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07/05/2014: Trading outlook ahead of the US session

Dollar showing signs of recovery

As the morning has progressed the dollar has shown tentative signs of a recovery. Now the big question is whether this is something sustainable or whether it could continue. This comes after the Dollar Index yesterday hit the lowest level since October 2012 (see chart below). There is a key support level around 79 which needs to hold to prevent further significant downside. There has been a slight strengthening for the dollar today but interestingly not against the yen.

European equity markets have remained around levels reached in the early exchanges and held on. Although there has been a slight rebound for CAC and DAX, this has not been seen yet in the FTSE 100. S&P futures are calling for a loss of around 1 point at the open. The gold price has remains supported above $1305 today, with silver also trading higher.

Janet Yellen‘s testimony this afternoon will be of major focus for the markets. She is unlikely to make too many waves considering the middle of the road statement from the FOMC at the latest monetary policy meeting. However, traders will still be pouring over her every word looking for potential hawkish or even dovish leanings.

EUR/USD has been drifting backward for the past 24 hours following the peak at $1.3951. This is nicely unwinding any overstretched momentum built up and with a good band of support between $1.3890/$1.3905 and this could represent a good opportunity to buy once more.

GBP/USD has unwound more than the Euro today, probably because it had become more stretched. Trading at the day low it looks to be reversing some of the overstretched momentum now. There is a good band of support $1.6900/$1.6918 which could be seen as a good chance to buy once support has been formed.

USD/JPY has remained under threat again today and shows little sign of reversing some of the dollar weakness quite yet. Breaching 101.50 took the rate below the support of the slight uptrend channel in place for the past 3 months. A test of the 101.31 key support puts the positive dollar medium term outlook under big threat. It looks as though rallies are now being sold into. The resistance band 101.76/101.84 looks a good level to sell into a bounce.

Gold is being supported between $1305/$1315.60, also supported by the rising 55 hour moving average of late (currently c. $1309.72). This consolidation is key for the recovery. Above $1315.60 opens $1330.90. However a break back below $1300 would now probably be considered as negative.

The DAX has remained supported above 9400 (with the key low at 9367 as technical indicators flatten off. A near term break above 9492 would improve the outlook, which is in consolidation mode. The FTSE 100 is holding above 6770 which is a near term support level. The rising 55 hour moving average is now being seriously tested for the first time in a few weeks.

DXY 07052014

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