19/03/2014: Trading outlook prior to the UK Budget and the start of US trading

Risk appetite has improved slightly as the morning of the European session has gone on. Both Sterling and Euro have bounced, while equities are just on the positive side, while Gold has corrected. The UK employment data was encouraging, while the Bank of England meeting minutes were predictably unanimous in keeping both rates and asset purchases on hold. Eyes will now be turning to this evening’s FOMC meeting, but before that, Sterling traders will be watching for what George Osborne gives away in his 5th Budget.

EUR/USD once threatened a downside break from the 6 week uptrend, but has rallied to leave another higher low at $1.3903, above the previous one at $1.3979. The rate is now consolidating under the resistance around $1.3941 and the longer this situation goes on the more tightly squeezed the Euro will become. It seems liekly that traders are waiting for the FOMC, but the this increases the prospect of a sharp breakout. Momentum indicators on both the daily and hourly chart are positive. With dips being bought into this favours a positive move.

GBP/USD has recovered strongly in the past 20 hours  but this still looks to be a chance to sell. The key near term level is Monday’s high at $1.6665, which is the latest key reaction high within the decline of the past 8 days. The hourly RSI is up over 70 which suggests that upside potential is becoming limited. The rate could be volatile throughout the afternoon, with the UK Budget at 12:30GMT and then the FOMC at 18:00GMT. I have gone short this morning as the lower highs continue to be a feature of this chart. I expect that yesterday’s low at $1.6543 will be retested in due course.

USD/JPY has rallied into mid range in the trading band 101.17/101.95 and barely moved all morning. I expect this to be the case throughout the day with traders unwilling to commit in front of tonight’s FOMC.

Gold has corrected back into the $26 support band $1329/$1355. I am still conscious that the rising 21 day moving average is a basis of support at  $1343.20 on the daily chart. With the recovery uptrend firmly intact still I would be keen to use this correction as a chance to buy, but currently I am waiting for a buy signal.

There has been a decent rally on indices in the past couple of sessions, which has been consolidated today. DAX Xetra and FTSE 100 are both leaving higher lows on the intraday charts now. However both need to continue this trend otherwise they are at risk of forming intraday top patterns. The DAX needs to hold above key intraday support at 9221, with the equivalent level on the FTSE 100 at 6580.  Interestingly now for both, the rising 21 hour moving average (9193 and 6579) is acting as the basis of support. Dips looks to be used as chance to buy on both indices now as the recovery continues to build.

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