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08/05/2014: Trading outlook ahead of the ECB and US session

The US dollar has remained under pressure through the morning, with only the Kiwi dollar not gaining against it. This comes after Janet Yellen alluded to the fact that easy monetary policy is here to stay, with anyone expecting an earlier beginning to the tightening cycle now having to reassess their outlook. The Euro has regained its poise ahead of the ECB rates announcement (at 12:45BST) and Mario Draghi‘s press conference (at 13:30BST). Pushing back above yesterday’s high it is now within striking distance of the $1.3967 high and seemingly traders do not anticipate Draghi to be able to come out with anything bold enough or new enough to persuade them to lock in profits on their Euro positions. The term “all talk and no action” springs to mind.

European equity markets have been trading in solidly positive territory through the morning with the improved sentiment from Yellen and also the positive Chinese trade data. S&P 500 index futures are suggesting around a 1 point gain at the open. The bulls will be suggesting that these moves seen in the past few days are merely a consolidation before the next upside break. There is still much to do before I turn bullish once more on indices.  It would certainly need a demonstrable improvement in the geopolitical events in Ukraine to reduce a large element of the risk still present in buying into these indices at these levels when earnings season has hardly blown the lights out.

The Bank of England is not expected to do anything on rates at 12:00BST, especially in front of its quarterly inflation report which is due next Wednesday. The US weekly jobless claims at 13:30BST is expected to improve to 325,000 from 344,000 last week.

EUR/USD has rallied back above yesterday’s high which suggests that $1.3905 was a good chance to buy as I have been saying. Also the reaction suggests traders are unsure whether to trust what will certainly be a case of Draghi’s attempts at jawboning the Euro lower. I still favour buying into any dips that may be seen during the press conference, especially once support has begun to form.

GBP/USD has more room to unwind back towards $1.6900 within the recent uptrend. This morning has been fairly uneventful in front of the Bank of England, but I would not expect a great deal of activity around the rates anouncement. The fun will come with next week’s inflation report. If the Euro suffers around Draghi’s press conference and the dollar suquently benefits, it is possible that Cable may also come under some corrective pressure.

USD/JPY has been very stable through the morning, although it is with a slight drift lower capped by the falling 89 hour moving average (now 101.86). When the dust settles after today I am still expecting continued pressure on yesterday’s low at 101.40.

Gold has stabilized after yesterday’s sharp fall. I see this as more of a consolidation rather than the basis of support before a recovery as I still see further downside back to test the recent $1276.60 low.

Indices have been solidly higher, and are now broadly consolidating. There are two arguments through. The bullish argument sees this as a consolidation before a retest of the key resistance levels. Within this argument, the DAX could be forming a bullish wedge pattern with the FTSE 100 forming the basis of a flag pattern. However, on the other hand, perhaps in light of the multi-faceted positive news flow in the past 24 hours these indices should be trading even higher than they are. There could still be a concern that US earnings season has been a bit of a damp squib so far (Apple and Facebook aside). DAX needs a break above 9645, with the FTSE 100 needing above 6838. The S&P needs a move above 1891 near term to open the 1897 all time high.

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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.