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25/07/2014: Trading Update ahead of the US session


As equities have retained a slightly negative outlook, this morning’s economic data has had an impact on the key European currency pairs. The German Ifo and UK GDP releases have caused what had originally been a mixed day for the major currencies into a day once more of dollar gains. Traders will now be turning their attention to this afternoon’s Durable Goods data which is forecast to improve by 0.5%month on month. Any beat of this figure would hep to continue to drive the dollar higher.

The German Ifo business climate missed expectations at 108.00 and has now seen its third consecutive month of declines. This does not bode especially well for the German economy which the business climate apparently being impacted by the conflict in Ukraine. The EUro subsequently has suffered. However the first reading of second quarter UK GDP came out quite strongly at 0.8% (which had been forecast) which made a slight beat on an annualised basis. Sterling has been a bit choppy since the data and has flicked between positive and negative.

However the general sentiment has turned into one of dollar strength once again today as the Dollar Index continues to make gains towards the key resistance at 81.3. The weaker euro is the main driver behind the move, but also further weakness in the Kiwi dollar (after the central bank guided against further rate hikes for the time being). The Performance of the Swiss franc also remain closely correlated to that of the euro.

DXY   25072014

The prospect of an immediate technical rally that is still threatening on the euro was harmed after the disappointing German data. The trend on EUR/USD remains negative for now, but the RSI is again below 30 and this could in the least cause some consolidation to set in soon. However, for now, the bears remain in control.

Cable has been choppy today, but the bulls are fighting to stop a sequence that is already 7 consecutive days of losses, whilst the support at $1.6950 remains intact for now. Intraday techncials show how negative Cable is on a near term basis, but I am still waiting for the medium term buy signal.

Dollar/Yen has done little in the European session and is looking to consolidate a position above the 101.80 previous resistance. The near term outlook was significantly improved by yesterday’s strong rally and this mixes my view. I am still anticipating that the run will lose momentum and the sellers will take control again, but the break above 101.80 has improved the outlook near term. I would perhaps look to stand aside whilst we await the sell signal.

Gold has had a very quiet morning and is actually looking to build support once more. $1290 could be the top of a band of support that I see now as crucial for the medium term prospects of the bulls. Whilst $1280/$1290 remains intact the prospects of a medium term recovery remain on track.


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