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09/05/2014: Trading outlook ahead of the US session

The US dollar is making a comeback today. The shift in sentiment has certainly been helped by Mario Draghi‘s dovish comments at the ECB press conference yesterday that he was comfortable on acting (on easing monetary policy) next month. Now whether this goes down in history as another “whatever it takes” moment remains to be seen but certainly the Euro is now trading around 190 pips below where it had been prior to his comment. At least for the near term Draghi has succeeded in talking the Euro lower. A number of investment banks have already suggested the likelihood of ECB to ease monetary policy in June is now high, with both Goldman Sachs and Citibank both expecting a cut to the main refinancing rate, with a negative deposit rate also possible.

Sentiment across the board on the majors has taken a hit on the back of this, with Sterling and the Swiss franc both sharply lower too. With the dollar making slight gains against the yen this suggests it is more of dollar strength than a flight to safety (on the ever increasing tensions in Ukraine). Stock markets have also reacted lower this morning, however since the opening shift lower there has been an element of stability with tight ranges having been built. S&P 500 futures are pricing in a 2 point decline at the open.

There is little economic data to drive trading this afternoon (although the loonie could be driven by Canadian unemployment) so traders will be watching out for any developments in Ukraine once more.

EUR/USD is now under increasing downside pressure. A breach of $1.3810 support has been seen and the 10 month uptrend (which currently comes in at $1.3805) being severely tested and the $1.3775 key low also now under threat. A breach of $1.3775 would then open moves back towards $1.3670 possibly next week. The intraday chart is oversold but the negative sentiment continues to grow and further downside looks likely this afternoon.

GBP/USD  has now sharply fallen away. I have been saying that there is a support band $1.6890/$1.6918 but this has now been breached. Also the support of the uptrend dating back to 15th April has also been breached. There is a bulk of support around $1.6850 to hold the selling pressure but it is probably best to hold off while this move plays out. We can then reassess the outlook once support has formed.

USD/JPY has actually been supported this morning, with little reaction. The 89 hour moving average a 101.75 is the basis of resistance and the thing tat slightly concerns me is that despite the dollar strength against Sterling and the Euro, the lack of strength against the yen could suggest that the sellers are still waiting for their moment to come back. I still favour selling into strength.

Gold has also been supported this morning, making both the key safe haven plays solid against a backdrop of dollar strength. This reflects the market’s apprehension with Ukraine still. Gold continues to trade in this $10 range between $1285/$1295 and until it breaks it would be difficult to pick the next direction. Having said that I still favour a bearish correction medium term.

The FTSE 100 has been trading in a 40 point range since yesterday morning. However the index still looks positive, supported by the basis of the rising 55 hour moving average at 6805 and positive momentum. This is still just a consolidation phase within a bull run which I still see as moving towards the highs once more. However geopolitics in Ukraine is making near term trading difficult again. The DAX is still trading in the range and will be looking to leave another higher low above 9488. With good support around 9550 I am still looking to use a correction as a chance to buy.

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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.