Markets seem to have reached a crossroads with a rather benign period of trading with participants taking their time in deliberation over the next direction. Perhaps this is a function of some high volatility events in the offing, with the crucial OPEC/Non-OPEC meeting in Doha this Sunday, the start of earnings season in the US and some crucial Chinese economic data. Treasury yields have stabilized after their recent decline and perhaps this is helping to generate a very slight uptick in risk appetite this morning, at least across the forex markets. This has been shown with the sell-off on Dollar/Yen taking a pause for breath (and possibly even beginning a rally). Talk of the prospect of BoJ intervention continues to come through, but this seems likely to be just jawboning at this stage and there is no evidence of any action.
The slight uptick in sentiment is impacting across forex markets with the weaker yen being a key development after days o strength. We are also seeing the commodity currencies stronger again. However the euro remains stuck underneath its old long term range highs and is really struggling for direction now. The gold price is just coming off the top after a few days of gains, whilst the oil price is doing the same.
Traders will be on the lookout for UK inflation at 0930BST in which the headline CPI is expected to pick up to +0.4% (from +0.3%) whilst the core CPI is expected to move to +1.3% (from +1.2% last month). This would be sterling supportive to a degree.
EUR/USD
We are still awaiting for direction on the euro as another very neutral candle has been posted in this increasingly benign sideways range. The price has now been trading in this band between $1.1325/$1.1453 for the past seven completed sessions and there is little real sign that the market is ready to break either way. The only hint of a sign has been that last night’s close was the first close above $1.1400 since October. The momentum indicators remain positively configured but I am still reticent due to the fact that the price is so close to the long term range highs and if the range I to continue, then this would still be considered an opportunity to take profit. Despite this there is no sign of profit taking yet. The hourly chart shows the benign outlook with momentum neutral (RSI oscillating between 40/65). Until we get a breakout above $1.1465 (the long term range resistance) or below $1.1325 then continue to play the range.
GBP/USD
Sterling engaged in something of a short squeeze yesterday, but I still retain my outlook that rallies are a chance to sell and I am now on the lookout for the next sell signal. The consistent pressure on $1.4050 in the past few weeks has helped to generate a bearish drift on indicators such as the RSI and MACD lines and the underside of the old downtrend channel (currently around $1.4450) is still a basis of resistance. As the Stochastics unwind from the latest test of $1.4050 there is still some room for additional unwinding on the daily chart in the near term, but there is considerable overhead resistance. The hourly chart shows the breakout above the pivot line at $1.4170 completed a near term rally that implied $1.4290, a target that has all but been achieved. In bear market rallies, the rebounds tend to undershoot their targets and this could be the case here, and with strong near term resistance at $1.4320 I expect this to be around where the next near term high comes in. I would expect pressure to resume back on $1.4170 and a retreat to $1.4050 in due course. A decisive move above $1.4320 opens the recent highs around $1.4425 and $1.4460.
