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01/04/2014: Trading outlook ahead of the US session

Ever since Janet Yellen’s dovish comments yesterday, there has been a subtle shift in sentiment with an improvement in risk appetite. Equity markets have pushed higher this morning and currency pairs are also showing renewed strength (or should that be dollar weakness?), with Cable being the only real exception to this. The sense I am getting now though is that traders are waiting for the ISM data before making their next big move.

The manufacturing PMI data has been a mixed bag so far. The two releases from China basically cancelled each other out; whilst the Eurozone-wide reading was bang in line, including Italy, Spain and France all with small beats, but German with a slight miss. The UK reading missed forecasts and Cable has subsequently been the only weak pair of the majors today. We now await the US ISM manufacturing PMI which is released at 15:00BST and is expected to show a reading of 54.0. Anything above this should be dollar positive and could pare back some of this morning’s gains amongst the major pairs.

EUR/USD is consolidating the early gains following the PMI data this morning. It is still testing the resistance of the 2 week downtrend, with the resistance at $1.3806 intact which it needs to sustain a breach of to break the sequence of lower highs. The daily chart shows resistance coming back in around $1.3825. These levels need to be broken for the outlook the improvement of the past few days. Watch for volatility with the ISM data at 15:00BST.

GBP/USD has settled from its early weakness following the disappointing UK PMI. The rising 55 day moving average at $1.6645 continues to do a good job as the basis of support, whilst there is also a 5 day uptrend intact. The key level of support is once more the 38.2% Fib retracement at $1.6603. Buying into the dips remains the best strategy, unless this afternoon’s ISM data beats expectations.

USD/JPY is using the rising 21 hour moving average as the support at 103.20 and upside pressure is growing for a breakout above 103.43. A breach in the next few hours would complete an ascending triangle and would immediately imply a test of the 103.75 key March high.

EUR/JPY has completed turned around in the pas 3 sessions. The a move has been driven by speculation over the need for further monetary stimulus by China which improved appetite for risk in Asia. The break of support last week quickly turned out to be a false downside break and the rate has quickly burst through the upside resistance at 141.95 to open 143.78. In a move similar to Dollar/Yen, the price is using the rising 21 hour moving average as the basis of support for the corrections. With strong momentum, dips are being used as buying opportunities.

Gold has so far been supported by the European traders who currently seem reluctant to sell with gold trading around some key support levels on the daily chart. Although I have to remain sellers in to strength with the power of the 2 week correction, I am increasingly mindful of these key support levels on the daily chart. Also with the downtrend broken there are early signs of improvement. For now there is key resistance around $1290 and $1300 and whilst these are intact, I would look to use the rallies as a chance to sell in small size.

Equity markets are doing a similar move to yesterday, with the early strength subject to a later slide back. FTSE 100 is still trying to gather momentum in its base formation but cannot quite gain the traction necessary. I would prefer to play the DAX which remains strong and continues to build for a retest of the key February high at 9720. DAX has used the rising 21 hour moving averages (at 9580) as the basis of support for the past 3 intraday corrections.

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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.