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


There has continued to be a push into assets on the safer haven end of the scale today after President Obama’s announcement overnight that the US would be engaging airstrikes in northern Iraq. The impact on the markets have been significant with speculation of where this would end. Markets do not like uncertainty and the caution in investor sentiment has driven a  push into assets such as longer term Treasuries, gold and currencies such as the Japanese yen and the Swiss franc.

Whilst this usually would also result in a move towards the dollar, the performance of the greenback has been mixed today. The gains on the euro have been the most interesting factor within today’s trading.

There is little economic data to now take the focus off this issue this afternoon other than Canadian unemployment which is expected to stay flat at 7.1% at 13:30BST this afternoon. The S&P 500 futures are swingin around. Having been around 5 points lower just half an hour ago, the S&P 500 is looking to open around 4 points higher at the open. The key support band remains around 1900. The VIX stabilized yesterday but continues to hover around 17 and could push higher again back towards the key March high at 17.8.

VIX   08082014

The big move of the morning has been in the bounce for the euro. The single currency has started to make gains after the French Industrial Production data beat expectations and turned positive, a rare positive piece of data from an economy that has been a significant drag on the Eurozone.

The way that EUR/USD is now trading, there seems to be an appetite now for a rally. Whether a recovery turns out to be another dead cat bounce (similar to last Friday) or something more sustainable. Technically speaking, there is resistance around $1.3400 and if there can be a close above today that would be a positive signal. This would also complete a bullish failure swing on the RSI which suggests a loss of downside momentum and a potential rally. It will be very interesting to see how traders in the US react this afternoon.

The Japanese yen had been very strong in the Asian session, but as the morning has progressed there has been a retracement with gains in Dollar/Yen. The pivot is around 102.00 remains a force, but the heightened volatility already seen today, even before the US trading, suggests that it could be in for a bumpy ride this afternoon.

With geopolitics driving trade today, it would be best to stay close to newsflow this afternoon, as markets seem to be very nervous at the moment and markets certainly look to be capable of turning very quickly today.


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