Focus on Eurozone summit with prospects of Greece deal

Market Overview

Market sentiment has lifted in the wake of new hope that there is some light at the end of the long dark Greek tunnel. Negotiations with the Eurozone over the years have tended to go down to the wire, and this latest one with Greece seems to be no exception. Over the weekend there has finally been a proposal of some substance put forward from Greece that has potential. Finally it would appear that the leftist Syriza Greek government are realising the gravity of the situation and there may be something to work with. Today’s emergency summit of Eurozone leaders could be all important. The bond markets are already reacting though, with yields on Treasuries and more tellingly Bunds rising in early trading. This is the retracement of a slide in yields that had previously shown a flight to safety.

Although Wall Street closed lower by around 0.5% on Friday, Asian markets have taken heart from the improved prospects of a Greek deal and pushed higher with the Nikkei bouncing around 1%. European indices are also positive in early trading. Forex trading has been showing slight optimism, with the euro stronger today, whilst sterling is also picking up. Even the Kiwi which has been under consistent pressure in recent days has ticked higher.

Traders will be concentrating on the fallout from this meeting of Eurozone leaders today. News flow surrounding this meeting could create significant volatility and therefore it becomes a difficult day to trade with any degree of confidence. Other than that, the US Existing Home Sales at 1500BST will provide some distraction, with an expectation of an improvement to 5.27m (from 5.04m last month).

Chart of the Day – NZD/USD

The Kiwi has been one of the worst performing major currencies of the past few weeks and looking at the chart is easy to see why. Consistently falling away to new multi-year lows and showing little sign of any recovery. Now it is also finding resistance around the old support at $0.7000. The momentum indicators are consistently in bearish configuration and suggest that any rallies should be seen as a chance to sell. There is a near term resistance band now between $0.6940 and $0.7010 which is a good opportunity for near term shorting opportunities. The intraday hourly chart shows the MACD and RSI having unwound and this means that the next chance to sell could be approaching. Support comes in at $0.6875 from Wednesday but below that is $0.6790 from July 2010 and more importantly $0.6560.

EUR/USD

Even the candlestick analysis over the past few days would suggest that the market is cautious in its optimism. On Thursday and Friday last week, the two candlesticks were extremely neutral, whilst again today a slight pick-up but without any real degree of confidence. The RSI is now beginning to push above 60, which I have been wait for a while for in order to suggest that the bullish momentum was finally building. For me this is necessary if the euro is going to make a serious test of the $1.1465 key resistance. There is now the support of a higher low with Friday’s low at $1.1290. It could well now be that the resistance at $1.1465 depends entirely upon whether there is a deal for Greece. This is an enormous resistance and I cannot see it being breached without it.

GBP/USD

Cable has now close higher on nine of the past ten sessions, but also is now trading clear of the old key breakout resistance at $1.5814. Despite the uncertainty of Friday’s “doji” candlestick, the bulls are still backing the rally today. There is a slight nagging doubt though with the momentum indicators which have just started to roll over slightly, with the RSI already at 70 , but also the Stochastics apparently peaking. I have been looking at the intraday hourly chart and seen the rising 55 hour moving average as the basis of support over the past few days and once more it has been used and for now this remains a good gauge of the trend higher. I would be looking for a breach of the 55 hour ma to be an early warning sign for some profit taking. The support around $1.5800 is growing in importance too near term.

USD/JPY

The importance of the 50% Fibonacci retracement of the 118.86/125.85 rally at 122.35 is growing. The support is holding but the pressure is increasing. For a while I have been anticipating a retreat back to the support of the 122.02 breakout and I still think it is possible, but the near term bears are gathering momentum. A breach of the 50% Fib level would then open the 61.8% level at 121.53. There have now been two consecutive negative candles which have followed a series of neutral candles. So far, today’s trading has been fairly cautious with little real movement but the momentum indicators all look corrective and the RSI is now at a one month low. I still anticipate there to be another key low to be achieved around the area of the old breakout. I had previously thought it may have already come, but the rebound off the 50% Fib level did not last too long before a drift back again, however the longer the level holds for the more significant it becomes. There is a consolidation now between the 38.2% Fib level at 123.20 and the 50% level.

Gold

Since gold rallied sharply last week the subsequent candles have been a touch disappointing. I spoke previously about the importance of following up a strong candle with another positive one to confirm the move, however that has not been seen. Instead there has been a slight drift backwards which has left the resistance at $1205.50. This has therefore enabled the outlook to be neutralised without providing any decisive direction again. I can only conclude that gold is once more back into a ranging play. The attempted downside break seen two weeks ago could not be sustained and now, once again the moving averages are flattening and the momentum indicators are a mixed bunch (RSI and MACD broadly neutral, with Stochastics still rising). The intraday chart shows a drift lower which needs to hold above the breakout support at $1192 to keep the neutral near term outlook. Otherwise this would suggest gold continuing to drift back towards the lows again.

WTI Oil

The sideways trading continues. In fact, on a weekly basis, the WTI price has actually only dipped lower by just over 1% as a series of daily fluctuations continue. The fact that I have been able to write about the support and resistance of the same Fibonacci levels on the intraday hourly chart for the past 5 days just shows how little direction there is on oil for the time being. The 61.8% Fibonacci retracement of $56.83/$61.82 is still supportive at $58.74, and this could be set to be tested once again. Hourly momentum indicators show the RSI is oscillating from overbought to oversold and points to continued ranging conditions. A decisive breach of the support at $58.74 would re-open the lows again but for now I would continue to play the Fib levels.