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13/06/2014: Trading Outlook ahead of the US session


The big move this morning has come in equities and the fluctuations in the oil price and sterling. Moves have been driven by the retreat of risk appetite due to concerns over the increasing tensions in Iraq, and hawkish comments from the Bank of England’s Mark Carney.

As the S&P 500 edged higher and volatility reached muti-year lows the media were getting towards the stage at which equities were only going higher. However the militant activity in northern Iraq has quickly escalated and has given investors an excuse to lock in their profits. With investors becoming jittery, the VIX Index of volatility has shot sharply higher and  the S&P is correcting.

This has resulted in European equities sliding sharply this morning. The FTSE 100 has just fallen to a 5 week low and is testing the key reaction low support at 6767. Technically speaking this has now completed a top pattern that implies a correction towards 6682. There is plenty of room within the primary uptrend which currently comes in at 6667 and we may now see that correction that has been threatening. DAX has also broken a key reaction low at 9867 which opens the immediate support at 9810. Momentum indicators on these equity indices are now showing room for continued correction.

FTSE   13062014

The level of Sterling has appreciated sharply following the hawkish comments of Bank of England Governor Carney. The announcement has seen sharp moves on the short-sterling interest rate futures (STIRs)which are pricing in an earlier rate hike (which is now also nailed on for at least December according to the STIRs prices). However this morning GBP/USD has stopped short of a break above the key resistance at $1.6996. An intraday drift back into a support band $1.6920/$1.6950 is now under way. With the strength of the momentum on the daily charts suggesting pressure on $1.7000 will continue, this correction should be seen as a chance to buy.

EUR/USD has looked to rally again today. However the key overhead supply at $1.3585 is providing resistance at $1.3585 and this suggests that rallies are being seen as a chance to sell the Euro again.

USD/JPY has fluctuated throughout today’s session but is now back to the pivot level around 102.00. I expect this is where the near term sellers start to come back in. There is a band of resistance now between 102.00/102.20 and with the deterioration in the daily chart it looks like this is a good chance to sell. I expect to see 101.57 and 101.41 retested in due course. This trade is being helped by the flight to safety due to the tensions in Iraq.

Gold is one that should be watched as it is at a key crossroads. The near term trend is positive with the recovery over the past 7 days. But there is key resistance around $1277 is sizeable and this could be the limit of the rise. Today’s trading has been stunted around the resistance already. However it is a risky short with the Iraqi situation lending support. For me, this is one to watch.


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