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MORNING BRIEF
This is a very crucial week for currency markets globally as we enter the third week of the US government shutdown. Investors remain cautious and this is causing an unpleasant trading environment as breakouts prove to be fake and trends don’t last testing trader’ nerves. Last night there was a shared feeling of optimism coming from Washington as President Obama was quoted saying that “important progress” has been made in the negotiations and he was later followed by the Senate majority leader that stated his optimism that a deal could be reached very soon. These statements offered some support to the Euro and the Cable but as we said above the rally didn’t last long and the pairs retraced lower over the late US and early Asian sessions. Any signs that a deal is near will prove beneficial for the risk-on currencies as the Euro and the Pound but such a deal could come as late as a few hours before the deadline expires.
German ZEW Confidence and British CPI
For today we will need to focus our attention to the Euro and Cable pairs as important news events are expected: the German ZEW confidence report is expected later in the morning and a potential decline of investor confidence due to the US shutdown could hurt the Euro. The pair is trading just above 1.3550 at the time of this printing having reached for 1.3600 yesterday and should investors kept their calm and expressed some optimism during the survey we might see the pair edging higher over the day. Also later in the morning, the British CPI will be announced and a positive reading could lift the Pound higher as the pair is getting upwards support from the declining US Dollar. The resistance of the 1.6000 level is proving hard to overcome at this time but if the Pound clears it then we would be confident that a bottom has been reached and the pair’s outlook will be bullish again.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
9.30 |
GBP |
Consumer Price Index |
High |
2.6% |
2.7% |
|
10.00 |
EUR |
German ZEW Survey |
High |
49.6 |
49.6 |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
Euro briefly edged above the 1.3580 level yesterday over optimistic news coming from Washington but the lack of follow-through led it near the 1.3550 level again. This lack of commitment by traders and long-term investors alike is due to the uncertainty the debt negotiations are causing and even though the chance that the US defaults on its debts is slim to none the potential aftermath could be significant thus the unwillingness to commit. We are committed to our trade now, we have our stops firmly in place just below the 1.3530 level in case of a disappointing ZEW survey and we are targeting higher at the 1.3600 and 1.3650 levels.
GBP/USD
Same as the Euro, the Pound edged a bit higher above the 1.6000 mark, triggering our long entry but later withdrawing lower again. The British currency could be rocked today by the CPI reports so there is an opportunity for us to capitalize on better than expected news. The pair has clearly formed a reversal pattern and should this pattern be broken upwards with a clear break above 1.6000 then a significant medium-term bottom will be verified. We always believe that the charts precede the news thus we are optimistic over a better than expected figure for the CPI and some momentum building for the Cable. In the off chance that we are proven wrong, our stops are placed below the 1.5920 level and we are targeting the 1.6050 and the 1.6120 areas. Please keep in mind that if any trade comes near our targets by 2-5 pips we prefer to go ahead and close it rather than risk any retracement and loss of the gained profits so when we say that our target is at 1.5920 and the currency reaches 1.5915 and comes to a halt just go ahead and reap these profits.
FTSE 100
The FTSE 100 opened lower yesterday as expected but was able to find support near the 6,475 area and moved higher in the day. The next key level is the resistance at the 6,570 points so we will need a bit of a retracement from the British index to jump into a trade and follow the trend higher. Any retracements lower are considered as buying opportunities and we would like to place stops below the 6,470 level and target the 6,570 area.
Gold
Gold failed to trigger our short entry below the $1,260 level and moved higher on optimistic news from the US. However, we will remain vigilant for the downwards break of the yellow metal below the $1,260 area but we are updating our targets and stops. As seen above on the 4hr chart (used to better illustrate our scenario) we prefer a short entry just below the $1,260 area, with a stop above the $1,292 mark and targets coming at $1,243.50 and $1,214.50. We feel that should a break of the $1,260 support occurs then Gold will move quickly lower and reach for our targets.
All charts have been created using FXCM’s Trading Station platform.
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