Safe haven flows could continue this week


  • The bearish pressure sweeping through markets at the start of the year does not bode well for risk appetite as a swathe of safe haven positioning takes hold. Is it anything new for markets though? Traders already know about the continued slowdown in China manufacturing and the switch to a more services driven economy is ongoing. Watch for the Caixin Services PMI out tomorrow morning. If this disappoints then the sell-off could become well set. The safe haven flows show little sign of abating today and a second bearish day would be a real concern that this will continue this week. The strength of the yen is a key feature of the past couple of weeks, as has been the fact that the 10 year Treasury yield is also under pressure.


  • There are some key markets testing and breaking important levels now. The movement in the euro and the strength of the dollar have both been extremely interesting. The euro started falling in the wake of disappointing German inflation and has now broken below the key $1.0810 support as Eurozone inflation has come in lower than expected. The euro is normally a safe haven play due to its use as a funding currency for risk plays, however with the disappointment of the inflation there was going to be a reaction. How low can the euro go? I do not see it breaking below the $1.0540 December low which was the low left in the wake of the ECB disappointment. I do not believe the ECB can or will move to increase its easing measures now at least for a few months and this will put a floor under the euro.
  • The FOMC minutes this week could remind traders that the Fed may be in tightening mode, but it will not be moving quickly. Furthermore, if there were to be a deterioration in the ISM Non-manufacturing PMI this would also question how solid the consumer in the US is to be able to drive the recovery. All that is before we even look at the big volatility event of the week which is Non-farm Payrolls.
  • Gold is another market seeing a strong safe haven flow. But there is considerable overhead supply to breach. Gold is a beneficiary of the tensions in the Middle East between Saudi Arabia and Iran and the price has been underpinned in 2016. Oil is another interesting market, being a commodity that has been under so much pressure for so long, however the consolidation is driving the potential for a base pattern recovery. These are two very interesting developments, having been so weak in 2015, could it be that they are setting up for a recovery in 2016? It is very early days but will be certainly one to watch.
  • As the Chinese authorities try to prop up Chinese equities, they are fighting against an on-rushing tide of selling pressure and this has been a trigger for global equity markets to come under significant strain. The bear pressure in the opening days of 2016 is a real concern, but there is no real correlation between the performance of the first day of the year and the outlook for the year ahead (it is a reliable signal on about 50% of the time). It is however it is more interesting to look at January as a whole where the correlation moves towards 70% according to Bloomberg, so the coming weeks will be important. The sharp increase in the VIX reflects the fear amongst equity investors, with the move above 20 a sign of ongoing strain in the markets.
  • Watch for: ISM Non-Manufacturing, FOMC monetary policy and Non-farm Payrolls



EUR/USD – Losing support at $1.0810 re-opens $1.0540      

  • The weaker Eurozone CPI data has put the euro under big pressure but will this continue? The euro is seen as a funding currency for risk and this could mean that downside will become limited. Furthermore, there are three US economic data points (ISM Non-manufacturing, FOMC minutes and Non-farm Payrolls) which will add to volatility. I still do not expect the euro to hit parity.
  • Breaking $1.0810 support has left the euro vulnerable to further weakness, with the pre-ECB reaction low at $1.0540 now wide open. Momentum is negative near term and the euro bulls are under increasing pressure.
  • Watch for: ISM Non-Manufacturing, FOMC monetary policy and Non-farm Payrolls

GBP/USD – Sell into strength

  • As the Fed has tightened and the UK economic indicators have flattered to deceive, sterling has come under pressure. The market seems to be questioning the potential for a BoE rate hike, even if the Fed is unlikely to be tightening quickly. A weaker sterling is good for the BoE as it is inflationary and good for trade balance.
  • The continued weakness on Cable suggests a test of the April 2015 low at $1.4563. Rallies fall over at ever lower levels and although the market looks a touch stretched there is currently little prospect of any meaningful recovery.
  • Watch for: ISM Non-Manufacturing, FOMC monetary policy and Non-farm Payrolls

USD/JPY – The resistance at 122.20 is increasingly key  

  • Safe haven flows are certainly benefitting the yen, but any improvement in the outlook for Saudi/Iran and perhaps the Chinese markets could prompt a turnaround. US economic data improvements could also prompt some support.
  • A retest of the big October low around 118 seems to be on now, a support that protects the August spike low at 116.46.  Technically the outlook is increasingly negative but the RSI is below 30 now which is a rarity for such an important currency and this could induce some support.
  • Watch for: ISM Non-Manufacturing, FOMC monetary policy and Non-farm Payrolls

Gold – Possible base pattern formation

  • Again, the safe haven flows have helped to support gold and coming amidst the renewed dollar strength this will give the bulls a real boost.
  • The overhead supply in the band $1077/$1098 remains key and the bulls will be looking at a two day close above $1077 and/or a daily close above the resistance at $1088.70. Momentum indicators have also picked up strongly and the prospects of a base pattern completing above $1088.70 are improving, with a completed pattern implying a recovery towards $1130.
  • Watch for: ISM Non-Manufacturing, FOMC monetary policy and Non-farm Payrolls

Oil – Possible base pattern formation

  • Concerns over demand (i.e. the prospects of China) and the potential for supply issues as Saudi/Iran lock diplomatic horns  has balanced out the oil price moves for now. The oil inventories are still a source of volatility.
  • Can WTI form a base pattern? As a downtrend channel has been broken, the resistance band $37.75/$38.40 is holding back a recovery now. Momentum indicators have a configuration consistent with a bear market rally (no real surprise there) so look for RSI above 50 as a potential trigger signal. Failing that the resistance will simply prove to be another chance to sell.
  • Watch for: Oil inventories, China news, Saudi/Iran developments

Indices – Big support levels are now in view  

  • S&P 500 – Wall Street remains fundamentally expensive and any bad news is being taken as an excuse for a big sell-off, which is a real concern early in 2016. The support around 1990 is key medium term now as a closing breach would be a big bear signal
  • DAX Xetra – Outperformance on the way up is being trumped by sharp underperformance on the way down as the elevated volatility of the DAX is harming the prospects of the bulls. The December low at 10,123 is now key and sell signals on the technical does not bode well near term.
  • FTSE 100 – With the oil price holding up relatively well, the FTSE 100 has begun to outperform its peers (well especially the DAX). This means that near term support at 6035 is protecting the key December low at 5872. However the RSI again failing at 60 and the sell signal on the Stochastics does not bode well as rallies continue to be sold into.



Wednesday 6th January

  • China – Caixin Services PMI
  • Eurozone – Services PMI
  • UK – Services PMI
  • US – ADP Employment
  • US – Trade Balance
  • US – Factory Orders
  • US Crude Oil Inventories
  • US – ISM Non-Manufacturing
  • US – FOMC meeting minutes

Thursday 7th January

  • Eurozone – Unemployment
  • US – Weekly Jobless Claims

Friday 8th January

  • US – Non-farm Payrolls
  • US – Average hourly earnings & Unemployment



Saturday 9th January

  • China – CPI & PPI

Tuesday 12th January

  • UK – Manufacturing Production

Wednesday 13th January

  • China – Trade Balance
  • US – JOLTS job openings
  • US Crude Oil Inventories

Thursday 14th January

  • Australia – Unemployment
  • UK – BoE Monetary Policy
  • US – Weekly Jobless Claims

Friday 15th January

  • US – Retail Sales
  • US – PPI
  • US – Industrial Production/Capacity Utilization
  • US – University of Michigan Consumer Sentiment (prelim)