Bonds Rise after Negative Retail Sales Report in Germany; Nikkei 225 Seen Testing Support at 9630

German bonds rose for the first time this week after macro data showed that Retail Sales were weaker than market expectations, which is leading to speculation that growth in the country is slowing in momentum.  Declines were also seen in US equity markets and oil prices, with the safe haven US Dollar posting gains against most of the major currencies.  Bond yields for 10-year German treasuries dropped to 1.84 percent and the Stoxx Europe 600 continues to trade in negative territory.  Oil is still trading near its highs for the year but prices dropped nearly 1 percent (to trade just above $108) as growth concerns in Europe are weighing on expectations for demand.

Retail Sales in Germany dropped by 1.6 percent in January, where consensus estimates were calling for a rise of 0.5 percent for the month.  This led to a reversal in the bullish activity seen in equities this week.  Previously, optimism was being fueled by the authorization from Eurozone finance ministers to push through its bailout fund and issue bonds to restructure the debt situation in Greece.  This activity is the first phase in distributing funds in the current rescue program but the optimism appears to be reaching its exhaustion point and the negative macro data out of Germany is giving markets a reason to start selling.

Yields in the 10-year Italian treasury bond yield rose by six basis points, reversing some of the losses seen earlier in the week.  Bond prices in Italy have risen for eight weeks in a row, which is the biggest move in a decade.  The 10-year bond in Greece dropped for the third day in a row, bringing up the yield by 133 basis points (currently trading at 37.7 percent, with prices dropping to 18 percent of the face value of the bonds).

Gold prices were also seen lower, with the S&P GSCI commodities index dropping 0.5 percent, which is the first decline in a month.  Cash prices for gold are lower at $1,714 per ounce and headed for a weekly loss of nearly 4 percent.  A close at these levels will be the biggest drop in nearly 3 months as the latest moves in the US Dollar are weighing on the commodity block as a whole.  The close this week will be particularly telling for how prices will perform for the rest of this month, as the latest rally in equities could easily start to see retracements.


Technical Analysis:

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The AUD/USD is trading at the upper end of its range on the 4H charts, but indicator readings are suggesting that we will see a downside retracement with resistance now seen at the historical double top at 1.0840.  The first sign will be a break of the hourly uptrend line as this will also bring prices below the 100 and 200 period EMAs on the shorter term time frames.  Major support is seen at 1.06 and a break here will accelerate losses and bring psychological levels back into focus at 1.05.

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The Nikkei 225 continues to trade at its highest levels of the year but with indicator readings now in overbought territory, we are looking for contrarian sell entries looking for a test of support at some stage next week.  The first level to watch on the downside is 9630 and this will be followed by the historical and Fibonacci levels seen at 9485.  This is also where the 100 period EMA rests on the 4H charts, so we would expect prices to see some bounce out of here on first test.