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24/07/2014: Trading outlook ahead of the US session


The European session has been interesting so far due to the various data announcements that have seen some reactions on both forex and equities. This morning’s Eurozone flash PMIs have been supportive to the embattled euro, with the German manufacturing PMI beating expectations which suggest that stories of a deterioration in the German economy may not be entirely accurate. With the composite Eurozone flash PMI improving and also Spanish unemployment dropping to 24.5% which is its lowest since Q2 2012, the euro has found some support.

The pick up in the economic data has pulled European equity markets back into positive territory, with the DAX Xetra around 0.5% higher (a significant turnaround after earlier falling by around 0.5%). The UK equities have not been boosted as much though as UK retail sales missed expectations slightly this morning. That data release also dragged Cable 30 pips lower.

There certainly seems to be an improvement in investor sentiment across the board today, with 10 Year Treasuries, Gilts and Bunds all lower, along with a lower gold price and now even a weaker yen. The next data traders will look out for is the Weekly Jobless Claims at 13:30BST which is forecast to rise slightly to 310k (from 302k last week). However, after the existing home sales beat expectations on Tuesday, the New Home Sales will be watched with interest at 15:00BST today. The expectation is for a 5.8% deterioration to 475,000 units (annualised) down from the previous 504,000 units and despite the spike to 504k seen last month, traders will be hoping that the 475k expectation can be beaten.

US New Homes   24072014

 

EUR/USD has been under so much pressure recently that at some stage there will naturally be a bounce. Whether this is a dead cat bounce or some more significant remains to be seen. However, the “doji” candlestick yesterday denoted uncertainty with the prevailing trend and today (if the current turnaround is maintained), an “outside day” could turn out to be a bullish key one day reversal (needs a close above $1.3475). Closing above $1.3475 would also be significant as it would be above that key old February low again. I would still see any recovery as likely to merely be a dead cat bounce, but I would then be looking to use this recovery as another chance to sell.

EURUSD   24072014

Cable is also interesting today due to the 30 pip decline induced by the UK retail sales miss. This means that the support at $1.7000 is being tested. The recent decline has continued today and a  break of the support which is both psychological and price (old reaction high) would be a disappointment for the bulls. Very near term trading could justify short positions but I would prefer to wait for the buy signal with the macro trends all bullish on cable.

Dollar/Yen is now up into the resistance band 101.60/101.80 and this I am considering this as my “sell zone”. I am subsequently looking for a bearish signal now which would give me an opportunity as I see the outlook as bearish and technical indicators suggest that rallies should be seen as a chance to sell.

Gold has tested the support of the 144 day moving average (currently around $1295) again today and has so far considered it still as a basis for support. I am now looking for a buy signal as I see the medium term outlook to be improving still.

Equity markets are also having a good morning, with a complete turn around from the early sell-off. Driven by the positive data out of the Eurozone, the DAX Xetra is around 0.5% higher and importantly now challenging the resistance around 9800 again. The test is also now of the falling 21 day moving average which capped the rally on 16th July. I would turn more positive on a move above 9872. The FTSE 100 remains choppy and continues to pressure the resistance around 6800. Trading the FTSE 100 is a difficult game over the past couple of months and it needs to put a string of positive days together in order to generate confidence. Confidence is not something that the S&P 500 lacks at the moment though and the futures are pointing to further gains of around 3 points at the open.


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