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15/05/2014: Trading outlook ahead of the US session


The Euro has come under considerable pressure again today as economic data from the Eurozone continues to suggest a sluggish recovery and inflation data that could require action from the ECB on monetary easing to prevent inflation expectations from becoming anchored. GDP for the region came in 0.2% below forecast and although GDP is backward looking it is still a disappointment. HICP inflation for the second reading of April was in line with the flash number at +0.7%. The pressure on the Euro is translating to dollar strength as the Swiss franc, sterling, and Aussie and Kiwi dollars all suffer. The Dollar Index is subsequently at a 5 week high. The move could be compounded later if US CPI inflation (at 13:30BST) can come in higher than the +1.7% (YoY) expected.

Equity markets in Europe have been choppy this morning as both DAX and FTSE 100 have broken through critical resistance levels. However the CAC has been held back following the weak French GDP data today. Despite the dollar strength gold has remained largely supported this morning above $1300.

The US CPI inflation this afternoon will certainly impact on the strength of the dollar. The outlook for stocks will also be interesting after yesterday’s correction on Wall Street, with the expectation of a slight 2 point decline on the S&P 500 futures.

EUR/USD has broken the key low at $1.3671 which opens the $1.3641 initially, but more importantly has now completed a large top pattern which should open the February low at $1.3478. Bearish sentiment seems to be mounting and pressure is increasingly on the Euro. Selling into rallies looks to be a good strategy, if there are any rallies.  Initial resistance at $1.3679.

GBP/USD is less of a concern for the bulls but is still corrective as the last two major corrections bounced off the rising 89 hour moving average, currently around $1.6645. The intraday resistance band $1.6760/$1.6777 looks to be a decent area to sell on a bounce.

USD/JPY looked to be flying around a bit in early European trading. I still see 102.00 as a pivot level which is where the buying pressure could dissipate. The daily chart suggests that the support of the uptrend channel will come under increasing pressure, although trading in the past few days has been difficult to call on a near term intraday level.

Gold Is holding up nicely this morning as the price of the yellow metal has defied today’s dollar strength  to remain supported above $1300. The series of higher lows suggest that $1288 is a key low now near term that the bulls need to focus on. However the reaction today despite the dollar strength will certainly be encouraging. Shorter moving averages on the hourly chart also reflect an improving outlook near term. However, it would be silly to rule out yet another correction that could be waiting around any corner.

The FTSE 100 breaking above 6880 is a 14 year high for the index, whilst the DAX above 9800 (early this morning) is an all time high. The reactions following the breaks were not especially confirmatory, but the equity bulls seem to be resilient if nothing else of late.


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