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The New Year begins with the Dollar gaining ground against its peers, will the much expected demand for Dollars drive it even higher?
MORNING BRIEF
Dollar has been in the forefront this week although we had only a few “full” sessions with the New Year celebrations mid-week. The US currency strengthened against the Euro and the Pound at the final sessions of 2013 and continued to gain versus the high-beta coins in the first session on 2014. After printing new yearly highs on thin liquidity both the Euro and the Cable retreated against the US Dollar and are now trading near 1.3650 and 1.6430 respectively. The abnormal trading conditions these past couple of weeks allowed the major currency pairs to demonstrate volatile behavior and possibly baffled some investors that expected the Dollar to pick up pace after the FOMC decision to taper and indeed there was little follow-through on this decision from the US currency. It is our view that the lack of momentum that Dollar demonstrated should be attributed to two factors: first, most investors had expected the tapering decision and most likely had rebalanced their portfolios accordingly prior to the release and second, the timing of the decision so close to the Holidays season didn’t allow for any major repositioning to ride the Dollar demand wave. We believe that as the new week begins and traders and market participants come back to their desks this demand for the US currency will intensify and Dollar will be on the forefront for the first weeks of the year. Our fundamental views are supported by the technical formations that have emerged and especially the Euro is facing a critical support near the 1.3620 area and if that gets breached then the sell-off will drive the European currency down to the 1.3300-1.3500 area. The Pound seems to be in a better position technically against the Dollar but again the recent break below the 1.6460 level has cleared the path for further losses that should drive the Cable down to 1.6250 which is the key technical support for the medium-term future. For today, given the lack of any important news scheduled for release and being the last day of the holidays’ season we don’t expect any major moves in the markets as people are coming back to their desks and the potential for any surprises drops to a minimum.
British Construction PMI and US policymakers’ speeches scheduled for today
On the Economic Calendar today we have only the British Construction PMI scheduled for release and a few speeches from several US policymakers later in the day. For the past week only a few important indicators have been released with the US economy beating estimates again: the Consumer Confidence and the Manufacturing ISM both came out better than expected supporting the Fed’s decision to reduce the needed stimulus to the domestic economy. Moving forward, the British Construction PMI is expected to drop a little today and we’d like to see if it will cause any last minute volatility in the Cable and we’re interested to hear from several FOMC members later in the day. Fed’s Plosser, Stein, Lacker and Bernanke are all speaking in various venues and we’d like to hear what kind of forward guidance they will provide via their comments and views on the US economy.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
9.30 |
GBP |
Purchasing Manager Index Construction |
Medium |
62 |
62.6 |
|
17.45 |
USD |
Fed’s Plosser speaks in Philadelphia |
Low |
||
|
18.15 |
USD |
Fed’s Stein speaks in Philadelphia |
Low |
||
|
18.30 |
USD |
Fed’s Lacker speaks in Baltimore |
Low |
||
|
19.30 |
USD |
Fed’s Bernanke speaks in Philadelphia |
Low |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
The Euro fell against the Dollar this whole week and is now facing the important 1.3620 support ahead of it. We believe that the lack of any important news today will allow the currency pair to pull back a bit higher and any major developments will come next week. The 1.3620 level is a critical one and a breach below that will clear the path for Euro to devaluate even more and drive the currency near the 1.3300 area.
GBP/USD
The Pound followed the Euro lower against the Dollar and has broken below the 1.6460 level that was an important support area. Today the expected PMI release could drive the currency even lower and as such we’d like to take advantage of that. We’re interested in shorting the Cable if it prints a new low below the recent 1.6409 low and target the 1.6380 and 1.6330 marks with a stop placed above the 1.6460 area. This is a quick trade to take advantage of any volatility caused by the PMI release early today.
FTSE 100
The FTSE 100 seems to have concluded its uptrend and is now pointing lower. The UK index has found some support near the 55-period EMA and is hovering just above the 6,700 points level. We’d like to see whether the index has any gas left in the tank to do another swing upwards and if not short it if it begins to retreat lower. For today, we’ll let the index aside until the picture clears out even more.
Gold
Gold has been on the rise for the past couple of days even though Dollar strengthens across the board. We need to be very careful with Gold as it tends to get out of sync with the rest of the market and when it does it’s behavior becomes erratic and unpredictable. Our view is that the commodity is bound to fall lower and for this to happen we need to see this recent wave upwards to come to an end. We’ll monitor Gold’s performance today and especially at the beginning if next week and act accordingly.
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, the ratio of the price earnings growth is also low and Turnover is up year on year supporting the growth potential. From a technical standpoint, the MACD indicator is pointing upwards in the weekly chart above suggesting further incline. The suggested 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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