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06/05/2014: Trading outlook ahead of the US session


Trading this morning has been characterised by on major aspect, of dollar weakness. This has been a terrible day for the dollar so far, with the Dollar Index (.DXY) falling to the lowest since October and dollar pairs showing significant moves. All seven major pairs are showing significant dollar weakness today. We are also seeing equity indices with a small amount of weakness, whilst gold and silver and fluctuating around flat.

The US dollar has not been helped this morning by a series of fundamental factors going against it. The Reserve Bank of Australia kept rates flat but refused to talk the Aussie Dollar lower today, whilst the Eurozone Services PMIs were broadly supportive of the Euro, and Sterling has also benefited from a better than expected services PMI. To add insult to injury, the OECD has altered its forecasts today for 2014 global growth. It cut the US to 2.6% (2.9% in Nov 2013), whilst upgrading the Eurozone to 1.2% (1.0%) and the UK to 3.2% (2.4%).

The US trade balance is expected to improve by $2.0bn this afternoon at 13:30BST,with a deficit of $40.3bn expected. US equity futures are suggesting that the S&P will open around 1.5 points higher today.

EUR/USD  broke out early this morning and has barely looked back since. The move above $1.3905 has opened $1.3967. Chasing higher at this stage may not be the best idea, with hourly RSI the highest since early March. Perhaps it would be best to hold off and wait for a correction back towards $1.3890/$1.3905 support area as a chance to buy.

GPB/USD has now added over 100 pips on the day, again almost in a straight line. The move is now extremely overbought near term and although it is almost within touching distance of $1.7000 in the very least, a bout of consolidation is likely to hit the rate in due course. Chasing it higher may not be a good idea.

USD/JPY has broken below the support at 101.84 and this has now opened 101.47. Coming on good volume, the outlook does not look positive for the dollar. Expect further downside now.

Gold has had an up and down morning, and has been unable to take advantage of the dollar weakness in the forex markets. The price is now consolidating between $1305/$1315.60. This is a difficult to call as the buying pressure has tended to surround escalating Ukraine geopolitical tensions. The near term support at $1305 and $1300 are important for the recent recovery to sustain momentum.

Equity indices have been gradually falling away as the session has progressed. As yet the FTSE 100 is just consolidating within the uptrend and could even prove to be a chance to buy around 6790 support. However the DAX is far less bullish, with technical signals more neutral. There is now a range in place between support around 9400 and resistance at 9645.


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