Weekly Market Outlook - Risk Averse?

by Phil Moore May 7, 2014

Last week’s weaker than expected Non Farm Payrolls figures held dragged on the dollar recent recovery, with the USD Index pulling back from recent highs.

This pullback didn’t however reflect the general loss of risk appetite sparked from the figures. Key US stock Indices reacted by selling off from recent highs with both the Dow and Nasdaq looking ripe for further falls over the coming week.

While thematically the dollar looks to be setting up for further gains, the reality is that it needs some more sustained impetus. While a sustained period of risk aversion could build momentum, it is more likely that signs of an early rate hike could trigger this shift.

This week we see the release of the FOMC minutes which could provide clues as the trigger needed for a rate rise. We also have PPI figures due for release on Friday that could also stimulate an end of week response in the dollar.

Elsewhere UK Interest rates will be under the spotlight on Thursday. It is unlikely that the Bank of England will yet want to raise rates. However Mark Carney’s 7% unemployment threshold for raising rates is close so unless the benchmark is changed soon, we could see a rate rise sooner rather than later.

Other key news this week centers on the Asian. Pacific economics. Australian data for release on Tuesday will show the latest Employment change, while both trade balance and CPI figures from China could have ramification for overall global economic growth.

Key News This Week

Forex

EUR/USD – The pair say further falls over the week as predicted. Bouncing from a low of 1.3671 to end the week at 1.3700 the bias remains to the downside for further falls. 1.3750 offers resistance to the upside while a move below 1.3650 opens up the potential to accelerate falls to below 1.3400.

USD/JPY – Breaking above 103.40 the pair reached as high as 104.11 before falling back on Friday. Closing above 103.10 keeps the bullish bias in place. Fridays close was as 103. 24. Continue to look higher.

USD/CHF – A break higher on Friday saw the pair close back inside the falling channel which has governed price action this year. A daily close above 0.8915 is needed to make the bullish case. Tentatively look higher with 0.8798 offering support.

GBP/USD – The pair currently holds just above rising trend line support. Expect further gains this week if this level holds. Support begins at 1.6565 which resistance is 1.6661. Bias remains to the upside while 1.6565 holds on a daily close.

Major Indices

DOW – The Dow attempted to rally over the week but faltered at the close. Despite pushing beyond 16600 at the start of the week, the Index closed back at 16412. The technical picture looks ripe for further falls. A break of 16200 support would see us looking lower.

NASDAQ – The Index fell back over the week to break 4150 resistance. The shooting star formed on the chart puts support at 4100 at risk in the early part of the week. We think a break here could see a prolonged move lower. From the 4127 close, look lower over the week.

FTSE – The FTSE proved move resistant than most and pushed higher to end the week just off of highs at 6695. 6700 remains a hurdle, which if overcome early next week, could see gains extended. Look higher from current levels.

Commodities

Oil – Crude fell through support at $100 per barrel to bounce at $99, before finally ending the week at $101.09. The strong hammer formed on the weekly chart suggests this market has further to go moving forwards. However beware the current volatility.

Gold – $1300 looks like a key level for Gold. Having fallen lower over the week the market pushed back above this level to end the week higher. Given the technical picture we would continue to look higher from this level for a retest of $1400.