After the positive US retail sales data yesterday and a strong session on Wall Street overnight, Asian equity markets bounced back today which will boost sentiment in early European trading. The S&P closed up 1.1% to help the Nikkei 225 over 3% higher, with the move in Japan also helped by a weaker Yen. With the World Bank also upgrading its forecast for global growth in its Global Economic Prospects report, traders in Europe take over the baton with a positive outlook today. The World Bank now expects growth in 2014 to strengthen to 3.2% up from 2.4% in 2013, with developed nations expected to be the driving force. Today, the Eurozone Trade Balance may have an impact on the Euro at 10am, but the main watch will be on US producer price index at 1.30pm, while the Fed’s Beige Book could also hold a few interesting snippets of information on the tapering of asset purchases at 7pm tonight.
Chart of the Day – German DAX Xetra
The Dax had a strong bounce back yesterday which re-affirms a positive outlook. A bullish outside day – where the whole of the trading session engulfs the previous session with a close at the high – suggests the bulls are back in control. Also the low was just above the support of the reaction low from 3rd Jan. Momentum indicators remain in bullish configuration and moving averages positive. A breakout has already been seen above the 2nd Jan high at 9621 as the DAX continues to push higher within this very well defined uptrend channel in place since Q3 2012. The channel high currently comes in at 9682.
The Dollar has made gains during Asian trading hours to reverse yesterday’s positive move for the Euro. This now puts downside pressure on EUR?USD once more on an intraday basis. There is an intraday band of support around $1.3620/$1.3625 which is currently helping to act as a floor, with support not until the 10th January low at $1.3574 should that break. On the daily chart there is also the support of the 89 day moving averages while a uptrend line support is also a basis of support, both of which come in almost bang on $1.3600. The technical outlook remains positive for the Euro for now, but these levels could be tested today and will need to hold.
The gains on the Dollar overnight has dragged Cable lower and brings is closer towards a test of the key near term support at $1.6336. This is also once more testing the support of the uptrend in place since July on the daily chart. Momentum, indicators remain positive for now and the outlook for the near term would only move towards negative for Cable if the support at $1.6336 were to be breached. On an intraday basis the picture is different, with negative momentum and a marked downtrend in place as Cable slide back towards a test of the next downside test of yesterday’s low at $1.6398 and then Monday’s low at $1.6346.
The sharp bounce back in Dollar/Yen has continued to pull the rate higher. Now back above the neckline resistance of the top at 103.88 it would appear that the short but sharp correction is over and the Dollar bulls are back in the driving seat. The only stumbling block the buyers may have is the underside of the old uptrend around 104.85, whilst the 21 day moving average which had been a very good gauge previously, comes in at 104.51. The intraday recovery uptrend remains strong, with only a slight concern on the hourly chart being the hint of a negative divergence with the RSI now making lower highs as the price has pushed higher. Additionally there is an MACD sell signal also on the hourly. This could suggest waning upside on the intraday momentum.
The resistance we talked about yesterday has come in as a ceiling on the gold price and the selling pressure seems to be resuming (as tends to be the case on gold when the Dollar bounces). This has left a high at $1255 very close to where the resistance from the old broken support from October (at $1252) and re-affirms what we is already a compelling bear case on gold on the daily chart. There is intraday resistance band at $1240.50 and the day high at $1240.79. With momentum slightly towards oversold there could be a bounce which would seem to be a decent chance to sell for further weakness.