Monday Morning Update

Unless we see a remarkable turnaround this week then we are likely to see the first negative month for European equities this year, as well as the biggest monthly decline in stocks since May 2012. The sharp reaction from financial markets to even the suggestion that the current Fed stimulus program may be coming to the end of its road has prompted a sharp sell-off in not only stock markets globally, but bonds and commodity prices. This mere suggestion of stimulus withdrawal has shown how fragile the current stock market rally has been and it could be some time before markets settle down to where they should be as investors become more discerning about company fundamentals.
Looking at the Currency Market, The USD Index bounced from oversold levels near 80 on Wednesday when Bernanke delivered his Hawkish comments. The Index now trades near the 82 handle and this has seen Bearish developments for EURUSD pair and the GBPUSD pairs, Both down over 300 pips for the past 3 trading sessions. Looking at the EURUSD pair we have a cluster of daily moving averages close to the current price action and these will likely be retested soon. The 200 Day Moving Average is at 1.3065 and a break below this may point for additional losses as the fundamentals support a weaker Euro with another rate cut or more easing expected before the year end and the other issue in this pair is the likelihood of Dollar strength for the rest of the year with Quantitative easing purchases being tapered and the Dollar gaining from this development. Just as I have been typing a major U.S. Bank has issued a sell recommendation in EURUSD at an entry point of 1.3180, a stop at 1.3280 and a target of 1.28.
This has a nice risk-reward set up and looks a very solid trade.
Looking at Cable, over the past few weeks it worked similarly to the EURUSD as the USD long positions were wound down and the pair made rapid gains on the back of this. Along with this a lot of the U.K. Data has been positive of late and has supported Sterling pairs. The pair even managed to reach its 200 Day Moving Average at 1.5710 last week but could not close above it and now we trade at 1.5351. If the new governor of the Bank of England Mark Carney adopts a dovish policy which he is expected to do we may see the yearly low of 1.48 tested sometime before the year end.
Good luck in the Markets