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08/04/2014: Trading outlook ahead of the US trading session


The US dollar has come under significant pressure across the board today, losing ground against all of the major currencies. There have been several big moves have come against Sterling, the yen, and the Aussie and Kiwi dollars. The yen has been strong throughout the session since the Bank of Japan kept a steady monetary policy and governor Kuroda was confident that the BoJ could hit its targets without further easing. Sterling has seen strong since the UK manufacturing data which strongly beat expectations. Gold has had another strong day, helped by dollar weakness, now over a percent higher.

Equities are different and go along with a general cutting back of risk appetite. The last two days of weakness on Wall Street has shown through to the European indices today, now down over 1.0% on DAX and FTSE 100. Earnings season starts tonight with Alcoa after the closing bell on Wall Street.

With no real economic data to change the course of trading, currencies have settled down, waiting for the US moves. It is possible that FOMC members, Kocherlakota (a known dove) and Plosser (a known hawk) could impact the dollar later this afternoon.

EUR/USD has rallied to the barrier of the falling downtrend in place since 17th March. and as yet has been unable to breach it. I have placed a short position on today as I do not believe that the recovery will be able to move above the peak of trading ($1.3805) on the day that Mario Draghi triggered a dovish shift in the ECB’s thinking. There is also a band of resistance trading around $1.3770. I expect the selling pressure to resume and a retest of the recent $1.3671 low.

GBP/USD is settling after the initial strong push to the upside following the strong UK Manufacturing Production which has blown out of the water the old top pattern.  I am always a bit wary of chasing such moves higher, even though the daily chart is now looking strong once more. I would prefer to wait for this to calm down before making a move as I fear this could see a retracement first.

USD/JPY has fallen below the 61.8% Fib retracement of 101.71/104.13 at 102.60. This is a bearish move and now leaves the support around 102.00 wide open, with a full retracement now possible. With the 21 hour moving average forming the basis of resistance at 102.90 the move is accelerating lower. This is a sell into any bounce if it is possible.

Gold has broken strongly higher today back above Friday’s high at $1306.50, which now opens $1317.25 and $1320.24. I would look to buy into any weakness towards the 55 hour moving average which is now rising above $1300 and is the basis of support. Gold is now towards the top of an uptrend channel formed over the past few days and therefore perhaps it would be best to wait for the price to unwind slightly before chasing higher.

As can often be the case, you take the stairs higher, but the elevator back down again. This seems to be what is happening with FTSE 100 and DAX both of which are under significant selling pressure once again today. The FTSE has broken its support around 6560 which is a concern, while the DAX is now testing key support around 9400. Both are oversold intraday and just beginning to settle a touch. Both indices will be driven by the attitude of traders on Wall Street now. Perhaps it is best to see how Wall Street opens before chasing these any lower.


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