Market Overview
The fixation continues with Greece, but increasingly forex markets have settled into a mode of consolidation in front of what could be a crucial meeting of the Federal Open Market Committee. With a press conference with Janet Yellen also penned in along with revised economic forecasts, this meeting could give crucial hints as to not only the timing of the rate hike, but also (and probably more importantly) how quickly future hikes will take off. The uncertainty for this has made even the highly volatile euro sit down more cautiously in the past few days.
Equity markets have been flying around a lot more than currencies and this continued yesterday as the sharp moves on Eurozone sovereign debt markets have been driving the moves. The contrasting moves on core (German Bunds) and peripheral (such as Italian and Spanish) Eurozone bonds have been key factors in the direction of equity markets. Yields settled down after earlier significant moves, leading to equities rebounding. This has allowed some respite to recent selling pressure. Wall Street closed in positive territory last night with the S&P 500 up 0.6%, and whilst Asian markets have been a touch more mixed (Nikkei closed down 0.2%), the European indices have started the day mildly positive.
Forex trading shows the performance for the dollar has remained fairly mixed overnight. The euro is broadly flat, whilst there is slight weakness on the Aussie and Kiwi dollars today on little obvious news. The FOMC is sure to add some direction to these markets this evening at 1900BST, whilst Yellen’s press conference is half an hour later at 1930BST.
Before the FOMC though there is a batch of economic data due. Initial focus is on the UK with the announcement of employment data at 0930BST. The unemployment rate is expected to remain flat at 5.5%, whilst the most interest might come with average weekly earnings (ex bonus) which are expected to improve to +2.5% (from +2.2%) which with core CPI at just +0.9% shows that real wages continue to improve.
The Bank of England also produces its meeting minutes at 0930BST, and whilst the committee’s decision came at a time when CPI was -0.1% there are still signs that the hawks are beginning to find a voice once more. At 1000BST the Eurozone final CPI data is released, with an expectation of holding steady with the flash reading of +0.3%. The US weekly oil inventories are at 1530BST with the decline in inventories expected to narrow to just -1.7m (from the -6.8m last month). Finally, New Zealand GDP is at 2345BST which is expected to come in at +0.6% for the quarter.
Chart of the Day – EUR/JPY
I had considered looking at Dollar/Loonie as my chart of the day, however, as you will see below, the dollar pairs have all moved into consolidation mode ahead of the Fed tonight. So what of two other major currencies, the euro and Japanese yen? Well, EUR/JPY is not too different really, again fairly rangebound.
However, for EUR/JPY I see the key break was a move above the resistance around 137.00. This move took the pair to a five month high and is a move that has been confirmed by an improvement in the configuration of the momentum indicators. The pair has subsequently undergone a pullback towards the neckline of this breakout and subsequently, it looks to be a medium term buying opportunity.
The momentum indicators are using this as a chance to unwind too. I see the past week’s consolidation as part of a whole near term basing process above the 138 breakout and subsequently there will be a retest of the resistance at 141.05 and then beyond. A low has been posted in the past week at 138.93 and despite yesterday’s slightly negative candle, I still expect that the low of this pullback will ultimately be in the range 138/139.
EUR/USD
Juts as a measure of the importance of the Fed, even with Greece still dominating market sentiment, the last few days has seen the euro become increasingly consolidated with trading very cautious. This suggests that the market is waiting now for what could be an extremely important FOMC meeting. The technicals on the euro have subsequently barely changed in the past few days.
The daily chart shows a very marginally positive bias within a medium term neutral outlook. The euro is still trading above the $1.1050 pivot level and eying the overhead resistance band $1.1380/$1.1460, whilst momentum indicators are still slightly bullishly configured. I spoke yesterday of the near term resistance at $1.1330 and that proved to be enough to prevent early gains on the euro from progressing too far and the euro has been subsequently pulled back to an entirely neutral near term configuration. Support comes at $1.1188 and $1.1150 but it will be the Fed that drives the breakout today.
GBP/USD
Once more, the sterling bulls have managed to fight towards the end of the day and have achieved a closing level towards the high of the day. The move towards a test of $1.5700 key resistance continues even if it is being done at a slow and steady pace. Seemingly every day there is an initial sell-off on Cable that threatens the bull run but sure enough, the bulls fight hard and win over later into the session. This has happened in each of the past 7 days. The momentum indicators are positive without being spectacular (probably due to the gradual creeping gains) but for now we must back the bulls.
Having left a series of higher lows on the intraday hourly chart, the latest support is now at $1.5540, above the $1.5485 low from Monday. Hourly momentum indicators also remain modestly bullishly configured. The he big caveat could be the FOMC tonight though which could scupper the bull run if it is even remotely hawkish. However volatility could remain high today with UK employment data and also Bank of England minutes on the agenda.
USD/JPY
If the euro is consolidating in front of the FOMC, you can bet your hat on Dollar/Yen also lacking direction, and this is what we are faced with. Moving into tonight’s decision, there have been three days of consecutive small bodied candles basically opening and closing at the same levels (ie. almost doji candles) signifying nothing but a cautious outlook. Although there is a continued corrective drift to the MACD lines and Stochastics there is little conviction that you could trade Dollar/Yen with currently.
I am still of the opinion that left to its own devices there would be a continued retracement back to the 122 breakout where the buying pressure would build once more. However there is a definite sense of waiting for the catalyst for the next move (which is clearly the FOMC). The hourly chart shows neutral indicators, with support near term at 122.43 and resistance at 124.12. We await the next move.
Gold
Although you can probably add gold to the list of consolidating markets in front of the Fed, there are also still signs that the sellers are ready to make a move again. The outlook retains a bearish bias. The legacy of the range breakdown, trading below all the falling moving averages, the 4 week downtrend, and the momentum indicators bearishly configured. Subsequently, gun to the head, I would want to be short rather than long.
However the FOMC creates the level of uncertainty that has prevented gold from falling more sharply lower. The both the daily and intraday hourly chart shows an interesting support (or perhaps pivot level) around $1175 now which continues to be tested. A close below this would be the bearish confirmation needed for further downside for a test of the $1162 low and subsequently $1143 again. The important near term resistance is $1192/$1196.
WTI Oil
Consolidation has set in in the past few days, with WTI settling down in front of the FOMC. The rally on Monday from the 61.8% Fibonacci retracement of the $56.83/$61.82 has left a near term key low at $58.73 with trading subsequently just settling around the middle of the range. Hourly momentum indicators have also become increasingly neutral now too. It would seem as though, just as with many other markets, traders seem to be waiting for a catalyst, notably the FOMC meeting decision tonight.
I would expect that volatility might take a leap in the wake of the meeting and depending on the steer from Yellen’s press conference we should get some near term levels tested. A hawkish steer could be a drag on WTI and test $58.73 again. For now though there is resistance that has formed around $60.40 (coinciding with the 23.6% Fibonacci retracement) and this is now a near term barrier that is preventing a move back towards the rebound high at $61.82 again. This resistance at $60.40 would be tested on a dovish FOMC.
DISCLAIMER: This report does not constitute personal investment advice, nor does it take into account the individual financial circumstances or objectives of the clients who receive it. All information and research produced by Hantec Markets is intended to be general in nature; it does not constitute a recommendation or offer for the purchase or sale of any financial instrument, nor should it be construed as such.
All of the views or suggestions within this report are those solely and exclusively of the author, and accurately reflect his personal views about any and all of the subject instruments and are presented to the best of the author’s knowledge. Any person relying on this report to undertake trading does so entirely at his/her own risk and Hantec Markets does not accept any liability.