Cable took a look at 1.50

From 61.8% retracement at early of the week, cable tracked upward to projected 1.49 resistance level. The uptrend was capped at 1.4885 but before cable make a false break of the ascending channel on Thursday. The false break that resulted cable recovered strongly as it was supported by better than expected retail sales data.

Cable inability to push through 1.49 level despite better than expected data release from UK and the stock market hesitant to lead on Friday, indicated that cable is on the cross road after the uptrend since mid-May.

Cable or GBP/USD is currently at neutral position on intraday bias. The trading range for the week is between 1.468 to 1.50. Break of 1.468 support will retest next support at 1.45. A decisive break of 1.50 indicated that the upside move is still intact.

A bullish stock market has a slight impact on the Ringgit

Malaysian Burse was very bullish last week with the FBM KLCI staged an upside move from Monday opening at 1294.89 to Friday close at 1317.69 for a 17.6% rise. EWM tracked FBM KLCI’s upside move (see the above chart).

The Ringgit could only mustered an appreciation of 8.5% during the same period with open at 3.28 against the US Dollar on Monday and close at 3.253 on Friday.

The ringgit seem to be tracking traders’ favorite risk indicator- EUR/JPY which registered an appreciation of 7.8%.

The USD/MYR after penetrating the lower support line of ascending channel consolidated at 61.8% retracement of previous month swing high and low. The pair went to as low as 3.246 just above last week support at 3.244.

For the past two months, risk appetite was greatly affected by a near Greece default and the adaptation of unprecedented 750 billion euro rescue package. In the last two weeks, a positive turn in the euro suggested that conditions in the Club Med countries of Europe have actually improved; but there was rumour that Spain is on the verge of asking for its assistance aside from the European Financial stability. On Friday, it was reported by Reuters that the rumour was manufactured by German officials

US Dollar continuation of recent slide through the week ahead is certainly depend on the trajectory of the DJIA/S & P and broader risk appetite.

Technically, USD/MYR is on the downtrend as the pair move below the four moving averages and the MACD has recently cross over the centre line.

For the coming week , the first resistance is at 3.30 and the next higher resistance at 3.35. Immediate support is at 3.245 and a break below 3.231 could bring the pair to previous month low at 3.18 level.

Will cable go for 1.50?

Since two weeks ago, risk aversion was the main theme of market sentiment which saw GBP/USD falling in line with EUR/JPY that was precipitated with heavy fall in Friday on the US Non-Farm Payroll data that came out positive but the gain was not as much as expected.

Over in the Euro Zone, a government official said that Hungary’s economy was in a “very grave situation.” There were concerns that the crisis was spreading to Eastern Europe.

By Tuesday, GBP recovered but not before first falling to the low of previous week’s Monday and then finding support at Monday two weeks ago London's low. It seem that market felt Hungary is not the next Greece.

Report of China's exports increased by quite a bit during mid-week reversed the market sentiment, from risk aversion to risk acceptance. This suggested that global trade is still functioning and sentiments improved. It is apparently clear that the People's Republic of China and it's People's economy will lead the way out of the global recession.

Cable breached the descending channel, went for the upside to break the resistance at 1.4627 and going for the previous high. The lower line of the ascending channel capped the bullish cable. The UK released of its industrial and manufacturing production data on Friday, showing that they fell worst than market expectation. The downbeat data caused the GBP/USD to decline that by the end of the week cable has retraced all the gains achieved on Thursday.

Cable in my perspective is still bullish and at current stage it is consolidating. With market close at 61.8% retracement an appreciation in the pair will tested the previous high at 1.4768 and the next resistance at 1.50. Tracking downward, support is at previous low and drifting beyond 1.42 will reversed my bullish perspective of the pair.

Ringgit penetrated the ascending channel

USDMYR as expected last week met resistance below 3.3451 and support at 3.3270.

On the daily chart, the pair has breached the lower support line of ascending channel on Friday at around the 50% retracement of swing low 3.1825 and swing high 2.3676. The 50% retracement has been a major support level in recent weeks and with MACD Histogram bouncing from the centre line I am expecting the pair to go lower before retesting the lower line of the ascending channel.

On the downside the next support is at 3. 2430 while on the upside I am looking resistance at 3.3120 with the next resistance at 3.3640.

Dollar strength impeded at 61.8% retracement for cable.

Early of the week GBP/USD rally was capped by the 200 EMA and 38.2% above high of last week swing high to low on Wednesday. Resistance was also provided by the upper channel line od ascending channel.

The downtrend was initially met by support at 38.2% and then at 61.8% at Friday closing.

After penetrating the lower channel line and with sentiment is on the downtrend with lower high and low, I am expecting cable to move to support at 1.4258. A immediate resistance is found at 1.4627.

Ringgit, FBM KLCI and EUR/JPY

Visually, the inverse relationship between FBM KLCI( left) and USD/MYR(right) above is clearly noticeable.

