08/07/2014: Trading outlook ahead of the US session

Disappointing European data has driven a correction in the equities markets this morning and also seen forex majors slip against the dollar. This slide in appetite for risk has not filtered through to the gold price which remains held back by this dollar rally of the past few days. Recent disappointments in the German economic announcements are driving what looks to be another bad day for the bulls as weakness in import and export trade data have come hot on the heels of a two year low in industrial output. These releases are a concern for the powerhouse of the Eurozone economy and do not bode especially well for any prospective recovery in Q2.

There is little economic data due during the US session, however eyes will be on Fed member Narayana Kocherlakota who is on the dovish end of the spectrum and speaks today at 18:45BST. He is not expected to change stance at all, but in light of the recent significant improvement in Non-farm Payrolls, there is now going to be a hawkish risk to the comments of Fed members. This should help to bolster the dollar.

DXY   08072014

The improvement seen in the greenback has now dragged the Dollar Index (.DXY) back to 80.3 which suggests that there is not a huge amount of upside potential until the pivotal 80.4 level is hit once again. The weakness in the euro (which comprises almost 58% of the Dollar Index) has been the predominant reason behind the dollar rally and the key support around $1.3585 on Euro/Dollar (see below) could be a key factor behind whether the Dollar Index breaks above 80.4 or not .

EURUSD   08072014

EUR/USD  has been testing this key support area around $1.3574/$1.3585 for the past three days now. Momentum indicators on the daily chart remain bearish and suggest continued pressure on the support. Selling rallies certainly seems to be the prudent way to play Euro/Dollar, but also selling a break of the $1.3574 low could also be an option.

GBP/USD has also corrected today after the disappointment of the UK Manufacturing Production data which missed expectations and instantly shaved 50 pips off Cable. The rate has since undergone a retracement of the decline, but if  the selling pressure resumes, another breach of $1.7100 would then hasten a near term correction back towards 1.7030 (implied from the small double top) could be seen. However, I still believe that this correction would be a minor aberration in the longer term bull run in Cable and I would be looking to use a dip as a chance to buy. Selling against the trend is a risky game.

The FTSE 100 is off around half a percent and continues to play out the correction that I talked about in today’s Chart of the Day following the “Evening Star” candlestick formation. The primary uptrend comes in at 6725 and is a very good basis of support still. A breach of the near term support around 6780 would open the way. The DAX is currently trading bang on the support of a 4 month uptrend, however daily momentum indicators are not that promising at the moment and suggest this uptrend will be seriously tested.

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