Market Overview
Disappointing consumer figures and hawkish comments from St Louis Fed President James Bullard put a cap on any recovery gains for Wall Street last night. However, the markets finished well off their session lows. Asian markets were hit by some selling pressure though.
With the Japanese yen strengthening following an increase in inflation which saw CPI in May jump to 3.7%, the Nikkei 225 fell 1.7%. European markets are taking their steer from the US and are very slightly higher in early trading, but on a Friday with little significant market moving data it could be a relatively quiet session.
Forex trading shows the dollar under further pressure as the Dollar Index continues to fall away. Key weakness is being seen against the yen, franc and Australian dollar, however the greenback is trading lower against all of the major pairs (except the Kiwi dollar).
There has been little reaction to the hawkish comments from James Bullard which suggested that the Fed may raise interest rates sooner than the market is anticipating, towards the end of Q1 2015. However these comments are nothing new from a non-voting Fed member who has been at the hawkish end of the spectrum for almost a year.
Traders will be looking out for the final reading of UK Q1 GDP which is expected to reiterate the second reading score of 0.8% quarter on quarter growth with a 3.1% year on year run rate.
There is also the final reading of the University of Michigan consumer sentiment at 14:55BST, expected to be 82.0 which is slightly higher than the preliminary reading of 81.2. The European Union leaders are also expected to vote in Jean Claude Junker as the Commission President today.
Chart of the Day – USD/CHF
The drift lower (strengthening of the Swissy) has continued throughout the week. The big question that is now being asked is whether the key support just above 0.8900 will be breached. In early June, downside pressure resulted in a low at 0.8906 and although this level has been tested on several occasions over the past 7 days, as yet it remains a support.
The weakness seen in the dollar over the past few days suggests that this could be a significant moment for the dollar is it were to happen as it would go a long way towards confirming that the dollar rally seen over the past few weeks was over (it may also suggest that the $1.3670 key resistance on Euro/Dollar may come under pressure). For Dollar/Swiss though, the 144 day moving average is supportive at 0.8909 and the momentum indicators are hanging on to a slightly positive outlook. However this support around 0.8900 is big for the dollar. A breach would open 0.8861.
EUR/USD
Another fairly choppy day for the Euro has simply resulted in no real movement over the past 24 hours and essentially no real change to the outlook. Despite a slight breach to $1.3574, the support at $1.3585 remains the basis of any downside limit for the near term, whilst the 21 day moving average flattens off and the daily momentum indicators gradually drift higher in the recovery. There is still no sense of any significant rally for the Euro and the resistance at $1.3670 is still significant and looming with overhead supply.
The intraday chart shows a breach of the 2 week uptrend yesterday and subsequently weakens the bull argument further. I still expect this rally to stutter and stumble under the $1.3670 neckline resistance and that this move will be sold into. Under $1.3585 is $1.3563 and then $1.3535. The resistance from Wednesday comes in at $1.3651 under $1.3670.
GBP/USD
A strong reaction yesterday from the bulls following the Bank of England’s financial stability report has been maintained. Any hawkish talk from St Louis Fed President James Bullard seem to already have been priced in as there was negligible impact on Cable which is now looking to form support once again above $1.7000.
Daily technical indicators for the pound remain in bullish configuration and the low posted on Wednesday at $1.6950 is being strengthened by yesterday’s rally. The bulls will now be eyeing a serious challenge on the $1.7062 multi-year high now as Asian trading seems to be showing an appetite for higher lows. The price action on the intraday hourly chart suggests using $1.7000 as a pivot level with any move back as a near term opportunity to buy.
USD/JPY
The yen had started to strengthen yesterday afternoon, puling Dollar/Yen below the 101.57 support, but following on from the inflation data, the move has begun to strengthen. This is now the third successive day of lower lows and the outlook for Dollar/Yen is once again under pressure as momentum indicators drag lower. Having breached the 101.57 support, there is little to suggest that the rate will now not come back to retest the key 2014 lows of 101.80 and 101.74.
The intraday hourly chart shows that having been the support previously, 101.80 has now turned into a resistance area. The immediate move may be for a minor recovery with the hourly RSI towards 30 and a habit for rallies in this stepped decline. Look to sell into any rallies towards 101.60/101.80.
Gold
The last 5 days have seen a closing price within a $5 band as indecision takes over. The last three days have resulted in a “doji” candlestick (opening and closing around the same level). This is all coming under the resistance of the primary downtrend which is now falling at $1325, whilst the key April high is further resistance at $1330.90. Momentum indicator are plateauing as the consolidation period continues.
The intraday hourly gold chart is giving little else away in terms of the next move. The support around $1306 has been tested on several occasions over the past few days and remains intact, but a breach could signal the start of the retracement of the big rally. However, for now the recovery from $1305.90 yesterday has continued overnight and so for now we wait and see for the net breakout. With the doji candles on the daily chart, the downtrend resistance and stretched RSI, I still expect this to be back lower.
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