Dollar is hit by the profit-taking as markets prepare for Putin/Poroshenko meeting

Market Overview

Despite a day of very low volume markets remained strong as equities in Europe pushed higher on Mario Draghi’s accommodative rhetoric at Jackson Hole that came after the market close on Friday. Risk appetite seems to be unbowed at the moment as Wall Street pushed ever higher and the S&P 500 breached 2000 on an intraday basis for the first time ever. The move though has not been replicated in Asian trading which saw markets mixed to slightly lower, whilst European indices are also slightly down in early trading. This is with the exception of the FTSE 100 which has opened higher as the market plays catch up to yesterday’s strong gains as the UK was closed for Bank Holiday.

Today could be a bit more volatile as The presidents of Russia and Ukraine meet to try and resolve the conflict in eastern Ukraine. This has tended to have a significant impact on markets in recent weeks with safe havens (such as Yen and gold) benefitting at the expense of equities (such as DAX and CAC). Keeping close to the newsflow could be key today.

After such strong gains over the past week, forex trading shows that the dollar is just finding a bit of profit-taking coming through today as it slides slightly on its major pairs. With no significant pressure against any single currency there is just general weakness.

Traders will be looking towards the US Durable Goods Orders at 13:30BST (+8.0% forecast), whilst the dollar bulls will also be looking for the Case-Shiller House Price Index to continue to improve to 172.8 when the data is announced at 14:00BST. Finally the August Consumer Confidence is released at 15:00BST although is expected to show a slight deterioration to 89.0.

Chart of the Day – FTSE 100 Index

In recent weeks the FTSE 100 has been a far more steady ship than its volatile counterparts that are the DAX or CAC. This has resulted in a fairly orderly recovery undergone since the low was hit at 6529 just a couple of weeks ago. However, taking a step back and the FTSE is still a market that has sustained periods of gains and then sustained periods of losses. To break this cycle then the key reaction high at 6834 needs to be breached. This level is under threat today as the FTSE 100 gains and plays catch up on its European indices and if it can be seen with a sustained break this would break a sequence of lower highs and then re-open the key high at 6895. However, technical indicators remain very mixed with moving averages little use (due to the sideways see-saw) and momentum indicators pointing to a continuation of the range play rather than suggesting that any move to the upside can be sustained. The reaction low at 6940 on the hourly chart is now important support.

EUR/USD

The bulls got little respite from the selling pressure yesterday as the euro continued lower on a day of low volume. However despite a slight early recovery overnight, there seems to be little reason to believe that once the volume picks up again (as it should do today after the UK bank holiday) that there will not be further downside towards the key September low around $1.3100 in due course. All technical indicators are in bearish configuration, and there is little sign of any sustainable imminent rally. The intraday hourly chart shows that the consolidation has helped to unwind oversold near term technical momentum and is helping to renew downside potential. The initial resistance comes in at $1.3240 and then $1.3300.

GBP/USD

It will be interesting to see if the latest bout of consolidation just helps to provide another opportunity to sell. Despite hitting another multi-month low yesterday, there has been a degree of support that has come in. The immediate test of any recovery is the resistance at $1.6600 which has held the bulls back for eh past few days. A breach could open further recovery towards $1.6650 which is the next real intraday resistance as shown on the intraday hourly chart. However, the daily momentum indicators al suggest that this would all be of minor consequence within the larger picture of the falling 6 week downtrend which currently comes in around $1.6690.Expect the Cable bears to use this as another chance to sell within the downtrend. Only above $1.6740 would the bulls even have an argument for gaining near/medium term control.

USD/JPY

In the context of recent price action, the big red candle seen yesterday was quite a surprise. The push to a new high dating back to the 23rd January peaked out at 104.43 before the profit-takers took control. The intraday hourly chart now shows the momentum indicators giving a series of bearish divergences with the 104.43 high. The RSI, MACD and the Stochastics, are all now just showing corrective signals near term, whilst the hourly moving averages are also beginning to roll over. The first big near term support is at 103.50 as this was around Friday’s low and is also the first reaction low within the strong bull run. A loss of 103.50 would open a retreat back towards 103.20 and 103.00. Despite this being potentially a healthy move (would help to renew upside potential) there is always a danger of gathering corrective momentum). For now the bulls have just lost near term control and it could mean that a correction begins to come through.

Gold

The gold price has just been consolidation for the past few days after the breakdown of the support at $1280 last week. This break now heaps the pressure on the downside and suggests that rallies will be deemed to now be a chance to sell. The medium term impact of this move are important as it was the last real positive aspect of the chart. There could be a near term technical rally now (and today has started with some gains) but do not expect this to last too long before the sellers regain control. There is a band of resistance around $1290 up towards $1305 that can be expected to contain a recovery. The caveat is that today there is a meeting between President Putin and President Poroshenko which could impact geopolitical tensions and this could mean a volatile day for gold. Below $1273 re-opens $1258.85 initially.