen), with a minor low in place at 102.71.
The corrective move seen over the past two week has now retraced 50% of the 3 month bull run. Friday subsequently started to see a build up of consolidation with a low formed at $1285.34 before the buyers began to return. This position has continued overnight with the intraday hourly chart showing early signs of a potential basing formation, with the 21 hour moving average flattened off and upside pressure on $1300 again. However the momentum indicators suggest that this recovery is just unwinding a bearish configuration and while $1300 remains firmly intact as a resistance the bias remains to the downside.