Market Overview
If you work in the forex markets, yesterday was a truly stunning day. Volatility and moves almost unimaginable were seen on the Swiss franc after the Swiss National Bank (SNB) finally gave up trying to hold back the strength of its own currency. Shockwaves were sent around financial markets with incredibly swings on key markets as traders struggled to get to grips with what it all meant. In short, my take is that the SNB clearly sees Eurozone QE as inevitable now and it has given up fighting against a weaker euro.
European markets first sold off only to then roar back to close sharply higher. However Wall Street took a different stance and closed lower for a fifth straight day, a losing streak that is becoming a little more than concerning. Safe haven trades soared as US Treasuries, gold and the yen were harbours in the storm. Asian markets were mixed to lower overnight with the Nikkei 225 especially hit by the strength of the yen.
In forex trading there will be some time before we can say for certain where the Swissy will settle down. With a daily pip range of over 3300 pips, Euro/Swiss closed the day off over 2000 pips. Today there has been a rebound of over 300 pips, which under normal circumstances would be headline news in itself. Elsewhere, there is a slight bout of dollar weakness, with the euro seeing a (dead cat) bounce and sterling also higher. The gains on the Aussie dollar have also not been given up as the support has held overnight.
Today, if possible, attention will turn to inflation in the Eurozone with the final readings for Germany and more importantly the Eurozone at 1000GMT (-0.2% YoY expected). There is also US inflation at 1330GMT (+0.7% expected, down from 1.3% last month), which is likely to cause further volatility in forex majors this afternoon. There is also US Industrial Production at 1415GMT which is expected to show capacity utilisation has dipped slightly to 80.0. Finally there will be the University of Michigan consumer sentiment at 1455GMT which is expected to continue to improve to 94.2.
Chart of the Day –EUR/JPY
A huge decline has taken Euro/Yen from closing 2014 at 144.90 down over 6% in just 2 weeks to now be challenging a key floor of support. For well over a year the support band 135/135.50 has captured the lows (other than a brief spike on 16th October) as the floor has remained intact. Yesterday that support was again seriously tested and whilst the hourly chart shows that traders have briefly flirted with a move below 135 overnight, there is still an element of support.
However the momentum indicators are worrying. The RSI has not been this low since May 2012 and suggests that the downside pressure is considerable. This is now a key moment for Euro/Yen as a confirmed breach of 135 could open the floodgates at least towards the next band of support 130/131. On a near term basis the hourly chart has ticked up in the past few hours.
It needs an effort to push the rate back above 136.80/137.00 near term resistance otherwise the downside pressure could be telling.
EUR/USD
The euro has been slammed by the decision of the SNB to remove the floor in the Euro/Swiss rate. The move yesterday saw the euro falling to below the November 2005 low of $1.1640 to levels now not seen since November 2003. However a look at the longer term Fibonacci projections and projections would suggest that a move towards the $1.1100/$1.1200 is to be expected in the coming weeks. It is difficult to talk about the SNB without suggesting the implications it has for Eurozone QE (the SNB surely would not have done what it did if it did not believe that ECB QE was not going to happen).
That could mean that next Thursday 22nd January and the ECB meeting is likely to again result in huge volatility. Looking near term on the EUR/USD rate, selling into strength seems to be a good option. The intraday hourly chart shows initial resistance at $1.1665 but the main resistance comes in at $1.1750 which was the support of a range over the past week or so which has now turned to resistance.
Retesting yesterday’s low at $1.1567 can surely only be a matter of time.
GBP/USD
Like many pairs, Cable was very volatile yesterday, however into the evening and overnight it has since settled into a bit more of a state of calm. The technical rally that had threatened to gain traction above $1.5200 has just had its wings clipped and while the daily chart shows a move that is just tailed off a touch there is no significant damage yet. However on a bigger picture scale, the move is still clearly counter trend and it is likely that the bears will resume control in due course. The intraday hourly chart has more of a neutral outlook now as a dip back below $1.5200 has once more found that level as a near term ceiling.
I said yesterday in my videos that I saw the support at $1.5140 as a line that the bulls would now watch and it is coming under pressure and if this support fails on a consistent basis then the bulls would have lost their conviction with this rally. The $1.5074 would be the confirmation trigger that the bears are regaining control for a retest of $1.5032.
USD/JPY
In the midst of a fire storm, traders look towards safe havens and certainly the yen is one of those. This is why Dollar/Yen continues to put pressure on supports. Closing at the day low never tends to be a good sign and certainly there has been pressure on support around 116.00. Overnight the level was briefly breached (to 115.82) but quickly reversed so we can take it that this remains a level that the buyers are still looking to defend.
The medium term outlook is increasingly under pressure though and 115.56 (the December low) is a key level that needs to be watched. A confirmed breach would change the outlook from a bull market correction to something all together more concerning. The intraday hourly chart shows a consistent sequence of lower highs over the past couple of weeks and that there is now key overhead resistance building up.
Initially I am looking at 117.20 which was an old pivot level and provided resistance yesterday afternoon, however the main near term resistance is now at 118.00 which has been a basis of support in the recent selloff and also marks yesterday’s key reaction high. Hourly momentum has picked up in the last few hours with a MACD bull cross in place there is some near term encouragement. That support around 116 really needs to protect 115.56 though.
Gold
A huge run higher on gold was seen yesterday as the volatility surrounding the Swissy flooded around the market. The investment choice of gold as a safe harbour amidst the storm meant that gold quickly reached its bull flag target of $1258. Not only that a close above the October high of $1255.20 requires some considerable thought with regards to the long term outlook.
A move back above the 144 day moving average is yet another milestone past for the bull recovery. The RSI is now pushing confidently towards 70 whilst the MACD lines are also confirming the bull improvement. The intraday hourly chart now shows consistent higher lows and higher highs in place as the move continues.
Yesterday’s move above $1244 now leaves a good band of near term support between $1224.50/$1244 for the bulls to now use on a correction, whilst the breakout at $1238 is also supportive. Looking up, the next resistance band on the daily chart comes in between $1273/$1296.50.
WTI Oil
A day of incredible volatility in almost all markets and WTI was not spared either. The interesting feature of WTI though is despite the huge spike the resistance at $51.27 was once more at the underside of the old downtrend channel before coming off again. In fact the intraday decline was so significant that a bearish candlestick has been left.
This has come as the RSI has unwound to just above 30 (similar to the move we saw in December) on the daily chart. It would probably be wise to let the price settle down again, but the chances of further downside are strong and using rallies as a chance to sell has served well in recent months. The only real stop that is viable would be above yesterday’s high at $51.27 which is now the key near term resistance.
The other key level on the intraday hourly chart is $46.83 which has been a basis of support but has been broken again which has re-opened the $44.20 low.
