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18/06/2014: Trading outlook ahead of US session

The markets have remained fairly steady throughout the morning with the prospect of the FOMC decision later this afternoon. The one big exception to that has been the weakness in Sterling. This move has come as the Bank of England meeting minutes have been released.

The Bank of England’s Monetary Policy committee voted unanimously 9-0 to keep rates on hold last month, but also did not revise downwards any estimates of slack in the economy. This is therefore seen as a dovish tone to the meeting and sterling has been hit as a result, which has pulled Cable back towards yesterday’s low and Euro/Sterling to a four day high. UK Gilts have been bought (pulling yields lower).

This leaves the focus on the Fed for this afternoon’s FOMC decision (at 19:00BST). The taper of $10bn is almost a given now, but it is going to be interesting to see how Janet Yellen deals with the inevitable questions over inflation rising above 2.0%. Also whether the Fed revises down its forecasts for US growth this year (as the IMF recently did).

EUR/USD has improved a touch on yesterday’s close but still trades under the resistance around $1.3585. I expect this to continue at least until the Fed decision/press conference. The potential for increased volatility this evening is quite high but the key resistance remains around $1.3670 which is the neckline of the large top pattern and also remained (basically) intact even during the volatile day of the ECB monetary easing two weeks ago. I still see any rallies as a chance to sell for a retest of $1.3500 and $1.3475.

GBP/USD is down around 30 pips so far today and the resistance around $1.7000 remains intact. If there is a hawkish tone to the Fed tonight, I expect to see a retreat into the support band $1.6880/$1.6920 and it will be interesting to see if that support can hold, otherwise the bears will begin to become far more confident once again.

USD/JPY is finding resistance around the 2 week downtrend and also in the 102.20/102.40 price band. With the daily chart so neutral this is not entirely surprising and we wait to see if the dollar can regain some upside momentum following the FOMC tonight.

Gold is trading around flat today, as many markets are ahead of the FOMC. The key near term signal could be a close above yesterday’s high at $1273.25 which would then be a confirmation of yesterday’s intraday turnaround and then give the bulls a boost. However there is still significant overhead resistance around $1278 and the medium term outlook continues to suggest this is a selling opportunity.

The European indices are trading higher today. However the DAX is showing a lack of real confidence and as things stand, closing around here would be a fifth consecutive day of indecision where the market opens and closes with little real ground being made. The support of the rising 21 day moving average is though encouraging for the bulls. FTSE 100 is a different outlook, having underperformed on a consistent basis, the London market is enjoying a positive day for once. However it is trading still within the resistance band 6782/6800 and a failure of this rally in this band would be a concern after the completion of the top pattern.

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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.