Breakfast Blog

Good Morning Traders,
                                    This is the start of a big risk week for all the Major markets with the ECB's monthly meeting on Thursday followed by The Non-farm Payroll's on Friday afternoon from the States. The European Equity markets rallied all last week on bad news and have already priced in a cut to interest rates, so if the ECB don't cut rates on Thursday you can expect a massive pull-back in equity indexes and for a significant rally in the Euro currency.
Friday saw the release of the U.S. GDP for Q1, which came in much softer then forecast at 2.5% against the  3.0% growth expected. The Market took this data very well as it supports continued quantitative easing for the United States which will allow the Stock Markets to drift higher and higher. This is a very difficult thing for the Market bear's to accept as good and bad news pushes the Stock futures higher and complacency seems to be at an all time high as the VIX approaches all time lows.  From a technical point of view the S&P 500 and the DAX look to both be forming the second shoulder of a head and shoulders reversal pattern on the Daily charts. This is an extremely bearish pattern as it shows the price struggling to go higher. Along with the Sell in May and go away saying that old fashioned investors coined about the Stock Market making its yearly gains in the first 4 months and the fact that the Market topped out on the 25th April last year their would be a lot of arguements to start entering short positions now.
However saying this, from a fundamental point of view the stock market looks like it could continue to drift higher towards 1620 or higher on low volume, maximum complacency and an attitude that the Market will be supported by central banks no matter how poor the economic data is.
Looking at Currencies, the EUR/USD is approaching the 1.31 handle as I type, supported by the formation of a new government in Italy over the weekend and with Italian bonds under 4% and the Dollar weaker from recent poor data the EURUSD could well drift higher regardless of a rate cut or not.
Today see's the release of German CPI data at 13 30 and some consumer confidence figures this morning, But all Traders will be waiting for The big risk events on Thursday and Friday and we suspect the markets may be quite range bound until then (Famous last words)!!
Some good levels to look out for in the EURUSD is 1.3020 downside and 1.31-1.3120 topside. Both Levels will be well defended. Looking at the Dax on a daily chart, There will be a lot of resistance around the 7,890 level, were at 7850 as i type. As I mentioned earlier, the 7890 level is the first shoulder of this Daily head and shoulders pattern that is forming. Looking at the S&P 500, it looks well supported on the downside as it tested the previous all time high of 1576 on friday post the GDP release and it held and may see further upside towards 1592 today, however if it breaks down through 1576 i would imagine a lot of traders shorting it as it would look like a topping pattern.
Good luck in the Markets. Lowkey