Weekly Trading Notes – Is this a bottom for the sell-off?


  • Markets are in the midst of a hugely volatile week and we are only half way through Tuesday. “Black Monday” originated in Asia as the People’s Bank of China sat on its hands. An initial bounce back on Tuesday has now been compounded by policy action finally coming from the PBoC. Will this restore confidence in the markets which have been shot to pieces in recent sessions? That remains to be seen. I had a feeling yesterday that it all felt a little climactic and the bounce back is underway. It is far too early to know whether this is the end of the sell-off or just a “dead cat bounce”. However, as I said in my morning report, there are often these stories that turn sentiment at the bottom. Will we look back and speak about that email Tim Cook sent out yesterday noting that Apple’s performance in China was still strong, be the turning point? Remember that infamous email from Vikram Pandit CEO of Citigroup on the day of the market bottom in March 2009?


  • China has cut its 1 year lending rate by 25 basis points, cut its 1 year deposit rate by 25 basis points and cut the banks deposit reserve ration by 50 basis points. Could this be the big action that the market in Asia was waiting/hoping for? It seems to be a fairly decisive move and according to the PBoC has been made because “there has been a short fall in liquidity caused by fluctuations in forex markets”.
  • So China continues to dominate investor sentiment and this is likely to continue. The global growth scare from China which has driven commodities lower and seems to have now even impacted on market expectations of a Fed rate hike. Having had expectations seemingly nailed on for a September hike just a few weeks ago (I have been saying December for months), these expectations have been dramatically revised back. This market turmoil has seen Treasury yields sharply lower and the dollar significantly sold off. Equity markets have also been significantly sold off as risk appetite has plummeted.
  • Can commodities make a comeback now? The price of WTI and Brent Crude is over 3% higher today. Whilst this is a mere blip on a chart that has fallen over 30% in the past 2 months, a recovery has to start somewhere. We need to see the big downtrend broken first before getting excited though. The gold price is an interesting one too as it did not rally with the other safe haven trades (and for that matter the dollar weakness) yesterday. This leaves me concerned that a correction I the recent rally may now been seen.
  • Volatility has spiked higher with the VIX Index of S&P 500 options volatility spiking to levels not seen since the 2009 market crisis. This happens during times of market stress and fund managers flock to take out short protection for their portfolios.  Peaks in the VIX are accompanied by big market lows. Let’s just hope that the VIX starts to fall now.
  • Aside from reaction to China, there is a lot going on this week with the Personal Consumption Expenditure and Jackson Hole the key events. Another reading of 1.3% on core PCE will finally put to bed the concept that a September rate hike could be seen (if it was not already). Fed speakers at the Jackson Hole conference will be watched. Already Jeffery Lacker has dialled back on his comments over a September rate hike, and is also noting that rate hikes do not have to be 25 basis points at a time. Quite how other members come across will be a driver of further dollar volatility..
  • Watch for: Jackson Hole, Personal Consumption Expenditure



EUR/USD – The breakout support at $1.1465 is key near term        

  • I see the move on the euro got ahead of itself amid the market turmoil and the reversal of the euro carry trade. I expect that the run that added 700 pips n 4 days has scope to be unwound. As the market settles down the trade will have a chance to unwind. The PBoC rate cut is a stabilisation method and should help to unwind the euro. Market volatility will be around the US GDP data, Jackons Hole and also the core PCE.
  • Having broken out the initial support band $1.1430/$1.1465 is supportive. This level has already been tested today and a drift back below this (with a close below) would open an unwind back towards $1.1300.
  • Watch for: Jackson Hole, Personal Consumption Expenditure

GBP/USD – Holding the break above $1.5690 opens the highs again

  • The market seems to be fixated on the fallout for the US rate hike following the market volatility recently. Although it could also impact on a Bank of England hike, the fact that it is already expected to be in at least Q1 next year gives it a buffer that sterling is benefitting from.
  • We have finally seen the upside break above $1.5690 and the lack of reversal today is beginning to change my perceptions and concerns that Cable has been a drag in recent sessions. The dollar has been unable to make any real headway into the sterling gains and this could mean a test of $1.5928. The support band $1.5630/$1.5720 has been bolstered.
  • Watch for: Jackson Hole, Personal Consumption Expenditure

USD/JPY – Mixed signals means consolidation for now

  • The safe haven trade had a spike but that is now being unwound as Dollar/Yen is beginning to gather its composure again. There has been little suggestion of further monetary easing from the BoJ but it will be interesting if officials do not make any sort of comments on the recent strength of the yen.
  • The spike below support at 118.30 is being unwound and 50% Fibonacci of the recent sell off is at 120.87 which is a near term line in the sand. There is in fact lots of resistance overhead at 119.80/120.87, however if this band can be breached then the outlook will improve once more.
  • Watch for: Jackson Hole, Personal Consumption Expenditure

Gold – Possible correction back to $1132

  • I am concerned over the lack of rally seen during “Black Monday” for a classic safe haven trade. Also failing to move on the dollar weakness, just means that if this rebound for the dollar continues then the gold price could come under corrective pressure.
  • A move below $1148 completes a $20 top pattern that implies around $1128 but most likely a retreat back towards the old floor in place at $1131.85. Momentum indicators are not too corrective yet and untilt eh small top is confirmed then it is not a top.
  • Watch for: Jackson Hole, Personal Consumption Expenditure

Indices – Performance could reply on reaction to China rate cut and also PMI   

  • S&P 500 – The huge sell off is now going to see a sizeable rebound. Talking about resistance levels is a touch spurious for now, so once the market settles then we can gauge the true impact on the outlook. If the VIX starts to fall away could this be a signal of another key low in place following the sharp market declines?
  • DAX Xetra – The DAXA has rebounded back above 10,000 which is a historic level and needs to be held again. The dust is still settling on a remarkable period in the market. It is too early to know the long er term impact on the market, but the outlook for Chinese growth (and therefore German exports) seems to still be a key impact which is why the China PMI on Tuesday will be crucial.
  • FTSE 100 – We need to wait to see whether 5768 is the key low of 2015 as the volatility is still sizeable. Key overhead resistance comes in at 6400.



Tuesday 25th August

  • US – Case Shiller Home Prices
  • US – CB Consumer Confidence
  • US – New Home Sales

Wednesday 26th August

  • US – Durable Goods Orders
  • US Crude Oil Inventories

Thursday 27th August

  • US – Q2 GDP (Preliminary)
  • US – Weekly jobless claims
  • US – Pending Home Sales
  • Jackson Hole Symposium

Friday 28th August

  • Japan – CPI
  • UK – Q2 GDP (second reading)
  • US – Personal Consumption Expenditure
  • US – University of Michigan Consumer Sentiment
  • Jackson Hole Symposium



Monday 31st August

  • Eurozone – Flash CPI

Tuesday 1st September

  • China – Manufacturing PMI
  • Japan – Manufacturing PMI
  • Eurozone – Manufacturing PMI (final)
  • UK – Manufacturing PMI
  • US – ISM Manufacturing PMI

Wednesday 2nd September

  • Australia – GDP
  • US – ADP Employment Report
  • US – Factory Orders
  • US Crude Oil Inventories

Thursday 3rd September

  • Eurozone – Services PMI
  • UK – Services PMI
  • Eurozone – ECB monetary policy + press conference
  • US – Weekly jobless claims
  • US – Trade Balance
  • US – ISM Non-manufacturing PMI

Friday 4th September

  • US – Non-farm Payrolls
  • US – Average Hourly Earnings


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