Euro holds its gains as traders begin to look to the ECB

Market Overview

The euro has had a wild ride in the past day or so as the market turned from trepidation to a state of relief over the Italian referendum. Matteo Renzi lost the referendum and subsequently tendered his resignation however it seems that the prospect of an early election has receded and this has calmed the nerves for markets. The euro unwound by close to 300 pips at one stage before drifting off overnight. With the euro holding on to its recovery gains, markets will now begin to look ahead to the ECB meeting on Thursday with an expectation of a QE extension of maybe 6 months but could the ECB also allude to potential future tapering of asset purchases?  With the euro recovering and Treasury yields consolidating in the past few days, the trade weighted dollar has made a downside break below the support at 100.6 which completed a small top pattern and implies around a 1.5% corrective move now. Equity markets have reacted positively to the Italian referendum with Wall Street positive into the close (S&P 500 +0.6 at 2205) and the Nikkei up +0.5%. European markets are looking mildly positive in early moves.

pensive trader

In forex markets there is little real direction today, although sterling is performing well, whilst the Aussie has been the underperformer on the announcement of RBA monetary policy in which the bank held steady on rates at 1.5% but cautioned about growth prospects. Gold and silver have been supported in early moves but are still struggling to show any real signs of recovery. Oil has dropped back a touch in early moves by just under a percent.

Traders will be watching for US Trade Balance at 1330GMT which is expected to deteriorate  to $-41.8bn (from -$36.4bn). The US Factory Orders are at 1500GMT which are expected to jump by +2.6% for the month (+0.3% last month) which would be the best month on month improvement since June 2015.

 

Chart of the Day – USD/NZD

The outlook for the Kiwi has been mixed in the past week with a variety of bullish, bearish can neutral candles. This comes as the market has been unable to push back above last week’s high at $0.7170 and looks ready to form a slightly lower high. Also interestingly the market is finding resistance at the 144 day moving average (currently $0.7140) and the underside of the old bull trend channel. The Stochastics are unwinding positively but the MACD lines are laboured in their recovery and the RSI has unwound back to neutral around 50. Is this around the limit of the recovery now? The hourly chart shows momentum indicators of ranging conditions. The bulls would point to the series of higher lows, with the latest at $0.7065, however the market seems to be stuck now in a range $0.7040/$0.7170. The recent recovery points hints at an upside break but the lack of impetus in the recovery is a concern. A break of the range will be key for the near term outlook.

NZDUSD 06122016

EUR/USD

Having posted a new low at $1.0503 dating back to March 2015, an incredible intraday turnaround has posted a huge bull candle to continue the recovery. The move completed what could also now be taken as a base pattern above $1.0685 to imply 170 pips of upside to $1.0850 which is also a key area of overhead supply. The momentum indicators continue to recover strongly with the Stochastics rising decisively and the MACD lines having crosses higher. The market hit $1.0796 before drifting back slightly overnight but with the strength of the momentum there is little real reason why the recovery cannot continue to the $1.0850 resistance. The hourly chart shows a mild loss of impetus overnight but there is good support now at $1.0685 to $1.0710 and corrections are a chance to buy. The bulls would not want to drop back below $1.0660 now.

EURUSD 06122016

GBP/USD

Sterling continues to push higher with the recovery posting a string of bull candles in the past five sessions. The breakout above $1.2673 has also been confirmed and the momentum indicators are in positive configuration. The RSI is in the mid-60s and is the highest since Brexit in June, whilst the MACD lines are turning positive and the Stochastics are rising strongly. The next overhead resistance is around $1.2800 which was the old floor of the late summer range. This would be an area of overhead supply but if it can be broken could usher in a new range for Cable. The hourly chart shows a positive run higher with strong near term momentum. The support comes in at $1.3673 with yesterday’s low at $1.2623 now key near term. Beyond $1.2800 the next resistance is $1.3030/$1.3120.

GBPUSD 06122016

USD/JPY

I continue to be wary of the prospect of a correction, because if the bulls were ready to take control they probably would have been able to hold on to yesterday’s gains. Instead, the market failed at 114.77 under the resistance at 114.82 before falling back into the close. The result was a very tepid bull candle that leaves a lot of questions in the wake of two previously negative candles. The momentum indicators continue to consolidate in a fashion that is close to giving a corrective signal but without ever really falling over. The early move higher today perpetuates this uncertain near term outlook. The hourly chart shows the market having pushed back above 113.90 which is turning into something of a near term pivot in a trading range between 112.85/114.82.

USDJPY 06122016

Gold

The bears remain in control as the market has once more closed yesterday’s session at its lowest level since February. The downtrend that has been pulling the price lower in the past few weeks remains intact, however it is interesting that in the past few days there has been some traction lost in the sell-off. The RSI momentum remains negatively configured, but the MACD lines are slowing their decline and the Stochastics are beginning to rise. Is the market bottoming? Watch for the near term downtrend being broken (today comes in between $1177/$1179) as an initial signal for improvement. However, it is best to be aware that the outlook even on the hourly chart still remains negatively configured, whilst the falling 144 hour moving average (at $1179) has been a basis of resistance for rebounds. I remain a seller into strength as I expect that any recovery would struggle to breach $1200. A move below yesterday’s low at $1160 would open $1125.

Gold 06122016

WTI Oil

The oil price rally has remained strong since the OPEC meeting as a fourth consecutive bull candle was posted yesterday. However it is interesting to see that the attempted breakout above $51.93 could not be sustained, whilst the bull candles are losing their strength. Furthermore, the RSI is beginning to roll over, as it did in August and early October. It would appear that the bulls are just considering their options now, having left resistance of yesterday’s high at $52.42. An early dip lower has been supported today but a lower close might begin to tempt the profit-takers as for now the run is beginning to look a little tired. However, I believe that a corrective move that helps to renew upside potential should be bought into and there is a series of higher lows shown on the hourly chart at $51.05, $51.18 and $49.07.A successful closing breakout above $51.93 (Brent Crude has broken out above its equivalent resistance) would open the upside towards $53.90 and then $56.50, however.

WTI 06122016


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