With the yen continuing to strengthen, the chatter about intervention from the Bank of Japan is mounting. Will the BoJ act to help reverse the flow which has the potential to significantly negatively impact on Japanese exporters? The Bank of Japan’s Governor Kuroda has been speaking this morning and officials are talking up the prospect of some sort of move.
Financial markets have begun the week in a rather drab manner, with marginal weakness in European markets despite a mixed to slightly positive outlook across Asian markets which followed the tepid gains on Wall Street at the end of last week. Chinese inflation has done little to generate any real change in outlook for PBoC monetary policy with a mixed bag of data. The headline CPI data in at 2.3% which was below the 2.5% expected, however the factory gate PPI inflation was slightly better at 4.3% down from 4.9% a month earlier and better than the 4.6% expected by the market. The inflation data kicks off a heavy week of data for China as traders look ahead to crucial data on trade, growth, industrial production and retail sales.
There is little real direction on forex markets, although it is interesting to see the yen continues to strengthen against the US dollar (which also helped to drive further slide in the Nikkei 225). Having started to gain traction last week, the gold price has had a positive start to the week, whilst oil is a touch mixed today, despite the decline in the US oil rig count on Friday.
There is little on the economic calendar, but the markets will continue to monitor events over the yen strength.
Chart of the Day – GBP/JPY
The outlook for Sterling/Yen is looking all rather precarious. Last week the selling pressure accelerated downwards and there was a breach of the key support of the February low at 154.75. This has now opened the downside for a move towards the mid-2013 key pivot band around 147.50. On Friday we saw a rather tentative attempt at a technical rally that has left a rather disappointing candlestick for the bulls. The RSI is below 30 but there is certainly no reason to think that it cannot go any lower, with the December/January sell-off hitting a low at 9.5 and the RSI below 30 for a total of 5 weeks. In fact, the concern is that the MACD lines have only just crossed lower again and there is further downside potential in the coming days/weeks. The inference is that rallies should be seen as a chance to sell now. The old support of the February low at 154.75 is the initial resistance (with Friday’s high at 154.20), with further resistance at 156.20 and more importantly at 158.50. However, the hourly chart shows how the disappointing rally has already started to run out of steam and this would suggest that any pop to the upside should be seen as that chance to sell. The main caveat to this outlook is the BoJ intervening in the forex markets.
The sideways consolidation continues for the euro as the range between the consistent support above $1.1325 and the resistance at $1.1453 remains intact. Once more there has been another small bodied candle which reflects the uncertainty within the range. There is a marginally positive bias to the outlook with the euro slightly higher today and the momentum indicators in solid positive configuration. However I am still concerned by the fact that the RSI is close to 70 and having flattened, whilst the price is close to range highs, meaning that upside potential looks rather limited. The long term trading range resistance comes in around $1.1465. The hourly chart reflects the range play with moving averages and momentum indicators not suggesting any sign of a breakout. For now we await the next move.
Although there has been more pressure on the key support area around $1.4050, Cable has been effectively rangebound now for 5 weeks. Once more we see the support holding and are we about to see another sterling rebound? There may have been some intraday breaches of the support at $1.4050, but this is clearly a level the market is thinking as a medium term support. Friday’s solidly positive candle has been bolstered by another solid start today. This comes as the Stochastics are looking to turn up again from a similar point at which the March rally took hold, whilst the MACD and RSI indicators are also fairly well supported. I continue to expect there to be further pressure on $1.4050, however there could be room for another technical rebound that would give a better chance to sell. The hourly chart shows a broken 8 day downtrend and a better configuration on the hourly momentum. The key level the recovery bulls need to breach is $1.4170 which is an important near term pivot above which would also complete a near term base pattern which would imply a rebound back towards $1.4330 with the next resistance at $1.4320. A close below $1.4050 is the medium term technical breakdown.
The bulls just cannot get any sort of a foothold in the market as a sixth consecutive bearish candle on Friday was posted. Having attempted an intraday rebound, closing at the day low was a big disappointment and the negative outlook has continued today back below 108.00. The daily momentum indicators remain very negative and there is little reason not to expect a move back to the medium term and longer term targets of 107.00/107.15. Rallies are clearly still being seen as a chance to sell. The hourly chart shows a solid downtrend intact over the past six days and Fridays intraday rally has once more played out this downtrend, helping to unwind the MACD lines back to neutral and the RSI back to the 50/60 area before the sellers resumed control. The downtrend comes in around 108.50/60 area today. The initial resistance is Friday’s intraday rally high at 109.10 with further resistance around 109.85/110.00.
Having broken above the four week downtrend channel towards the end of last week the bulls are beginning to gain traction now. The momentum indicators have turned a corner with the RSI pushing back decisively above 50 and the Stochastics accelerating higher. However the key move has come overnight with a push above the $1242.90 resistance. This is a key near term resistance overcome which arguably completes a small base pattern. The implied target is for a return to test the reaction high at $1270.90 in the coming days, however I am still of the opinion that this is becoming a medium term choppy range phase on gold and I am not expecting too much ground to be made by the bulls before having their heels clipped again. The hourly chart shows the pivot support now in place around $1243 and this is now the base camp for the bulls near term. The support of Friday’s low at $1229 is important near term.
An incredible rebound on Friday was driven by optimism over the Doha meeting on 17th April after supportive comments from the Russian oil minister. Once more this has driven huge volatility through the oil price and sharply broken through a whole range of resistance levels. Expect this sort of volatility to continue this week if there are any more comments surrounding the Doha meeting. Technically we have seen the corrective downtrend that had been pulling the price lower since 22nd March, now completely smashed out of the water. The resistance around the neckline at $38.35 has also been broken and now the corrective forces have been turned completely around. The Stochastics have crossed and are now decisively rising, whilst the RSI is also back towards 60 and the MACD lines turning up above neutral. The initial resistance band between $39.85/$40.15 has been breached overnight but it would be interesting to see if this is confirmed once US trading gets underway. A closing breach of $40.15 would remarkably reopen the high at $41.90 again. The previous resistance band between $38.35/$39.00 is now supportive for a near term correction.