29/05/2014: Trading outlook ahead of the US session

The dollar remains under corrective pressure as forex majors reclaim some lost ground. The Dollar Index (.DXY) broke out to a 3 month high yesterday but has seen a pullback today. After breaking to a new 11 month low yesterday the US 10 year Treasury yield continues to fall away. European equity markets remain largely muted with Ascension Day public holiday, although the FTSE 100 is the one bright spark, trading around a quarter of a percent higher.

Traders will be focusing on the US data with the second reading of Q1 US GDP announced at 13:30BST. The dollar has pared some of yesterday’s gains as we approach the figure which is expected to show a quarterly contraction of growth by -0.5%.  With employment (weekly jobless claims at 13:30BST forecast at 317k) and housing data (pending home sales at 15:00BST forecast to be +1.0%) also due there is much to keep dollar traders busy this afternoon.

EUR/USD has jumped into the resistance band $1.3610/$1.3640. This now looks to be a chance to sell again. The intraday momentum indicators have unwound nicely to renew downside potential, while the falling moving averages are also barriers to the recovery.

GBP/USD has unwound some of the near term oversold momentum after a fall of 140bps in the past two days. The price action today has been fluctuating higher and lower in front of the key US data. However the breakdown from yesterday continues to suggest a test of $1.6680 will be seen. This would be s crucial test in the outlook over the medium term basis. Any positive surprises in the data this afternoon could induce this test.

USD/JPY has now breached the second of the two supports I have been looking out for on an intraday basis. The 101.56 low is the latest higher low within the recovery to fail and suggests the yen is strengthening now. The falling 21 hour moving average has become the basis of resistance in the past couple of days and is now at 101.70. Ideally there would be an opportunity to sell, which also coincides with the old support now turned resistance.

Gold remains under pressure and there has been little appetite for a recovery yet. However there is a bullish divergence that has formed on the intraday hourly chart that could be ready to induce a technical rally. However there is resistance at $1260 and $1268.24 that looks ready to cap a rally. Selling any strength looks to be the way to play gold now.

Equity markets have been quiet through the morning session. DAX and CAC have hardly moved with Ascension Day curbing volumes. Although the FTSE 100 has managed to post gains and is now within 20 points again of the key 6895 14 year high again. The US data this afternoon is likely to drive indices, with the S&P 500 futures suggesting around 2 points being added at the open.

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