The bears were very much in charge of the market yesterday with the underlying cash index printing a bearish outside day. Here we saw the index open and trade above Mondays high, however selling pressure kicked in after the poor China HSBC PMI revision and the index closed below Mondays low. This could indicate a deeper sell-off, although naturally we should look for a lower low today.
After dipping modestly down to 1.3590 after the European CPI estimate of 0.5%, the pair rallied fairly rapidly to 1.3648 before sellers returned. It seems the market either bought the fact, or looked more closely at the regions unemployment rate, which fell 10 basis points to 11.7%. Key resistance is seen at the neckline to the double top pattern at 1.3672, so a test of this level in the short-term and subsequent rejection would be bearish and suggest the market is ready to head to the double top target some 300 points lower. At 19:00 tonight we get the Europe’s Q1 GDP report and the market expects no change in the revision at 0.2% mom. With the ECB meeting tomorrow the market is looking at the EUR in earnest and the fact we saw a massive bearish monthly reversal last month is in fitting that at 1.3993 the highs have been seen in the pair for an extended period.
I like the idea of being long GBP/AUD on a break of 1.8123 (the downtrend drawn on the hourly chart), with good support also seen on the daily chart at 1.7891 to 1.7882 (the uptrend drawn from April 11 and 200-day moving average). The market will be keen to look out for today’s Australian Q1 GDP print (at 11:30 AEST) and after a number of upside surprises in key data points (including yesterday’s net export print) the market expects to see quarterly growth of 0.9%. It would be a surprise if this print missed consensus by a wide mark, but there are signs this pair could be headed higher. Traders could also focus on AUD/NZD which is looking to break the 200-day moving average which has capped the upside in the pair since mid-2012.
US data will focus on ADP private payrolls tonight, which has been a more reliable predictor of non-farm payrolls of late. The market expects a modest decrease in the amount of jobs created at 210,000. The latest trade balance is also released and this could have ramifications on GDP estimates, with economists expecting a modest widening of the deficit to $40.8 billion.
It was a good day to be long LYC, with the stock rallying nearly 10% on strong volume. Buying from a director was sighted, but price action is looking more constructive recently.