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04/06/2014: Trading outlook ahead of the US session


The dollar strength seen early this morning has just tailed off slightly as the morning has gone on. The only real reaosn has been due to a rally in Sterling after the UK services PMI came in ahead of expectations and added around 30/40 pips on to Cable. However this rally is beginning to take off again as US trading begins to crank up. However, once this begins to subside, I will be looking for an opportunity to sell. Indices have fallen away as the caution that has taken hold in the equities of in the last couple of days. This mood has meant that the push higher on Wall Street has begun to wane slightly and suggests that both DAX and S&P may come back to test their breakout supports. Caution is likely to remain ahead of the crucial ECB monetary policy meeting tomorrow.

US traders will quickly be looking towards the ADP employment data (due at 13:15BST) which is forecast at 210k. A number higher than forecast could well see the dollar regain strength. Then the ISM Non-manufacturing data will also be in focus with an expectation of 55.5.

For US Treasurys, the rally in the 10 year yield almost hit 200 basis points yesterday and is into its 5th day. The size of the rally is now similar to the moves seen in February (216 bps in 8 days) and March (229 bps in 5 days). The rally may therefore not have too much further to go near term before another retracement sets in.

EUR/USD remains rangebound and is currently in the middle of that range between $1.3585/$1.3650. The week long consolidation in the Euro, certainly suggests caution ahead of the ECB tomorrow and this is unlikely to be swayed by the US data this afternoon.

GBP/USD has just begun to tick higher in the last few minutes as early US trading takes hold. This suggests an appetite for a bid on Cable, however the trend of dollar strength against the major currencies and the considerable overhead resistance at $1.6780 suggests that any move towards the upper area of this range is probably another chance to sell today. There is a technical bull flag implied target on the intraday chart at $1.6775, interestingly just under the resistance.

GBPUSD   04062014

USD/JPY is now consolidating intraday having peaked at the underside resistance of the old primary uptrend. The outlook is now improving and I am looking to buy into a correction now. A second higher low between 102.00 and 102.25 would be seen as ideal now.

Gold has found support in the past 24 hours and this has also been seen as the US dollar has just pared some of its gains as the morning has progressed. I am sill viewing rallies as a chance to sell gold. $1251 and then $1260 are two near term key resistances to consider.

FTSE 100 continues to slide back towards the key support at 6782. This could turn out to be a consolidation range but for now the last few days suggests downside pressure in the near term. The DAX has continued its intraday posting of lower highs and lower lows over the past couple of days. I still see a correction back towards 9810 as the outlook in the next few days.


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