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MORNING BRIEF
US Retail Sales could provide the last piece of the ‘tapering puzzle’ while Dollar claws back lost ground against most majors
Major currency pairs gave back some of the ground they have gained against the US Dollar during recent sessions as the US currency strengthened across the board. The only exception was the Euro that is showing amazing strength and resilience against the buck and actually ended the day higher. The European currency reached 1.3800 and came close to hit the yearly high of 1.3825 but we have serious doubts whether these levels can be sustained without any significant fundamental support. Unlike the Euro, the Pound was pressured by the rising Dollar and lost the 1.6400 level and fell as low as 1.6350 even though MPC member Weale expresses his optimistic views over the UK economic recovery. Turning our attention forward, today holds a very significant news release as the US Retail Sales is the last piece of the puzzle for the Fed to decide whether to pull the tapering trigger or not. In our recent reports we’ve explained the reasons why the Fed could go ahead and start cutting back its asset purchases program this month and we have also discussed what could make them wait for another month. With the FOMC meeting in less than a week the Retail Sales figures could be the decisive factor for Fed’s decision on whether the timing to taper has come. We believe that any figure above a 1% rise in Sales the previous month could weigh heavily in their decision and be a strong argument towards cutting back stimulus but if the number prints around or even below a 0.2% rise then we think that they will pass on going forward at this time. As mentioned in our previous reports, we also believe that it might be hard for Bernanke to decide to end his 7 years in office with a cutback in stimulus with Christmas a couple of weeks away and he might be tempted to leave this matter to his successor to decide.
EZ’s Industrial Production and US Retail Sales
The day ahead of us holds a few economic reports scheduled for release but these reports are quite important. The Euro-zone’s Monthly Report will be released early in the morning and the Industrial Production figures will follow it an hour later. ECB President Draghi will speak during the Monthly Report release and his comments could send the Euro above its yearly highs. If the ECB President repeats his views that negative rates are not an favorable option at this time then we expect the Euro to receive fresh demand to lift it to new highs. The Advance Retail Sales and Initial Jobless Claims reports are scheduled for release at the opening of the US session and this will be the event of the day. We explained above that the Retail Sales figures could end up being the decisive factor behind Fed’s decision on tapering next week. A strong printing with figures above a 1% rise will bring tapering closer and Dollar will be lifted while a number closer to 0.2% or 0.5% will lead investors to assess that the Fed will not pull the trigger this time and high-beta pairs like the Euro and the Cable will gain ground versus the buck.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
9.00 |
EUR |
ECB publishes Monthly Report |
Medium |
||
|
10.00 |
EUR |
Euro-zone Industrial Production |
Medium |
1.1% |
1.1% |
|
13.30 |
USD |
Advance Retail Sales |
High |
0.6% |
0.4% |
|
13.30 |
USD |
Initial Jobless Claims |
Medium |
320K |
298K |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
The Euro continued climbing higher and our long entry above the 1.3795 level has been triggered. We’re now targeting the 1.3825 and 1.3880 price tags and we’ve placed our stop below the 1.3735 low, please note that targets and stops have been updated a bit in comparison to our suggested levels yesterday. We’re now waiting to listen to ECB Draghi’s comments that have the potential to lift the Euro to fresh highs and we need to be very vigilant over our trades today as the Retail Sales report could cause increased volatility. We remind you that upon reaching target #1 we need to close out 50% of our trade and bring stops to the breakeven price, as we always do.
GBP/USD
The Pound was pressured by the increased Dollar demand yesterday and retreated lower versus the US coin. Our short trade at the 1.6415 support was triggered and we were quite pleased to see that both our targets have been hit within the day. We now want to take a step back and let the currency breathe, we believe that with the increased Dollar risk today the Cable could swing either way and we are focusing our attention mainly on the 1.6300-20 area that is a significant support area. If Pound drops below that then we’ll be looking at a possibly deeper retracement lower.
FTSE 100
The FTSE 100 fell yesterday and our first target at the 6,510 mark has been reached. Unluckily, the retracement that followed the drop took out our stops that have been moved at the breakeven price and we missed on a further decline lower but as we’ve mentioned numerous times in our reports the stops-at-breakeven tactic after reaching target #1 will prevent us from sudden and extended losses much more times than it will keep us away from profits. We now need to see how the UK index will react to the approach of the 6,465 support and whether there’s enough fuel to drive the instrument lower. We’ll stand aside and wait for a new trade opportunity.
Gold
Gold retreated lower yesterday as we discussed in our last report and retested the $1,255 support area and it seems that it has found some demand our that price. We believe that Gold has concluded a reversal pattern and could be headed higher now but we need the yellow metal to clear above the recent $1,268 high before joining the trend upwards. So, if the $1,268 mark is breached upwards we will enter long, place our targets at the $1,277 and $1,294 price tags and place our stops below the $1,251 low. Please note that the suggested targets and stops have been updated since yesterday’s edition to include the recent price swings.
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 9 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 the ratio of the price earnings is low supporting the growth potential. From a technical standpoint, the MACD indicator has been pointing upwards on the weekly chart above pointing towards higher levels. 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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