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21/05/2014: Trading outlook ahead of the US session

This big move of the morning has come in Cable. Sterling has moved strongly higher as the announcement that UK Retail Sales had jumped to +6.9% year on year in April which was the highest monthly reading since March 2002. Furthermore it was also announced in the Monetary Policy Committee meeting minutes that some at the Bank of England had noted that their decision on interest rate had “become more balanced”. This sets up for increasingly heated debates in the months to come as to when the BoE will raise interest rates.

DXY   21052014

Dollar Index has fallen away with the Yen continuing to strengthen against the greenback. However the dollar is faring a little better against the Euro, Swiss franc and the Canadian and Aussie dollars today.

Aside from that the trading is fairly as is from early morning, with equity indices trading fairly mixed to slightly lower. The DAX continues its trend over the past few days of outperforming the FTSE 100 (ever since the AstraZeneca/Pfizer tie up was seemingly scuppered). The FTSE 100 below 6800 looks to be in correction mode having completed a top pattern that implies 6715.

Just in the past few minutes, gold has made another dip below the $1290 mark which in recent days has tended to encourage the intraday buyers to return. This move does not seem to be anything more than the usual intraday dip lower before another bounce and I expect it to be bought into once more.

There has though been a bit of a turnaround in sovereign yields, with US Treasurys, Gilts and Bund yields all slightly higher as bonds come under a touch of selling pressure.

The main trade of the day seems to be in GBP/USD which is 50 pips higher. The outlook is turning increasingly bullish once more and support for a retracement has already come in at $1.6880. With the head and shoulders on the hourly chart now aborted by this spike higher, it now seems that if support can build in the band $1.6870/80 then the outlook will be confirmed as turning positive and that dips will be used as a chance to buy once more.

The FOMC meeting minutes could have an impact on the Cable chart later (at 19:00BST) if there is a hint towards tightening, whilst there are also several Fed speakers today such as Janet Yellen, Dudley and Kocherlakota. However, they are all of the dovish persuasion and are unlikely to come out with anything to rock the boat.

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