Financial markets look set to end the week on a slightly cautious note after some mixed signals from the European Central Bank in its monetary policy press conference and some downbeat economic data from the US in the form of the Philly Fed Business index. Pointing towards the prospect of renewed negative inflation in the Eurozone and interest rates at or below current levels for an extended period of time, but also fairly settled with the policy implementation, Mario Draghi drove some volatility without any real direction on markets. There was not huge amount discussed that the market did not already know, but the rather dovish tone of Marion Draghi has ensured that once the volatility of the press conference settled down, the euro may start to drop again. US markets closed slightly lower with a negative slant on some of the corporate earnings and a miss on the Philly Fed Business index. Asian markets have also been rather subdued and weaker overnight, although the Nikkei was up 1.2% as the yen weakened again. European markets are opening on the back foot to end the week.
In forex markets we are seeing more of a positive tone to trading, with the yen the big underperformer, whilst the riskier currencies are all performing better again, with the Aussie and the Canadian loonie the standouts. The euro is trading flat against the dollar as trading settles down in the wake of the ECB. Gold and silver have settled following on from yesterday’s sharp intraday declines, whilst the oil price is once again showing the way higher with gains of over a percent.
Traders will be looking out for the Eurozone flash manufacturing PMIs this morning which culminates in the area wide data at 0900BST which is expected to improve very slightly to 51.8 (from 51.6 last month). The US flash manufacturing is at 1445BST ad is expected to also show a marginal improvement to 51.9 (from 51.5). Aside from that the Canadian CPI reading is expected to show core inflation of +0.4% for the month.
Chart of the Day – EUR/JPY
The euro came under pressure in the wake of the ECB monetary policy meeting. Selling into strength has been a good strategy on Euro/Yen in the past months as the long term downtrend has remains intact. The latest rally from 121.67 over a four day period once again came back to hit a band of overhead resistance and has fallen away again. The old pivot level around 125.00 managed to cap the upside at 124.93 yesterday and the subsequent sell-off has bolstered this as a resistance. The overnight rally on the pair could though see another test of this resistance level with a support level forming at 123.35/123.55 on the hourly chart. However the overhead supply will be looking at the rally and feel that this could prove to be another chance to sell. The daily momentum indicators are continuing to recover and suggests that the bulls are growing in confidence. They need to push through the resistance between 125.00/125.60 to suggest there is some real traction in a recovery.
A session of typical volatility on the ECB monetary policy decision and press conference has left us with another bearish outside day and a rather negative looking candle. The retracement of over 100 pips into the close has been a drag on sentiment and questions whether the bulls will now be looking for a test of the long term range highs again, having left resistance at $1.1395. The Stochastics have reacted lower too and are now threatening to build downside momentum once more. This means that for the near term outlook, today’s candle becomes important. Currently the bulls have prevented the sell-off continuing through the Asian session and have held up well, but the price is back below the old turning point of $1.1330. There will be a degree of dust settling as there often is after a volatile session but the bulls will be looking at yesterday’s low at $1.1270, which was also supportive from Monday as a near term floor. A breach opens $1.1230 again.
The bulls are having to fight hard to hold on to their recent gains, but the chart continues to suggest that rallies continue to be seen as a chance to sell and that the overhead resistance above $1.4410 is still a significant barrier. The last two days have completed rather negative looking candles, with yesterday’s move being a bearish key one day reversal (closing below the previous low after having made a new 3 week high at $1.4440) simply adds to the downside pressure building. The Stochastics have rolled over and are threatening to bearishly cross lower too. For now though, during the Asian session, Cable has held up relatively well and the bulls are hanging on, but can this continue with the corrective signals now building. The hourly chart shows a band of support around $1.4300/$1.4320 is holding and this is key for the near term outlook, as if this starts to fail then the corrective floodgates could open.
The bulls are gradually continuing the recovery as the disappointment of yesterday’s corrective candle has quickly been forgotten by a positive Asian session overnight. This means that the momentum indicators can continue their near term recovery as they unwind from their oversold positions. However, I continue to see this as a counter-trend move that will ultimately start to find resistance and selling pressure resuming. The move back above 110 overnight now means that the resistance band 110.60/111.00 now becomes a prime are for the next sell signal. Although a near term base pattern completed above 109.73 to imply around 190 pips of additional upside (to 111.60) with this being a bear market rally, be mindful that recovery targets will tend to undershoot. The intraday hourly chart shows that there is now a band of support 109.25/109.73 in place and with positive configuration on the hourly momentum indicators the recovery is set to continue. I am though beginning to prepare for the next medium term sell signal.
Once again it would seem as though the resistance that lies between $1260/$1282 in the upper reaches of the two month trading band have been too much for the bulls. Yesterday’s high of $1270.10 met with some sharp selling pressure and the intraday reversal has stunted the advance of the bulls. However, there is still a bullish bias to technical indicators (despite the Stochastics just beginning to roll over), with the rising 55 day moving average supportive at $1234. The intraday hourly chart shows the continued regard given to the $1243 pivot level as a basis of near term support, and this is a level that needs to be watched. With the balance of broadly positive indicators I would expect the next low to come in between $1235 and $1243 still for additional pressure on the medium term range resistances. The next key support below here is $1225 which is another pivot level within the range. I would though continue to play gold on a near term time horizon.
The first day of trading with the June contract as the front month has not been especially positive. This is more of a consolidation move rather than a candle that questions the overall bull control. Momentum indicators remain strongly configured with the RSI still showing further upside potential at around 66 and Stochastics rising positively. Subsequently, any corrections will be seen as a chance to buy. The daily chart now shows that there is a band of support for the previous resistance levels now between $41.90/$42.90. The hourly chart shows resistance at $44.40 now.