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MORNING BRIEF
All major currencies lost ground yesterday against the US Dollar after news coming from China regarding the health of the country’s big banks drove investors to look for safety. It was announced that banks wrote-off three times more bad loans in the first half of the year than expected and this caused a moderate rally for safe-haven currencies like the Dollar and the Yen. However, even though the Dollar rally was substantial in high beta currencies like the Australian and New Zealand Dollar, the Euro and the Cable held on to their previous gains and are now trading near recent highs. This fact must be attributed to the positive outlook investors have over the two currencies: the Euro is supported by a string of better than expected results in recent days and today the release of several PMI reports could provide extra support to lift the pair above the 1.3800 level. At the same time, the Pound didn’t receive a massive support by yesterday’s BoE minutes release but if we take a second look at the minutes we will note that the optimistic tone shared by BoE members is still there and the Pound’s bullish outlook hasn’t changed.
Euro-zone and German PMIs in the early session, Initial Jobless Claims later in the day
On our Economic Calendar for today, the release of the German and Euro-zone Purchasing Manager Indices draws our attention early in the day and we will look into these figures with increased interest as a positive surprise here should drive the Euro above the 1.3800 level, a very important resistance at this point. Later in the day, the US Initial Jobless Claims could provide some friction for the afternoon session and we should also note the New Home Sales report coming in later as progress in the housing market is a critical factor for the Fed to decide when to start tapering.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
8.30 |
EUR |
German PMI |
Medium |
51.4 |
51.1 |
|
9.00 |
EUR |
Euro-zone PMI |
Medium |
52.4 |
52.2 |
|
13.30 |
USD |
Initial Jobless Claims |
Medium |
– |
358K |
|
15.00 |
USD |
New Home Sales |
Medium |
1.0% |
7.9% |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
Euro retraced lower yesterday near the 1.3740 area before rebounding during the day and is now trading near yesterday’s highs of 1.3790. We expect the currency pair to reach higher for the day as the PMI reports come in. We favor a long entry just above the 1.3790 area with targets at 1.3820 and 1.3870, stops should be placed below the 1.3740 support. On the other hand, in the event that the PMI reports miss we should be prepared for a bearish scenario as well. We will enter a short trade if the pair breaches below the 1.3740 support and our targets will be at the 1.3710 and 1.3670 levels, our stop should be above the 1.3790 area. We remind that our tactics involve closing 50% of our trade upon reaching our first target and moving our stops at the breakeven price of entry at the same time, the we look to close the remaining 50% of the trade at our second target.
GBP/USD
The Pound yesterday stopped us out unfortunately at the 1.6165 area after the currency dropped heavily over news coming from China. No matter, the currency’s outlook remains bullish but we will only take another try at the pair when it clears above the 1.6255 area, a possibility that is not likely to materialize within the day given the lack of any UK-related news. Nonetheless, we need to be prepared so if the Pound climbs above the 1.6255 area then we will enter long, targeting the 1.6340 and 1.6480 marks and place a stop below the 1.6110 area. The Pound seems to be well supported by policymakers’ optimism, however let’s spell out our bearish scenario as well: if the pair drops below the 1.6110 support the a short trade is advised with targets at the 1.6030 and 1.5890 area, and a stop above the 1.6255 resistance. Most likely the pair will remain unchanged for the day ahead but it’s never wrong to be prepared.
FTSE 100
The FTSE 100 retraced lower yesterday and tested the 6,660 support before settling down around that area. We feel that the index’s outlook remains bullish and we favor a long entry just above the 6,720 points area with targets coming in at the 6,760 and 6,820 areas and a stop below the 6,650 support. On the other hand, should the index drop below the 6,650 support area then we will enter short, targeting the 6,620 and 6,560 marks with a stop just above the 6,720 resistance. Please keep in mind that a downwards break below the 6,650 support needs to be confirmed prior entering into any trades so please be patient and don’t jump the gun at the first sight of the index falling a few points below for a minute or so.
Gold
Gold also retraced lower yesterday but not as low as we feared. The commodity dropped near the $1,327 support but never tested it and is not trading at the $1,335 area. Given this behavior we will move our stops at the breakeven price of %1,328 as we believe that the retracement has been completed and the yellow metal might reach for higher levels over the next sessions. Our second target remains at the $1,353 level and we will patiently wait for the trade to evolve.
All charts have been created using FXCM’s Trading Station platform.
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