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MORNING BRIEF
It was about time that US politicians came to their senses and did the right thing for their country’s economics and the right thing for global markets as well. Yesterday, Democrats and Republicans reached a deal over the debt ceiling issue that held markets hostage for almost 3 weeks now and voted to fund the government needs to reopen key public sectors. The deal will finance US government until January 15 and the debt ceiling will be raised until February 7, when another round of deliberations and negotiations is expected to start. Over a press conference however, President Obama was asked whether the nation will relive this situation at that time and his answer was pretty simple: “No”. This development caused the US Dollar to rally against lower-yielding currencies such as the Japanese Yen as confidence in the US currency returned but the relief rally was matched from an equal move towards higher-yielding currencies such as the Euro, the Pound and the commodity currencies like the Australian and New Zealand Dollars. Investors were relieved to see that the US shutdown that was hitting global prospects came to an end and reinstated their positions in the risk-on currencies we mentioned above. At the end of the day currency markets remained pretty much unchanged as these 2 separate rallies canceled each other out.
Moving forward we expect markets to return to their usual pace and we are very keen to see how the major currency pairs will react to this development. We expect US Dollar assets to gain ground as investors will return to their positions with renewed demand and this could cause global stock indices to move higher and at the same time it will be very interesting to see how pairs like the Euro and the Cable will digest this new environment. Our attention needs to be focused on the Pound today as UK Retail Sales are expected to rise and we are optimistic that should that printing confirm expectations the UK currency will be able to finally clear the all-important 1.6000 level and move higher.
UK Retail Sales expected to rise, US Initial Jobless Claims key to gauge US recovery
The Economic Calendar holds two very important news events. Coming at 9.30 UK time the British Retail Sales are expected to rise 0.4% for September and this would be a very positive development for the British economy that was recently hit from disappointing figures that have halted the Pound’s rally for the past weeks. Should this figure print as expected then we are pretty confident that a renewed demand for the British currency will finally push the Cable above the 1.6000 mark and end the ranged move we witnessed for some days now. Later in the day, at 13.30 the US Initial Jobless Claims will be released and this figure is proving to be a very important leading indicator on how the US recovery effort is fairing. Keep in mind that the labor market is a key sector for the Fed and even if the shutdown has pushed the possibility for tapering most probably into 2014, Ben Bernanke has said that they will closely monitor key sectors’ growth and their decision will ultimately be made purely on how data from these sectors come in. So don’t be surprised if the Fed goes forward and taper within 2013 if improving figures from the US start coming in.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
9.30 |
GBP |
UK Retail Sales (Sep) MoM |
High |
0.4% |
-0.9% |
|
9.30 |
GBP |
UK Retail Sales (Sep) YoY |
High |
2.2% |
2.3% |
|
13.30 |
USD |
Initial Jobless Claims |
Medium |
335K |
374K |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
Euro seems troubled to find direction against the US Dollar and is capped within a large range between the 1.3485 and 1.3600 price levels. For today we prefer to stand aside and wait for the currency to reach the 1.3600 level where we expect it to reverse and start moving lower again. So, upon reaching the higher end of this range and if the currency doesn’t break above the 1.3600 area, we will enter short and target the 1.3550 and 1.3500 levels with a stop just above the 1.3620 area. The reason why we don’t suggest to you to enter long at this point and target the 1.3600 area is that the recent volatile swings the currency made the past days make it a bit risky to enter into a trade before it reaches and tests a significant support/resistance level where it will illustrate its current bias.
GBP/USD
The Pound rallied higher early in the morning yesterday triggering our entry above 1.6000 and reached our first target at 1.6050 prior to plunging down to 1.5900 for the rest of the day. This is an important example on why we insist that you close half of the position and move your stops to the breakeven price upon hitting our first target. Now for today and given that we expect key Retail Sales figures early in the morning our tactics will be exactly the same: long entry just above the 1.6000 mark, first target at 1.6050 and second target higher at 1.6140, our stops need to be placed below the 1.5900 level. On the other hand should figures disappoint or a pro-Dollar rally is spurred we will enter short on a clear break below 1.5900 with targets at 1.5840 and 1.5740, stops above the 1.6000 level.
FTSE 100
The FTSE 100 moved briefly above the 6,575 area and triggered our long entry there before settling around that area. We feel that the UK index will move higher for the day and we focus our attention to our targets higher, which are a bit modified and now lay at the 6,600 and 6,670 points levels. Our stop should be placed just below the 6,500 points area.
Gold
Gold seems to have formed a bottom as a reversal pattern has emerged, we can notice an inverse Head and Shoulders pattern on the chart above. Now, we still have a short trade on Gold but it seems that the break that led us to it was a false one so please go ahead and exit the trade if the price reaches near the $1,269 level with a small loss. Now for the day ahead, our scenarios are customized to the recent price movements so we will enter long should Gold’s price clear above the $1,290 level and our targets will be at the $1,302 and $1,323 levels, with a stop placed below the $1,265 level. One the other hand should the yellow metal move lower for the day and breaches below the $1,268 level then we will enter a short trade with targets at $1,257 and $1,237 and a stop just above the $1,292 area. We hope that now that the situation in DC has been resolved Gold will start performing more casually, allowing us to capitalize more on its swings.
All charts have been created using FXCM’s Trading Station platform.
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