Two currencies with very differing performance levels amongst the majors are sterling and the yen. With Brexit risks mounting and safe havens in favour, we have seen a huge sell off on Sterling/Yen since March. However, is this performance beginning to turn a corner? The latest leg lower from early August has hit a low at 126.49 and has begun to put together a near term rally and a run of higher lows in five successive sessions. We have seen a bull cross on the MACD lines and Stochastics also positing a near term positive cross. Much more needs to be done though to suggest there is a sustainable shift underway. The daily RSI is improving but now needs to move above 45 and into the 50s to really reflect a recovery developing. Also, whilst the hourly chart reflects the rebound, there needs to be a breach of the resistance between 130.00/130.20 to suggest the bulls are finding traction and turned the corner. Continuing the run of higher lows would be helpful but the mini uptrend comes in at 128.35 today. The hourly chart shows the first real higher low at 128.15. Look for a closing break above 130.20 to open the 23.6% Fibonacci retracement of 148.86/126.49 at 131.75. For now, we have to still see sterling as a sell into strength and the yen likely to continue to outperform, but if the conditions laid out above begin to change then something bigger could be underway. This chart could be a very interesting one to watch for broader sentiment shifts.
It looked for much of yesterday’s session that the euro bulls were beginning to get a foothold in the market once more. A drop back into the close has subsequently left a fifth consecutive bear candle and suggests there is a tough task still ahead. However, a higher daily low above $1.1065 is a start and if this continues to hold today then there will be further suggestion that whilst upside remains a struggle, at least the downside could become limited. Momentum indicators remain negatively configured, but a sense that Stochastics and RSI may be slowing in their descent. A tick higher at the open once more today is also encouraging. The first indicator to watch for recovery could be the hourly RSI which has repeatedly failed at 60 throughout the decline of the past week. Resistance in the band $1.1100 (old key floor) and $1.1120 (near term high) needs to be overcome. A failure of the support at $1.1065 once more opens the key August low at $1.1025.
One interesting mover amongst the majors in the past week has been a rebound on sterling, even amidst a strengthening dollar. However, we continue to view strength on Cable as a chance to sell. Excitement for the bulls would have been rising last week as a run of three consecutive positive closes was put together (first time in a month), but no resistance was breached by this move and it simply looks to have been another unwind to sell. A failure under the resistance band $1.2210/$1.2250 maintains the ongoing negative outlook. Although there has been a cross higher on Stochastics and MACD lines, this is still well within the confines of negative medium term configuration and looks a chance to sell. The 21 day moving average has been a basis of resistance for much of the past few months and falls around $1.2185 today. A close back under the old low at $1.2100 would re-open a test of the low at $1.2013. It was interesting to see $1.2100 as support yesterday so is clearly a level the market is now eyeing. Resistance is mounting overhead under $1.2170. Traction on hourly MACD lines below neutral would be a negative signal.
The move away from safe haven assets hit the yen yesterday, but as yet the market seems unwilling/unable to drive USD/JPY beyond the 106.75 key near to medium term resistance. This marks the bottom of overhead supply between 106.75/107.50 which is an area where the bulls have continued to struggle over the past couple of weeks. There is an edge of improvement creeping into the momentum indicators, however, the bulls seem reluctant to really commit to any sustainable move against the yen. There is a tepid positive bias to hourly momentum, but little conviction in the configuration. An uptrend on the hourly chart is worth watching as this is beginning to be breached as resistance at 106.75 looms. The support of 105.65 is now growing in importance, with yesterday’s low at 106.25 now worth watching as a close below would suggest once more the bulls losing their way to consolidation.
Gold has lost the upward momentum that has been so instrumental in pulling the market decisively higher over the past few weeks. The question is whether this is now a consolidation, or the beginning of a correction. We believe it to be part of a consolidation, but caution needs to be taken. Two negative candles in a row on the daily chart have begun to weigh on momentum indicators. Stochastics are slipping lower and MACD are threatening a bear cross. How the market responds today could be key. It has been six weeks since three consecutive negative candles were posted, but the key would be the support at $1481. Losing this support on a closing basis would be a negative development and drive a potential deeper correction towards $1452 (the latest key breakout support). However, looking on the hourly chart, there is a negative bias but one which is relatively well contained within a consolidation pattern of hourly momentum. Initial support at $1492 is holding early today but there is resistance mounting overhead at $1503 and under what is increasingly a mid-range pivot at $1510.