Gold and Euro in focus after Draghi comments

Four markets in focus today: Gold, EUR/USD, AUD/USD and Japan 225.

Gold

With tensions in Eurasia now subsiding gold is starting to break below the triangle-like consolidation the macro events of the past four months have created. In the past week gold broke below the 55-day and now has broken below the 200-day moving average.

This sort of move from a historical stand point normally signals a clear break-out. The likelihood of the current breakdown holding looks highly probable based on previous breakouts of the triangle-like consolidation.

We see support at US$1273 and US$1269, which is the convergence of the August 2013 highs and lows. If the breakdown pushes through these points the complete retracement of the December low to March high of US$1180 is highly probable.

EUR/USD

Mario Draghi has continued is very dovish rhetoric around the ECB interest rates and has made it clear that some form of ‘QE’ is possible as he looks monitors the ‘negative spiral’ of low inflation expectations and illiquid credit in the periphery.

EUR/USD has certainly taken note of his bluster. The pair has now held the re-test of the April 4th low and is now pushing below the 200-day moving average and held this level overnight suggesting the medium term theory of a weaker EUR is coming to fruition.

However any close back above $1.3673 would suggest momentum is fading and that the June rate expectations are build-it in. Meaning the market is questioning whether Draghi has the resolve to do what needed in the eurozone.

AUD/USD

US durable goods came in a head of expectations on the headline numbers but below expectations on the core durable line which saw the USD yo-yoing on the data. If we look at the chart on a 5 minute basis AUD/USD continues to revert back above the 55-day moving average and the strong rally post the USD data show long trades were reinstated.

However on a daily chart we can see that the pair is below the 55-day moving average after breaking blow this level on a more dovish toned RBA policy minutes on May 20. However the pattern that is emerging from both the 5 minute chart and the daily chart is the pair looking to ascend and it looks like testing the $0.9303.

With the RBA sitting tight on rates and unlikely to move the pair has shown remarkable resilience and the upward trend seen since February is unlikely to slow in the short term suggesting the 93 cent handle is more likely to be tested than 92 cents in the near term. We are, however, watching the private capital expenditure number tomorrow which could unsettle the upward trend in the interim.

Japan 225     

EPS growth, share buy backs and other forms of capital management are all being implemented by Japanese companies at the moment showing that underlying conditions are improving particularly those companies with an international export focus. What this has meant for the Nikkei is bottom up support is now overriding the very strong inverse correlation trend with the yen.

The fundamental momentum is seeing the Nikkei breakout above the high, low consolidation point of 14543 and we would be looking for the psychological barrier of 15000 point for the next resistance as the trend gains momentum.

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