Market Overview
In the wake of last week’s Non-farm Payrolls, Treasury yields continue to move higher but equity markets have continued to stumble The dollar has also hit the buffers a little in the past few days, culminating in a sharp reversal against the yen after verbal intervention by the Bank of Japan today has led to a sharp reversal in the recent trend. There was little steer from Wall Street overnight with the S&P 500 all but flat, whilst Asian markets were also mixed to slightly weaker overnight, with the Nikkei 225 down 0.2%. European markets are also on the back foot once again.
In forex markets the disappointing reaction of the dollar this week has continued, with sterling continuing to push higher, whilst the euro has also looked to tick higher. The key mover on the day has been the yen which has strengthened significantly in this morning’s Asian session. The move of around 150 pips has been attributed to unscheduled comments from Bank of Japan Governor Kuroda in which has talked about the significant benefit to the Japanese economy of the recent moves. Kuroda also said that the real effective exchange rate showed the yen to be very weak. This is seem as being verbal intervention in an attempt to stem some of the recent decline in the yen. Gold and silver have also managed to claw back some recent losses, due to the weaker dollar.
Traders will be looking for the UK Industrial Production today at 0930BST with a year on year expectation at +0.6%. The US Oil inventories are at 1530BST and the expectation is for oil stocks to reduce by a further 1.7m barrels. The UK finance minister Osborne and Bank of England’s Governor Carney will both speak tonight on the UK economy from 2100BST. The Reserve Bank of New Zealand gives its latest monetary policy decision at 2200BST with the bank likely to stand pat at 3.5%.
Chart of the Day – NZD/USD
Has the Kiwi dollar finally found some support? Well, in the near term there is a move that has broken a three week downtrend and a rally is now putting pressure on the resistance at $0.7200. This is a resistance that has repeatedly been tested in the past week and a half. The technical indicators on the daily chart are also turning around, with the Stochastics now pushing positively higher, the RSI at a 3 week high and the MACD lines close to a crossover.
This move is coming ahead of the RBNZ tonight which is expected to stand pat on rates. If so, maybe the Kiwi has weakened too much near to medium term and perhaps a rally is due. Watch for a move above $0.7200 whilst also a close above the old key floor at $0.7174 would also be an interesting improvement of note.
The intraday hourly chart shows initial support is now at $0.7085. The next notable resistance levels come in at $0.7270, whilst the intraday hourly chart show a barrier around $0.7290.
EUR/USD
Once again, yesterday in the wake of a strong one day move on the euro, the follow up is one of uncertainty. The rebound again has failed to push back above the peak of the “shooting star” candle at $1.1380 and this would suggest that the legacy of that negative reversal candle is still intact. However it is interesting to see the Stochastics are continuing to rise strongly, although there is no significant confirmation from either the daily RSI or MACD lines of any imminent further gains. There is significant overhead resistance with $1.1380 and the big May high at $1.1465.
The early reaction today is one of continued uncertainty as markets have entered a near term consolidation phase. There is a slight positive bias on the intraday hourly chart, trading above the moving averages, but unless there is a breach of $1.1380 this could turn out to be part of range play above $1.1065. Yesterday’s reaction low at $1.1213 is the initial support.
GBP/USD
The Cable bulls will be gaining in confidence as sterling has closed for a second consecutive day todays the day high to make some strong daily candles. This now increases the importance of today’s trading as not only would three strong candles in a row be a bullish signal but also the key near term resistance at $1.5445 is now under threat. Having potentially left a higher low at $1.5188, to now push above the reaction high at $1.5440 would be a key near term change in sentiment, especially if there was a close above. The momentum indicators are also backing the move with RSI and Stochastics pushing higher. This could still all be part of the process of leaving another lower high (below $1.5700) and of the medium term bear phase and this is what I believe is playing out.
However, for now there is a stint of buying pressure playing out. The hourly chart shows that this could also just be part of a range play with no discernible strength being shown on any of the hourly momentum indicators. Yesterday’s low at $1.5256 is now key near term support, with $1.5300 still a notable near term pivot level. Above $1.5445 opens the $1.5500 resistance area.
USD/JPY
Finally we the yen pulling back some ground as a sharp bout of selling pressure on Dollar/Yen has hit overnight following the comments from the BoJ’s Kuroda This has now confirmed the deterioration (and sell signal) on the RSI on Monday, which has now been followed by bearish crossovers on the Stochastics and MACD. With the loss of the support at 123.50 this now suggests a likely retracement back towards the old breakout at 122.02.
This breakdown of support now becomes the initial line of resistance for a possible intraday retracement of the sharp decline, whilst there is further resistance at 123.85. A confirmed close below 123.50 today would be a significant turnaround in sentiment. It may be best to let this move settle now in the next few hours as already the move has rallied off 122.47. Look for near term shorts into any intraday rallies.
Gold
There has been a decent reaction by the bulls to the breakdown of the trading range below $1178. However it does not seem to be an especially convincing move as yet. The two supposedly bullish candles of Monday and Tuesday where gains have been made on the day have come with some fairly weak candles. The reaction today has been positive so far but still this has a look of a bear rally to it. Momentum indicators have ticked slightly higher but again nothing that would suggest the price is going to be screaming higher.
The price has rallied again today back into the band of resistance $1178/$1186 and this is likely to be seen as a chance to sell. I expect this rally to fall over and retest the lows around $1170 once more. The key near term resistance comes in at $1196 now.
WTI Oil
Once again we have seen the continuation of the range play that has developed in the past six weeks. This has come as the daily momentum indicators have moved into far more of a neutral medium term outlook. Near term though, the volatility remains elevate and there is much more of a choppy phase playing out in which there have been no more than two consecutive positive candles.
This would suggest that intraday trends are not developing and that trades need to be kept with a short time horizon still. The hourly chart shows that the Fibonacci retracements of the $56.51/$61.58 rally continue to play a role, specifically the 50% level at $59.05 which has played a pivot in the past few days. A sustained breach of $60 resistance would re-open a test of the $61.58 high. There is further support at $57.86.
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