Hantec Markets

Market Overview

The move into new all-time high ground on Wall Street continues as the S&P 500 posts its 8th record closing high in the past 10 sessions. However Asian markets have been a bit more cautious, with a mixed session of trading. Chinese CPI inflation came in line with expectations at 2.5%, while the Nikkei 225 fell almost a percent as the yen began to strengthen once more. European equities are trading a little lighter this morning.

After yesterday’s afternoon rebound, the dollar is under a little bit of pressure again in early forex trading. The greenback benefited from slightly hawkish comments from Fed members Bullard and Rosengren yesterday afternoon, but this move is reversing slightly and the US Dollar Index continues to trade in the band between 80.4 to 80.6.

Traders will be watching out for the UK Manufacturing Production at 09:30BST, with the capacity utilisation component seen as a guide towards the prospect of looming inflation. There is also Italian GDP at 10:00BST which is forecast to reiterate the initial reading of -0.1% for the quarter.

Chart of the Day – EUR/JPY

The breakdown in mid-May below the key support at 139.90 in EUR/JPY completed a top pattern which implied 136.10. This neckline around 139.90 remains a key near to medium term barrier to upside and has acted as the basis of resistance now for the past four sessions. Yesterday’s rejection was even more prominent as it has now induces a move lower. The momentum indicators all remain either in bearish configuration (MACD, RSI) or have now turned lower to give a near term sell signal (Stochastics).

Now into a third day of weakness, the rate is now falling towards a test of the support at 138.65 before the key low at 137.93. Intraday hourly momentum indicators and moving averages are all in bearish configuration and/or in decline now. Using rallies as a chance to sell appears to now be the strategy, with a near term band of resistance around 139.40 looking a good area to sell. It would need a move above the 140.08 high to suggest the bulls are turning things around.

EUR/USD

For a third consecutive day the Euro struggled to overcome the key resistance of the neckline at $1.3670. The initial strength turned sharply lower yesterday afternoon as pressure instead turned on the old support at $1.3585. The turnaround now suggests that the bears are ready to resume control again as the momentum indicators that had been unwinding have now turned lower again with renewed downside potential.

The intraday hourly chart also backs this view, trading under all the moving averages again and with momentum indicators in bearish configuration. A strategy of using rallies as a chance to sell continues to ring true. With the resistance around $1.3670 ever strengthening it would take a significant change of outlook to break this sequence. Expect a retest of the $1.3502 low in due course.

GBP/USD

The resistance of the new downtrend continues to act as a barrier for Cable as the near to medium term outlook remains one to sell into strength as the prospect of a second lower key high (at $1.6844) on the daily chart increases. With the momentum indicators also suggesting a second lower high is in place the bears look ready to resume control. However the intraday hourly chart shows an increased importance of the support at $1.6780. This is the neckline of a base pattern but also a level which has acted as support for the past two sessions.

The daily chart shows the downtrend resistance currently comes in at $1.6830 so there is a squeeze in the price and the likelihood is that either the resistance of the trend or the support at $1.6780 will be breached in the next day or so. With intraday hourly momentum indicators rolling over again it suggests that rallies are being sold into and the pressure is for a downside break. A move above $1.6844 would begin to change the outlook to move positive but the sequence of lower highs remains in place until a breach of $1.6920.

USD/JPY

An overnight showing of yen strength has dragged the pair lower and is putting pressure on the recovery uptrend that has been building since 21st May. The rate is again back to the support of the now rising 89 day moving average which is also in the early stages of becoming a basis of support too. In the context of the dollar recovery this makes this little test important. A breach of the reaction low at 102.10 would seriously question the recovery (even more so below the 102.00 pivot level) that hit the underside of the old primary uptrend and fell away again.

The concern is that momentum indicators are now starting to turn lower and this suggests a loss of upside momentum. The intraday hourly chart shows a breach of yesterday’s low at 102.35 and hourly momentum indicators in decline again. The bulls have certainly got to fight to hold on to the Dollar/Yen recovery. The bulls would regain the initiative on a move above 102.60.

Gold

The gold recovery that began last Thursday (during the ECB press conference) is spluttering and stalling. The price is now into its third day of making very little headway which is doing little to ignite the momentum indicators which remain in bearish configuration and scarcely any real sign of the bulls gaining the upper hand.

The intraday hourly chart still shows key overhead bands of resistance around $1260 and then $1268 as the price has traded sideways over the last few days. A move and hold above Friday’s high at $1257.50 would begin to threaten the resistances but the technical indicators for both the daily chart and hourly suggest the market is still selling gold into strength and any rally is a chance to sell for a retest of the lows at $1240.61, $1237.94 and then $1231.36.