Wednesday, February 5, 2014

Support and resistance in Sterling | Aussie, Kiwi and Yen price action

On Thursday Jan 30th we highlighted the fact that Cable (GBPUSD) was approaching a significant level in terms of resistance. This was the 200 period Simple Moving Average (SMA) on the monthly chart, which has consistently provided a check to its rise since the dramatic days of the onset of the Global Financial Crisis.

This time, it has turned out, is no exception. The pair has fallen since then by the amount shown by the circled arrow on the chart. It does not look like much, but here is the same change in price on the four hour chart:

It can be seen here that, as of yesterday, there is now a battle in progress at the support level of 1.83221, which has now turned into a resistance level, as is very often the case.

The UK Construction Purchasing Managers Index (PMI) came out with apparently stellar figures yesterday. This initially caused a sharp reversal in the drop that was taking place in the pair, but it was short lived. One swallow in the form of a good PMI index, it would appear, at least as far as the market is concerned, does not make a summer.

Aussie, Kiwi and Yen price action

The decision of the Reserve Bank of Australia to adopt a neutral stance on interest rates and to stop attempting to talk down the Aussie unit resulted in a nice pop for both AUDUSD and AUDNZD. There is reason to believe that these might be short lived, however, and overall direction from here is far from clear. The move up by the Aussie against the Kiwi, in particular, was totally reversed during the later part of yesterday’s session. The New Zealand unit is still suffering from a perception that it is an “emerging market currency with a reliance on commodities”. This will probably continue until the turmoil in emerging markets has abated.

The Yen (USDJPY) pair seemed to be resuming its upward trajectory yesterday but is down again this morning. It might be significant that it was sold off just after the start of the Tokyo session, which is at 12 midnight GMT.

All will now depend on payroll figures out of the USA in the form of the Non Farm Payrolls on Friday, the precursor of which, the ADP payroll numbers, are out later today. These were poorly correlated with the NFP figures last month, so their value is limited.

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