Alpesh Patel's NEWSLETTERPRO - Major currency pairs lack conviction as investors are undecided on Dollar’s outlook, tread carefully as markets are full of false signals

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Major currency pairs lack conviction as investors are undecided on Dollar’s outlook, tread carefully as markets are full of false signals

© Alpesh Patel

MORNING BRIEF

Currency markets baffled investors for yet another day yesterday as false signals and lack of follow-through were the themes of the day. The Euro attempted to climb above the 1.3700 level on better than expected Industrial Production figures but the breakout above recent highs proved to be a false break and overnight the European currency retreated below the 1.3650 support. Major stock indices were also in focus yesterday as the steep sell-off after the NFP miss was followed by an evenly steep pullback gaining back almost all of the ground lost. Better than expected Retail Sales was another catalyst to negate the recent Dollar weakness and indeed if you take a look into most currencies’ technical outlook it seems as if the NFP miss didn’t happen at all. It is not an unusual thing for the beginning of a new year to hold uncertainty and erratic moves in the currency markets thus we need to be extra vigilant until the markets settle down and decide on which direction to follow. Take into account that in less than a month we witnessed a pro-Dollar euphoria after the tapering decision followed by a large disappointment due to the extremely large miss in NFPs and this is unavoidably reflected on the currencies’ behavior. The day ahead of us is light on events and thus we will take this time to better assess what’s next for the major currency pairs we monitor each as most of them are technically in no-man’s land.

German GDP figures expected along with the US Beige Book

The Economic Calendar today is a light one and only a couple of second-tier events require our attention. The German GDP figures are scheduled for release early today and a slight decline is expected which will not be favorable for the Euro should it print like that. Later in the day, the US Mortgage Applications shouldn’t prove to be a market-moving event as investors will wait for the release of the Fed’s Beige Book. We will look into the report for more insight on how the US economy is fairing during the recent periods and looks for clues to either support or reject the further QE reduction as the FOMC meeting at the end of the month draws near.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

8.00

EUR

German GDP (YoY)

Medium

0.5%

0.7%

12.00

USD

Mortgage MBA Applications

Medium

2.6%

19.00

USD

Fed releases Beige Book report

Medium

 

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TECHNICAL ANALYSIS & LEVELS

EUR/USD

The Euro demonstrates quite an unusual behavior during recent sessions and this has hurt our recent attempts to move on the currency. Yesterday our long entry was triggered at the 1.3690 mark but the lack of momentum didn’t allow the move to be fruitful and we were subsequently stopped out overnight as the Dollar clawed back some of the lost ground. This is a signal that the market is still undecided whether to abandon their pro-Dollar positions after the NFP miss and as such we’d like to stand aside and take a better look at the currency’s outlook. No suggestions at this time as the markets appear to be full of false signals as investors remain undecided on what direction to take.

GBP/USD

The Pound recovered significantly versus the Dollar yesterday to reach the 1.6460 mark but over the US session Dollar strengthened and subsequently the Pound declined. It looks like a lower top has formed at this point and if this premature demand for Dollars intensifies during the coming session then the 1.6350 bottom will be at risk. No suggestions for the Pound as well as investors sit on the fence on the pro-Dollar trade so we need to sit back and let the market decide prior to following it.

FTSE 100

The FTSE 100 was another example of false signals that have appeared during the recent sessions. The UK index didn’t follow other global indices lower the previous week following the miss in the NFPs and as such as investors returned in force and reinstated their positions the FTSE broke above the 6,780 points to stop us out. This appears as a signal of strength for the UK index however technically the instrument is due for a correction and this is a reason why we hesitate to follow this break higher with a trade. We will stand on the sidelines on this also as the recent behavior of the UK index lacks conviction.

Gold

Gold was also on the pullback yesterday as it failed to edge above the $1,255 level and retreated lower. It appears that a reversal in trend is in play here and for the short-term Gold is pointing lower however we remain undecided on whether a suggestion is due yet. We will monitor Gold’s behavior for the day ahead waiting to see whether this reversal is a valid one and whether it will pick up momentum.

The above charts have been created using FXCM’s Trading Station platform.

STOCK MARKET FOCUS

[Restricted Content] Plc.

The Alpesh Patel Momentum/Value 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 low suggesting that the stock might be  underpriced, the ratio of the price earnings growth is high but Turnover and Earnings are 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. We suggest that you confirm that the stock’s price has broken above recent highs prior to acquiring it. The suggested holding period for a stock of this type is 1-3 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.

This is the free, time-delayed version of NewsletterPro, a subscription-based product.
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