Alpesh Patel's NEWSLETTERPRO - Increased volatility across all major currencies pairs as the week ahead holds extremely important developments

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Increased volatility across all major currencies pairs as the week ahead holds extremely important developments

© Alpesh Patel

MORNING BRIEF

Increased volatility in the currency markets didn’t subside on Friday with the major currency pairs on our radar demonstrating large swings for yet another day. The theme in the markets on the last day of the week was the massive liquidation of positions on emerging markets’ currencies. This liquidation that has become an actual sell-off has been reflected on the major currencies’ technical outlook as increased flows of money previously placed elsewhere is being repositioned on safer heavens like the Dollar, the Euro, the Pound and the Japanese Yen. Just to give our readers a brief description of the large withdrawals from emerging markets’ currencies we must note the 15% drop in the Argentinean Peso in the last week, the over 4% drop in the Turkish Lira and the 3% decline in the Brazilian Real all within the previous week. Investors are abandoning their positions on emerging markets’ currencies in a massive fashion due to the recurring signs that China, a very big importer of goods and raw materials from these countries, seems to be heading for a reduced growth in the next 5 years. This development definitely has a spill-over effect in the majors as well and with a week filled with important news events we expect volatility to remain high throughout the week ahead. The Euro attempted to break above 1.3700 on Friday but retreated immediately below that key resistance and is now trading around 1.3680 having run a 200 pips rally over the previous sessions. Draghi’s positive remarks at the Davos meeting where he mentioned that ‘data have been more and more solid’ and  that ‘the ECB policy is finally being passed on to the economy’ have lifted the European currency. On the other hand, the British Pound took quite a dive as BoE Governor Carney alarmed investors when he mentioned that they are considering a ‘range of options’ for their forward guidance policy as the 7% unemployment rate seems at hand. The 2.5 years’ high seems to be an issue for the Governor that wants to see production to continue to increase in 2014 and a pricy Pound wouldn’t help in that direction. Finally, with the FOMC meeting a couple of days away the question remains on whether Ben Bernanke will go ahead with another reduction in stimulus on his final meeting as Fed’s President. Data have been short of spectacular recently and this uncertainty is making investors nervous regarding Dollar’s outlook. We’ll discussing more of this issue on our reports tomorrow and on Wednesday as it is the event of the week and we need to prepared to react accordingly.

The German IFO survey and US Home Sales to raise the curtain

The Economic Calendar for the first day of the week holds two important events. The German IFO Survey report is scheduled to be released early today and expectations are the figures will print strong. The report measures the confidence of German businesses for the next six months and with Germany being responsible for approximately a quarter of the Euro-zone’s GDP this report has a major effect on Euro’s outlook. Should the figures print strong as expected there’s an increased probability that Euro will break above the 1.3700 barrier. Later in the day, the New Home Sales report coming from the US is expected to show that the housing market in the US is coming out of recession at a slow but steady pace. This could be good news for the Dollar if it prints as expected but the issue remains as growth is needed in the housing market and the Fed is concerned that the pace is still sluggish.

Economic Calendar

Time

Currency

Event

Importance

Forecast

Previous

9.00

EUR

German IFO – Current Assessment

Medium

112.4

111.6

9.00

EUR

German IFO – Expectations

Medium

108.0

107.4

15.00

USD

New Home Sales

Medium

-1.9%

-2.1%

 

TECHNICAL ANALYSIS & LEVELS

EUR/USD

The Euro attempted to break above 1.3700 on Friday but quickly retreated and spent the rest of the day around the 1.3680 area. The European currency has been on a rally higher during the previous week gaining more than 200 pips and we wonder whether a retracement lower is needed. Today the IFO Survey is expected to print out positive for the Euro and we need to see whether the European coin has the potential to print yet another high. However the currency pair seems largely overbought at this time and the risks outweigh the potential here so we need to stand aside and see how the Euro begins its week.

GBP/USD

The Pound fell over 100 pips on Friday on the back of the alarming comments from the BoE Governor Carney. The Pound has been on a nice uptrend but it now seems that a decline is on the cards for the short-term future. We would like to see a slight retracement higher on the Pound today that will allow us to enter the downtrend on more favorable terms. No news are expected for the Pound today so we will remain patient and see whether we can enter short on higher levels.

FTSE 100

The FTSE 100 continued its steep decline on Friday hitting our second target at the 6,745 points level. The UK index fell around 150 points on Friday following all the other major indices lower. For the time being the FTSE is extremely oversold and any suggestions are out of the question. We need to see a generous retracement higher for the UK index in order to assess whether this sell-off will continue lower or reverse and plan our next trade.

Gold

Gold continued higher and reached the $1,280 mark on Friday but this uptrend seems unconvincing to our eyes. The MACD is showing an obvious divergence signaling that a move lower could be expected. The major support at this time lays at the $1,260 level and we need to see a move towards that to assess whether Gold will turn lower or not. We’ll stand on the sidelines for yet another day as we need a tradable pattern to emerge and tip the odds in our favor.

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

STOCK MARKET FOCUS

[Restricted content] PLC.

The Alpesh Patel Bullish Momentum 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 B 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 medium but Earnings are down year on year challenging the growth potential. However, from a technical standpoint, the MACD indicator is pointing upwards in the weekly chart above suggesting further incline and the break above recent highs will confirm that. We’re looking for a short-term investment on this stock in order to capitalize on a move higher. 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.

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