The positive US data yesterday and ratings agency Fitch taking the US off “negative watch” for a downgrade has certainly helped risk appetite.There have just been some signs today of a pick up in the performance of the major currency pairs in European trading. However, in the context of the past couple of days of dollar strength this is quite a minor reversal and at this stage looks to be setting up some opportunities to sell once more. The improvement in equities is more pronounced though as the improvement in risk appetite has certainly helped. The sharp improvement in the gold price today is also a significant turn around.
EUR/USD – I view the recovery with caution and I am interested in the intraday resistance band that comes in between $1.3808/$1.3844. I think this move is just retracing some of the dollar strength and I expect there to be another lower high which can be sold into. I expect that Euro/Dollar will be correcting back towards $1.3700 in the coming days.
GBP/USD looks highly susceptible to further weakness and I view any strength as a chance to sell. Sterling has not rallied as much as the Euro has, and the downside pressure still remains. I would like to think I might be able to get a short position in around the resistance band $1.6543/$1.6568, but I am not sure that I will get the opportunity.
USD/JPY is now busy building another range within a range. Finding support above the previous key breakout level within the 7 week sideways trading phase at 101.95, the rate is now mid range once more under the resistance formed following the FOMC decision at 102.68. I still find the technical signals very mixed and suggest playing this range until there is a break either way.
Gold – I like the base pattern completed this morning above $1334.60 and the fact that there was a pullback which has formed support just above the neckline. I expect a move towards the intraday base target at $1350 and see a corection back towards $1336 support band as a chance to buy. I would place a stop under the right hand shoulder at $1328.84.
A recovery is underway for the FTSE100, however has work still to do. A break above 6606 is needed to complete a base pattern. I am standing aside until this move completes as I do not want to pre-empt it. However if you look at the strength in the DAX which is testing for a two week high, the recovery in European equities could continue.