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22/05/2014: Trading outlook ahead of the US session

The big moves in the forex market today have come in Sterling which has come under some selling pressure since this morning’s data releases. The second reading of UK Q2 GDP was in line with the initial reading of +0.8% which included lower than expected international trade being balance by private consumption and business investment coming in higher than previously expected. Furthermore the government had to borrow much more than had been expected too in April. This all resulted in a 40 pip decline in Cable. However this now looks to be a chance to buy again.

Stock markets in Europe started positively but have pared the gains as the morning has progressed. Now both the DAX and the FTSE 100 are trading only slightly higher, with the CAC 40 under performing as the French flash manufacturing PMI fell back into contraction territory at 49.3. The generally sluggish PMI data will put further pressure on the Euro ahead of the flash May inflation data and the subsequent ECB staff projections.

With focus turning to the US now the outlook has become fairly mixed. Weekly jobless claims at 13:30BST are expected to climb to 310k, which would provide the dollar with some further support. This afternoon there is the Markit Manufacturing PMI at 13:45BST (expected to be 55.5) and then the existing home sales at 15:00BST which are expected to show a 2.2% improvement to 4.68m from 4.59m last month.

Despite the PMI data disappointing, the Euro has been fairly quiet, but it still retains a bearish skew as rallies are being sold into. Use the $1.3687/$1.3723 resistance band on EUR/USD as a chance to sell.

Cable is looking to build support around $1.6850/$1.6860 support area as corrections have been used a a chance to buy in recent days. With the changed outlook, I used the correction as a chance to buy.

I have also used the rally in USD/JPY this morning as a chance to sell as I see the resistance band 101.70/102.00 as holding back this recovery and the bears remaining in control in the near term.

Gold has rallied above yesterday’s high at $1296.60 which improves the outlook, but rallies are still floundering when they edge above $1300 and I am not expecting any real breakout. I think that it will probably take a change in geopolitics in Ukraine to perhaps move gold out of the sleepy band it currently trades in.

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