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21/08/2014: Trading outlook ahead of the US session

Despite a little bit of early session noise following the flash PMIs, the European session has been relatively quiet today. The dollar is consolidating its recent strength, whilst European indices have settle after an early session pick up.

The slight improvement in German manufacturing PMI has added a touch of early positivity to Eurozone assets. The euro has gained a few pips, whilst the DAX and CAC are now around half a percent higher after starting the day relatively flat. Focus now turns to the US weekly jobless claims which are released at 13:30BST and are forecast to slightly drop to 303,000 (from 311,000 last week). Although there could be a reaction of a few pips on the release, traders attention will quickly turn to Janet Yellen and her Jackson Hole speech on Friday. This may lead to a bout of consolidation in the next 27 hours.

The dollar strength we have seen since the Fed meeting minutes last night is just pausing for breath, ahead of Jackson Hole where it is likely that Janet Yellen will retain a dovish stance. On balance, FOMC members are looking for progress on wages growth and slack in the labor market before action can be taken. If this is the case then it may be seen as a slight disappointment and result in a dollar correction. However this should be seen as a chance to buy the dollar.

Many of the dollar crosses have made decisive moves this week, helped by the slightly hawkish FOMC minutes. There has been a big breakdown in the euro, Cable and a strong move to the upside on Dollar/Yen. All of these positions are looking a touch stretched on momentum now and could easily see a retracement that would help to unwind some of the recent dollar strength.

EUR/USD has already found a touch of support after the German flash PMI data. A short relief rally is already running out of steam though. Despite this, any strength towards initial resistance around $1.3300 or the old support at $1.3330 would be a chance to sell again. GBP/USD also remains very weak and has remained weak this morning after the UK retail sales just disappointed slightly. The initial resistance at $1.6650 seems to be a good place to sell, with anything up towards $1.6700 looking like a prime selling opportunity. Dollar/Yen has just drifted slightly through this morning’s session. However there is support around 103.60 and just under at 103.20 to hold a correction. I am now looking for a higher key low above 103.00 to be confirmation of an upside breakout.

European equities have been helped today by the major Eurozone economy, Germany, ticking higher on the flash PMI, which has dragged the DAX higher. Keep in mind that 9400 has been a historic pivot level for the DAX, but it still has not yet pushed towards a challenge of the implied target at 9490. FTSE 100 has also been dragged higher by clinging to the coattails today. However, a near term struggle to breach 6783 is holding it back. The hourly momentum indicators continue to bearishly divergence and this is becoming a concern for the health of this move higher. A break below 6740 would suggest the rally is failing.

Gold has struggled during the session but has latterly formed a touch of support at $1276.90. This move is helping to unwind an oversold intraday position but the outlook remains under big pressure. A close below $1280 would be bearish now, so there is a real test of credentials for the bulls today.

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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.