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Market Brief
It is a big day for the EURUSD today as we have Tier 1 news from the ECB and also US inflation data. Currently, the daily trend is up for the euro as the 20, 50 and 200 moving averages are all stacked on top of each other but due to the sideways nature of the price action the momentum is now slowing, and the averages are flattening off. As another level of resistance, we have some major EURUSD options expiries happening today just below the 1.2200 level and also at the 1.2100, so it is conceivable that we end the day 80 pips lower if the ECB remains dovish and the US CPI misses expectations.
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The single currencies tight range is currently between 1.2200 (which is very strong resistance), to support at last Friday’s 1.2104 low. If we do break higher, May’s high at 1.2266 are the next resistance level. A move below 1.2100 opens up the 1.2050 area and then a possible move towards the daily 200 ema around 1.19860.
Fundamentally the Eurozone’s outlook is improving but there have been some data points that will be of concern to the ECB. The decline in factory orders and industrial production in April follows weakness in retail sales, the ZEW sentiment survey and Eurozone PMI’s.
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The DAX closed lower yesterday after finding some support remaining at the 15,500 level. The swing high that formed is the most obvious place traders who have attempted to short the all-time highs will have placed their stops and without the previous significant swing low at 15,470 being tested today, the likelihood is that those traders who are short as others took profits will have to buy back their position as the trend is more likely to continue to the upside. It should be noted that the DAX has traded sideways or lower in the initial days following the ECB rate announcements, so even though the trend is still bullish traders should be prepared for little movement today to the upside.
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Today we have more views from the Bank of England economist Andy Haldane, who gave the traders of the British pound some soundbites to trade-off yesterday. Cable is currently struggling to move beyond the 1.4200 area, with solid resistance at 1.4240. Support was at the 1.4000 level, but the London open price action has now seen that level get breeched. A classic retest of that level would be a high probability trade to the downside, with the stops above the previous hourly swing high. The FTSE remains in a very tight consolidation pattern, with little signs of moving out of this range until we get a broader market reaction to some fundamental Risk-On data.
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Traders will be positioning themselves ahead of the Tier 1 data release but as the US CPI data drops at the moment President Lagarde is scheduled to start her press conference, it may be wise to refrain from taking any new trades until after all the news has been released to the markets.
