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Dollar rallies against most majors as investors are optimistic over US recovery, tapering talks back in the forefront
MORNING BRIEF
Dollar was on cue yesterday with the American coin rising against almost all of its counterparts during the European session. Even though the figures we expected from the European region came slightly better than expected it seems that market participants had their minds set on strengthening their pro-Dollar positions as the strong demand came early in the morning. Euro gave up 1.3600 and dropped below 1.3550 followed by the Pound that also lost the 1.6400 support level. The Dollar demand was also reflected on indices and commodities alike as both the FTSE 100 and Gold dived towards lower levels. The ISM Manufacturing Index that came later in the day justified the strong Dollar appetite and signaled that this might be a good week for the US currency as more US related news are expected down the road. For the day ahead and given the fact that we have a light calendar on our hands today we could see a mild retracement from the major currency pairs. However, the fact that the pro-Dollar rally was spurred without any news-related trigger might mean that investors are looking for better than expected results from the US and a strong recovery in employment data on Friday’s NFP report and are piling on their Dollar positions. Finally, the stronger than expected ISM release brought back on the table the ‘early tapering’ discussion and we think that the drive behind the Dollar rally is the belief that if Friday’s NFP report prints strong as expected then the Fed might just have what they need to justify going ahead with the asset purchases reduction.
UK PMI report could send Pound claiming back lost ground
On our Economic Calendar today we only have the UK Purchasing Manager Index on Construction scheduled for release and if we take into consideration yesterday’s strong figures coming from the Manufacturing sector we could see a surprise to the upside here. The Pound lost some ground yesterday against the Dollar and if today’s report comes out strong the UK currency should claim back lost ground. However, if the number prints lower than expected then it is possible that the pro-Dollar euphoria could drive Sterling traders to cut short their long positions and take their profits off the table sending the Cable lower. Later in the day a number of tier-3 reports are also expected but we feel that their impact on the markets will not be substantial.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
9.30 |
GBP |
PMI Construction |
Medium |
59.0 |
59.4 |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
The Euro dropped heavily yesterday and our long trade was stopped out at the 1.3570 mark. The European currency fell as low as 1.3520 before pulling back towards 1.3560. Now the pair seems to have formed a sideways pattern and the exit from it will show us what’s next. We believe that the short-term outlook for the Euro is negative and further losses are down the road thus we favor a short entry just below the 1.3520 mark with targets at the 1.3500 and 1.3465 price tags and a stop just above the 1.3560 high. However, we need to offer our long scenario as well should the pair try and rebound higher. For this to happen we need a clear break above the 1.3560 mark where we will enter long to target the 1.3580 and 1.3615 areas protected by a stop just below the 1.3520 low.
GBP/USD
The Pound was also influenced by the strong Dollar demand yesterday and fell towards the 1.6350 area. For the day ahead, we’d like to offer a bullish scenario for the Cable as it seems that the Dollar rally hasn’t yet reversed our positive outlook for the UK currency. We like a long entry just above the recent high of 1.6440 with targets coming in the 1.6500 and 1.6600 marks and a stop just below the 1.6340 area. This is a very optimistic scenario that could have some trouble coming into play but the Pound has amazed us lately and we should be prepared for all chances. If the Pound doesn’t have the strength to clear above the 1.6440 mark then we could see a sideways pattern forming and we’ll discuss it accordingly on tomorrow’s edition.
FTSE 100
The FTSE 100 finally came to its senses and fulfilled our bearish scenario as it dropped below the 6,640 points. Both our targets were hit as the index fell as low as 6,575 to complete our trade suggestion that might have taken some time to come to reality but it did nonetheless. For the day ahead, we feel that the instrument is heavily oversold and we’d welcome a retracement higher in order to re-enter short. Thus, we’ll stand aside from the UK index for now and we’ll let it ‘cool off’ before jumping into a trade once again.
Gold
Gold was also kind enough to offer us some substantial profits yesterday as the yellow metal fell lower to trigger our short entry just below the $1,234 price tag. The price action drove the commodity as low as $1,219 to hit our first target just $1 above that and the instrument closed the day hovering around that area. Obviously 50% of our trade has been closed out at target #1 as we always do upon reaching it and now our stops remain at the breakeven price. Actually just risk $2 on this trade and pull your stops at the $1,236 mark instead of the $1,234 breakeven level, Gold might come back to retest the 55-period EMA prior to falling lower and it would a pity to close us out at breakeven and miss out on a potentially profitable trade.
The above charts have been created using FXCM’s Trading Station platform.
STOCK MARKET FOCUS
[Restricted Content] Plc.
The Alpesh Patel Value/Growth filter has indicated [Restricted Content] Plc as our stock of the day.
Company Information: [Restricted Content]
Created using Sharescope Pro
[Restricted Content] Plc has been rated an 8 out 10 in our Value/Growth rating and gets an A Grade rating on our Bullish Momentum meter. The P/E ratio is relatively low suggesting that the stock might be underpriced, Turnover is up year on year suggesting good growth and Earnings are also up supporting the growth potential. From a technical standpoint, the MACD indicator has been turning upwards on the weekly chart above pointing towards higher levels. A breakout above recent highs will accelerate demand for the stock and send it even higher. The recommended holding period for a stock of this type is 6-12 months.
Important Information
The filters and settings in the Special Edition of the Sharescope software use Alpesh Patel’s proprietary criteria to generate suggestions of securities worthy of further investigation. They DO NOT CONSTITUTE INVESTMENT ADVICE.
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