Monday, the stock market showed a bullish candle and correspondingly the USD/MYR pair slipped lower. The stock market experienced a correction with lower close and a hanging man candle on Tuesday and consequently the currency pair registered a large bullish candle. The correction continued to Wednesday as the stock market open and close below previous day’s close with a small bearish candle, USD/MYR formed a bearish candle at the top of the previous day range and the high is greater than previous day high.

The two days correction of stock market ended on Thursday with a the market went overly bullish with a large gap from previous day’s candle and consequently USD/MYR went downward penetrating Monday’s low.

Friday, with the overall market sentiment going indecisive waiting for US non-Farm Payroll data, the pair closed near previous day’s close and fashioned a doji candle.

As any other currencies, MYR is also affected by risk sentiment.

EUR/JPY is traders’ favorite currency risk barometer, a dipl in the EUR/JPY pair indicates a risk aversion and an upward move for the pair specifies a market risk acceptance. With USD considered as a safe haven currency, a rise for EUR/JPY pair will have a reverse course action for USD/MYR pair.

Two charts below give a glimpse of the relationship between USD/MYR and EUR/JPY.

A step up in risk aversion(EUR/JPY declining) since early Monday was correspondingly followed by a lift of USD/MYR that end in early Wednesday Asian session but EUR/JPY(risk sentiment) started a reversal on Tuesday London session.

An improving risk appetite ended on Thursday London session but USD/MYR find its bottom support earlier at Thursday Asian session.

On Friday, EUR/JPY took a dive before Tokyo open that carried the pair below Tuesday’s low but USD/MYR was consolidating sideway.

In generally, I am expecting the risk aversion to continue to drive dollar and yen higher this coming week as global stocks would possibly resume recent fall. The USD/MYR is expected to find resistance on the way up at 3.3451 with immediate support at 3.2730.

Japanese PM resignation and stop loss order at 1.4750

In early Asian session there was rumor of impending resignation of Japanese Prime Minister Yukio Hatoyama. Such rumour caused a slight whiff of panic in the JPY crosses which become a driving force in market momentum. GBP/USD which normally is illiquid during morning Asian session showed some volatility and moved within 105 pips range.

With GBP/USD opened at Tokyo session above the daily Pivot Point and one hour later had penetrated yesterday’s high, there was rumour of a decent sized stops above 1.4750. By Frankfurt open the pair almost touched 1.4750 before a sell-off. A second attempt for 1.4750 was made at London open and the pair reached 1.4768 before a floodgate of selling that carried the pair to support level at 61.8% during late London session. Support is also given by the mid-point of daily pivot and support S1, and round number 1.4550 .

Cable by London opening session has touched previous week swing high and low fibo extension of 138.2 (1.4743) and I expected the pair to trade above this level today with immediate resistance at 1.4768 (yesterday high) and the next level of resistance at 1.4800.

Risk appetite and good economic data

On Tuesday, in the early session GBP/USD consolidated at 38.2% retracement of previous week's swing high and low at 1.4475 before breaaking sharply upward one hour before Frankfurt open. The pair then corrected downward testing the 50% retracement at first hour of London open. Price reversed upward with help from solid economic data. PMI manufacturing was unchanged at 16 year high of 58. According to Land Registry report, home prices rose 8.5% yoy from a year earlier, the fastest pace since September 2007. This was further boosted by speculation that Prudential's takeover of AIG's Asian unit may fail. The news boosted UK stocks.

Dollar reversed earlier against as solid US data lifted risk appetite in US session. ISM manufacturing index dropped slightly from 60.4 to 59.7 in May but that was better than expectation of 59.4. This also marked the tenth consecutive month of expansion reading. The details were also solid with employment component jumped to 59.8, highest level since May 2004, which gave some hope of a strong non-farm payroll reading on Friday.

Exports also increased to 62, highest level since December 1988. On the other hand, construction spending rose sharply by 2.7% mom in April, strongest reading since 2000.

DOW rebounded strongly from intraday low of 10038 while crude oil also rebounded from intraday low of 71.64. Dollar index, on the other hand, failed to sustain above 87.46 resistance and pull back to 86.5 level.

GBP penetrated the 138.2% extension of Monday swing high and low indicating a short term bullish trend.

1.4546 is now support for the downside, with a penetration of that level the next major support at 1.4434.

On the upside, the immediate resistance is at 1.4829.

GBP/USD 1 hr chart

Dollar Index 4 hr Chart

London and New York were closed

Yesterday market was closed in London and New York and historically when both market is close volatility is reduced with thin liquidity.

As expected GBP/USD find support at 50% (1.4432) retracement of swing high and low of previous week. From early Asian session, cable inched upward toward a resistance level of 61.8 % (1.4542) retracement of previous day’s high and low. Price hugged the 61.8% retracement level at the end of yesterday session with a hanging man candle formed at the last hour signaling a change of trend. For the whole yesterday session cable could only mustered a move for a range of 120 pips only.

With a uptrend sentiment still intact today, a reaction downard is expected with support at 1.4476. On the upside resistance is at 1.4591.