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20/08/2014: Trading outlook ahead of the US session


Trading through the European session has been driven by a slight air of caution in response to the release of the key meeting minutes for the Bank of England and later today the Federal Reserve. Aside from a rebound in Sterling) on a hawkish set of minutes), the dollar has remained very strong. The Dollar Index subsequently continues to push above 82.0 and is now well on its way towards its September 2013 resistance at 82.6.

DXY   20082014

In all fairness, the European equity markets were slightly lower even before the MPC Meeting minutes. A degree of profit-taking had hit the markets after the strong rebound in the past week. However with the hawkish leaning from the Bank of England’s latest meeting minutes, there has been an extra degree of caution in front of the Fed minutes tonight.

Having maintained a 9-0 votes on holding rates steady at 0.5% for the past three years, this morning Martin Weale and Ian McCafferty voted for a 25 basis point rate hike. They are the chief hawks on the MPC and were widely expected to be the first to break ranks. However the expectation after the Bank of England Inflation Report last week, that they would probably not have voted for a hike in the recent meeting. There was an instant reaction on Cable, spiking higher by 50 pips. However does their move change much? Probably not really. The committee remains largely dovish and cautious due to the lack of inflationary pressures in the UK economy, both through prices and wages. It still needs three more members to switch camps in order to raise rates, and a rate hike in 2014 remains unlikely.

The jump in GBP/USD should therefore be seen as a chance to sell. The technical outlook remains weak and anything into the $1.6650/$1.6700 resistance band is still a selling opportunity.

The euro has traded weaker throughout the morning as yesterday’s breakdown in EUR/USD gathers momentum. The support at $1.3250 is the immediate test, but there is little support until $1.3100. I am looking to use any rebound towards $1.3330 as a chance to sell. Interestingly, as a follow on from today’s morning report where I focused on Dollar/Swiss, there has been a break above the resistance at 0.9114. This should not open the way towards 0.9156 and a close above 0.9114 would now imply an upside breakout target at 0.9200.

The dollar strength has pulled Dollar/Yen way above 103.00. A close above the big figure level would now confirm the upside break from the trading range. It would then be a case of looking to use any weakness, possibly back towards 103.00 as a chance to buy for a test of the key reaction high at 104.12.

Equity markets are slightly lower as S&P 500 futures point towards a minor (2 point) correction at the open. The DAX has just had some of the steam taken out of its bull run today with little damage being done. There is an intraday level of support around 9250, whilst the index is likely to regain its poise before pushing higher back towards the initial pivot level resistance at 9400 and subsequently the 9490 implied target from the small base pattern. FTSE 100 is also just a little off the top, but is now back to its rising 21 hour moving average (at 9575) around which has held all the corrections in the past 6 days. The implied target of 6770 from the base pattern has already been achieved and it will be interesting to see the reaction over the coming hours now as there are a few corrective signals on the hourly momentum indicators. Holding above breakout support around 6740 could be key near term.

FTSE   20082014

Gold and silver remain weak. Held back by the loss of the “war premium” (reducing geopolitical tensions) and the strength of the dollar, the drift lower remains dominant. Trading under the $1300 psychological level and the resistance at $1305 is not encouraging for gold and it is likely to continue to drift back towards $1280 in due course.


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