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US markets starting to look vulnerable

Four markets in focus today: US 500, Spot Gold, EUR/GBP, and USD/CAD.

US 500

On the daily chart we saw the US index print a bearish reversal pattern, with the index trading above the previous day’s high and closing firmly below the previous day’s low. This is negative, although the negativity is cushioned by the fact that it wasn’t at the trend high. In US trade today we get the final read of GDP and jobless claims, while noted Fed hawk Sandra Pianalto speaks. It’s worth pointing out that the NASDAQ (IG quote this as the Tech 100) looks like a better shorting candidate.

Spot Gold

Having broken below a number a number of key support levels I have been highlighting of late, it’s now worth keeping an eye on the 55 and 200-day moving averages at $1299 and $1297 respectively. Gold is looking a touch over sold, but the path of most pain looks to be lower.

EUR/GBP

I closed my ‘one to watch’ long trade at 0.8365 and this proved to be fairly prudent given the moves to 0.8311. Comments from BoE member Mr Weale that were taken hawkishly were behind the falls. It promises to be a fairly interesting night for the pair with key data coming from both Europe and the UK. Price action favours holding shorts for a quick move to 0.8280, however today’s UK retail sales (expected to be up 0.5% month-on-month) and European M3 money supply (expected to grow 1.3% year-on-year) will be in play. European money supply is key here, as along with inflation is a key data point the ECB will look at. There is a lot of talk about ECB QE at some stage, but take this with a pinch of salt as we will have to see a much higher EUR or weaker deflation to see unsterilized bond purchases materialise.

USD/CAD

I actually feel the pullbacks we’ve seen in USD/CAD look like a good entry point for longs. There is some descent event risk for the pair, including the Quebec elections on April 7 and then the next BoC meeting on April 16, and both events promise to be bearish events for the CAD. Inflation is still a major concern for the Bank of Canada and they need it higher, thus they will continue to be far more accommodative than every other G10 currency central bank, except Japan. On the other end of the scale I still like the USD higher over the next 12 months and fundamentally would express this against the CAD, given the prospect of policy divergence.

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