Market Overview
The outlook across the currency markets has become increasingly one of consolidation. The data dependent trading since the FOMC decision is neutralising many pairs in forex trading and it is difficult to gain any real sense of direction currently. The dollar has regained much of the lost ground that was seen in the wake of the disappointing Non-farm Payrolls, perhaps as the market, back at full capacity following the Easter holidays, saw the initial reaction may have been overdone, with talk already of upward revisions to the data.
Focus will certainly be on the FOMC once more tonight at 1900BST when the Federal Reserve releases the minutes of its latest meeting. The committee voted unanimously on its latest policy but the minutes will be poured over for any hawkish signs that may suggest potential earlier rate hikes.
Wall Street failed to reflect the bullish mood across Europe yesterday, with a dip into the close which saw the S&P 500 down 0.2%. Asian markets were relatively positive with the Nikkei 225 up 0.8% as the market hit a new 15 year high. The Bank of Japan held firm on its monetary policy which is seeing an annual monetary stimulus of 80 trillion yen (currently the equivalent of $650bn).
With inflation recently dipping back to around zero there had been a slight feeling that there could be further stimulus, however the bank has held steady. European markets are slightly lower in early trading, with a proposed merger of oil majors Shell (LONDON:RDSa) and BG Group (LONDON:BG) creating volatility in the FTSE 100.
Interestingly, after a couple of days of the dollar regaining ground, the greenback is under corrective pressure once more today, trading weaker against all of the forex majors. There has also been support formed on gold and silver.
Aside from the FOMC minutes tonight, traders will be looking out for Eurozone Retail Sales at 1000BST to perhaps impact on the euro, with the expectation of a slight year on year dip to 3.0% (from 3.7%), whilst the US EIA crude oil stocks at 1530BST will impact on the oil price, with a dip to 3.4m barrels (from 4.8m last week).
Chart of the Day – EUR/JPY
As you will read in my other dollar based charts below, we are not only seeing a consolidation on the major pairs, but also in some of the crosses too in recent weeks. Euro/Yen is another example of this as consistent waves of first buying and then selling just rolls over without any consistent trend being allowed to emerge. As with many pairs, we have seen two corrective candles follow and neutralise an attempt for a positive move. This move confirms the breakdown of a 4 month downtrend but for now reflects sideways consolidation more than any decisive move. Momentum on the daily chart reflects more a move that is unwinding oversold momentum than any substantially positive.
The intraday hourly chart shows the resistance coming in around 131.30/131.50 is strengthening, whilst the support in the range 128.30/129.00 is equally strong. Perhaps look to use the pivot level that is between 130.50 which is reflecting bullish and bearish within the near term range and having just dropped below again this suggests a corrective bias now near term. A decisive break of the range is needed to garner real near term direction.
EUR/USD
We continue to see the choppy consolidation on the euro and the daily chart is becoming ever more neutral in its outlook. Having broken the 4 month downtrend, the 21 day moving average which has tended to be a very good gauge in recent months has now flattened off. Two days of positive candles have been now followed by two completed corrective candles whilst the early signs today are of a slight rebound.
The intraday chart shows the pivot level once more coming in at $1.0800 to provide the near term floor. There are two key near term pivots for the euro at $1.0800 and $1.0900 and both have repeatedly played a role in this consolidation. The latest move on the intraday hourly chart shows that hourly momentum indicators have taken on a consolidation configuration but within that there have been near term positive signals on MACD and Stochastics which suggest a continuation of the range.
Until there is a decisive either for pressure on the key support at $1.0712 or the resistance around $1.1035 then we can just continue to expect the euro to play around the two pivot levels in a range play.
GBP/USD
As with the euro, the two corrective candles have dragged Cable back into the midst of a consolidation. The daily chart simply reflects a sideways range play over the past few weeks now (interestingly ever since the FOMC decision). In this time the momentum indicators which had previously been in bearish configuration have simply unwound that position. But in a market that is going nowhere that always leads me to believe that it will lead to an eventual break lower once more. Remember “the trend is your friend” after all.
On the intraday hourly chart we see a fairly messy range period on Cable, with the lows coming in between $1.4700/$1.4800 and the highs coming in consistently underneath the $1.4950/$1.5000 band of resistance. Hourly moving averages are not especially helpful in this scenario as they are fluctuating around neutral. However the RSI is an interesting indicator here, with the potential to use extreme moves as contrarian signals.
Once again the latest move towards 30 has induced some buying pressure overnight. You could use the near term pivot around $1.4870 as a gauge of how bullish or bearish the rate is within the trading band, but for now the range continues.
USD/JPY
Once more we see a range play. The latest two positive candles are now being undone by a return of some selling pressure overnight to take this daily chart into an ever more neutral configuration. There was a very slight poke above the early April high at 120.30 but the move is increasingly between a set of flat moving averages are there is very little direction to be gleamed from the near to medium term outlook here. This can be summed up also by the RSI almost bang on 50, MACD lines almost bang on zero (the neutral line) and the Stochastics around 50 too. The intraday hourly chart shows a slight bullish bias simply as it is trading above the pivot level at 119.40.
However the outlook has turned overnight (since the decision of the BoJ not to change its monetary policy). The selling pressure has just put pressure on the early morning outlook but whilst trading above 119.40 this does not seem to be too stressful for the bulls. Signs of support above 119.40 could induce a chance for a near term buy, but in truth the outlook is now middle of the road around 119.40. The extremes of this near term range (around support at 118.30 up to resistance at 120.30/60) can be used as opportunities, but for now the range play continues.
Gold
If you take gold as a currency play against the dollar then gold has been one of the best performing major instruments of the last few days. The recovery of the dollar has not managed to drag gold too far lower and the fact that support is forming once more above $1200 will hearten the bulls. The neutral outlook on the forex majors is skewed more towards a slightly bullish outlook on gold. Momentum indicators are more advanced with RSI and Stochastics more in positive configuration and the key overhead resistance around $1220/$1224 is being pressured.
Yesterday’s dip did little real damage and as seen on the intraday hourly chart, the move has simply unwound the price back to the minor breakout level around $1209. The intraday momentum is also skewed more towards the bullish side too. If the gold price can now build on this support above $1200 then there is a chance of further pressure on the resistance of the highs between $1220/$1224, above which would open the next resistance at $1236.50. Losing the support at $1195.00 would now be a blow for the bulls.
WTI Oil
Are we beginning to finally see some traction in the WTI oil price? Yesterday we saw a breakout and close above the resistance at $52.40. This took WTI to a new high dating back to 18th February and has put pressure on the key February highs at $54.24. Interestingly though the RSI is now around 60 and is the highest since the big sell-off started to get going back in July. The price has just dipped back early today and the next move will be to start forming a new higher low within or above the support band at $50.45/$52.40.
The caveat would be that this could be WTI once more pushing towards the top of the trading range and could be a chance to take profits. The daily Bollinger Bands are beginning to widen which suggests increasing volatility and could be a positive sign for the bulls. The outlook has certainly improved over the past few days, it is now that this move needs to be consolidated.
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