Markets ended lower on Friday as equity traders decided it might be a good idea to bank profits ahead of the weekend. The Dow Jones Industrial Average dropped -0.17%, while the Nasdaq fell -0.98% and the S&P 500 declined -0.29%.
Even so, it was a positive week overall as stocks rebounded from the previous week’s losses, and overcame relatively hawkish comments from the Federal Reserve.
New Head Janet Yellen spoke decisively on Wednesday, and indicated that Fed tapering could be completely resolved by the fall, with interest rates rising to 1% by 2015 and 2.25% by a year after. Policymakers also said that Fed policy would no longer be tied to a 6.5% unemployment target, instead focussing on a wider range of data points.
Stock markets initially dropped on the news but recovered strongly as positive economic data offset the change in sentiment. In currencies, the US dollar was the main beneficiary with EURUSD and GBPUSD dropping heavily. Meanwhile, USDCAD moved to new highs.
Elsewhere, tensions in Crimea continued with a meeting between world leaders set for Monday morning in The Hague. As a result, European stock futures are currently off their highs with Germany’s Dax currently down around -0.3% approaching the open.
Week Ahead
As noted, traders will be watching Ukraine developments again this week, with world leaders set to meet in The Hague this morning.
On the economic front, there will be a raft of inflation data out of the UK on Tuesday which could give GBP/USD traders some decisions to make. Then on Wednesday we will see US durable orders with a 1.0% figure expected by analysts. Thursday will see US GDP numbers before UK GDP on Friday and German CPI.
FXeeda Results
Our forex signals made money on half of the markets that we traded last week, with good profits made on AUD/USD (282.5 pips from 29 trades) and USD/JPY (109.7 pips from 45 trades). Meanwhile, we hit a purple patch with gold, taking a total of 15,441 pips with a win ratio of 60%.
GBP/USD Outlook
Cable has dropped aggressively for two weeks in a row now, sending the currency to 1.65, around 300 pips down from its February high.
The 1.65 level is likely to see some support come in from GBP/USD traders and the market is also now touching the 20 period MA on the weekly chart. This could spell a period of support for the market so traders may want to exit their short positions here.
With plenty of economic releases this week, in the form of UK CPI, UK GDP and UK retail sales it could end up being a choppy week for traders. CPI is expected to come in at 1.7%, down from 1.9% last month, and and lower would be negative for the pound.
The appropriate response from traders should be to watch the 1.65 level and the 20 period MA. If this level does not hold, it will be a significant bearish indication for technical traders and this could lead the currency lower. Traders should therefore maintain a bearish bias this week.