Market Overview
With US treasury yields continuing to fall away, a disappointing close on Wall Street which saw the Dow 30, S&P 500 and Nasdaq 100 all in decline was driven by weak numbers out of the retail sector from stocks such as Home Depot Inc (NYSE:HD). The FOMC members Plosser (traditional hawk) and Dudley (traditional dove) both stuck to their lines and caused little stir in the markets.
Still, Asian markets were mixed to slightly lower, with the Nikkei 225 under pressure as the Japanese yen continues to strengthen.European trading has taken this lead and is also slightly cautious in the early part of the session.
The US Dollar Index is trading mixed to slightly weaker in forex trading today. Sterling, the yen, Swiss franc and the euro are all showing mild strength. Starting off a day of central bank updates, the Bank of Japan did not move on monetary policy overnight which has helped to bolster the yen.
Traders will now be looking forward to the Bank of England minutes from its latest meeting and the minutes for the recent FOMC meeting. Fed watchers will be looking for any signal of possible tightening, but there is little expectation of anything too market moving today.
Markets will also be on the lookout for UK retail sales due at 09:30BST, expected to come in at 5.1% for the year in April; and also Eurozone consumer confidence which is expected to be flat at -8.6% at 15:00BST.
Chart of the Day – FTSE 100
The near term outlook for a correction in the FTSE 100 is growing. Yesterday saw a nine day low with a strongly bearish candlestick. Furthermore there has been a confirmed Stochastic sell signal, a crossover sell signal on the MACD and the RSI has rolled over. This could now put pressure on the support at 6767 which is the first reaction low within the bull run. A failure of 6767 support would therefore confirm the appetite for a correction and opens for a deeper retracement.
The intraday hourly chart also shows a head and shoulders top pattern having completed on the move below 6804 which if is confirmed by a move below yesterday’s low at 6792 would imply a target at 6715. Near term momentum is in weak configuration and the 55 day moving average which had been the basis of support through the bull run has turned over and is now a basis of resistance at 6845. It would need a move above the reaction high at 6862 to defer the corrective outlook.
EUR/USD
Consolidation is the name of the game at the moment as EUR/USD continues to trade around the support of the 144 day moving average which is currently at $1.3697. Momentum indicators remain in bearish configuration but the last four days have been characterised by the Euro almost flat-lining. Intraday analysis is becoming increasingly tedious as the rate continues to trade in a quiet band. Yesterday had a 36 pip range as support formed at $1.3677.
There is still the prospect of a base pattern that could be completed should there be a move above $1.3734, but with intraday hourly moving averages and momentum indicators increasingly neutral, calling direction is becoming a 50/50 call. The market is clearly waiting for a catalyst which could be the Eurozone PMIs on Thursday, which leaves today probably another quiet day of trading. Key support comes in at $1.3647.
GBP/USD
With the rally threatening to roll over, the positive UK inflation data provided a boost to GBP/USD which has looked to reinvigorate the bulls once again. The daily chart subsequently remains fairly positive with momentum looking positive. The 89 day moving average at $1.6665 remains the basis of medium term support which I still believe could have a role to play over the coming days/weeks.
The reason is that on the intraday chart there is still a head and shoulders top pattern which is the overriding factor. The slightly upward sloping neckline comes in around $1.6840 and is still capping the recovery. The key move here would be if there were to be a break above $1.6874 which was a key reaction high from 14th May. An upside break would signal a change in intent and the bulls seemingly regaining control. The key support is now at $1.6800 and a break down would scupper the recovery and re-open the low at $1.6729.
USD/JPY
The downside pressure continues to drag USD/JPY lower towards a test of the key February low at 100.74. Overnight the Bank of Japan held steady on monetary policy which has not changed the course of the yen which continues to strengthen. Daily technical indicators suggest the bears remain in control and that rallies are being used as a chance to sell.
Trading under all the moving averages is bearish and the old support of the uptrend is now a basis of resistance around 101.70. The intraday hourly chart shows the 89 hour moving average is capping the intraday recoveries and is now falling at 101.40. With little immediate prospect of a sustained recovery, using strength as a chance to sell remains the strategy to use.
Gold
Despite a slight breach of the lower of the two converging trend lines on the daily chart a quick bounce in gold has reaffirmed the consolidation of gold. So we continue to trade sideways, with little steer from momentum indicators and seemingly a supportive outlook. I spoke yesterday of the intraday support that was forming around $1290 and once more the dip below $1290 found some buyers willing to support and the price rallied once more.
The absolute near term support now comes in at $1285.70 but it still seems as though on a near term basis, dips below $1290 will be bought. Other than that, gold remains mid-range in the broad sideways trading band over the past 5 weeks, with neutral moving averages. The outlook subsequently remains very neutral and very difficult to trade.