Weekly Trading Notes – China and FOMC dominate trading thoughts


  • Market are really being impacted by the ongoing concerns over China. The flash PMI falling to a 15 month low was a real blow for sentiment and this just exacerbated the recent slide in commodity prices. Commodity prices are taken to be a barometer of the global economy, as a strong and vibrant growth will have strong demand for base metals and oil. This does not seen to be the case with oil continuing to fall (now back in official bear market territory) and copper prices back at multi-year lows. Add in the concerns generated by the volatility of the recent plummet of Chinese equities and this is really impacting across market sentiment. Equities are especially vulnerable in this environment.

china volatility

  • In forex markets the big focus will be on the FOMC this week. Will the Fed hike rates? Quite simply, no. However the hints could come in the FOMC statement (there is no press conference this month). Any hawkish hints at a possible September hike could help to give the dollar some direction after a rather difficult period of fluctuation where it has been searching for direction. The rebound in the euro is interestingly back to once more around the $1.1050 pivot level as the FOMC meeting approaches and this could be fairly apt, as the FOMC is likely to give the market some direction at least in the near term.
  • US earnings season has hardly shot the lights out so far. There has obviously been the usual massaging of the expectations lower in order to “beat” on results, however this is doing little to mask what is still a concerning corporate outlook. With just over a third of S&P 500 companies having reported, earnings growth is still expected to be -2.5% for the S&P 500 (including subsequent upgrades to expectations). However the real concern is that revenue is expected to fall back by 4.0% for the quarter now (slightly revised higher from -4.4% just a few weeks ago. For a country that is supposedly on the brink of engaging monetary tightening, this does not bode well for growth going forward. Perhaps with the sharp decline in the value of the euro in recent months, focus should be more on the relatively cheaper European equities?
  • Gold traders are still looking at the impact of China. The sharp falls of last week are relatively settled but there is still no real sign of a recovery. The combination of factors which have pulled gold lower (Chinese lack of demand, stronger US dollar) are still an issue – and the latter could resurface once more if the FOMC is hawkish.
  • Greece has begun negotiations with its creditors over a 3rd bailout. Don’t hold your breath as if recent history is anything to go by then we could be waiting a while. Any news of a fallout in the talks though could reintroduce a safe haven trade once more and in this case then the peripheral Eurozone yields would push higher, the Bund again become preferred, whilst also the Japanese yen would come back into play.
  • More housing data for the US (Case Shiller, Pending Home Sales) and the Advance reading at US Q2 GDP growth wrap around the FOMC on Wednesday. The other key factors for the euro and yen this week would be the inflation data for the Eurozone and Japan .
  •  Watch for: FOMC monetary policy and Advance US Q2 GDP



EUR/USD – The FOMC will be pivotal with Euro trading around $1.1050 again       

  • Eurozone data has been picking up recently and this has helped the euro to bounce near term, however the FOMC will undoubtedly be the key impact this week and will help to drive near to medium term direction. The Eurozone should continue to reflate with flash CPI on Friday
  • The medium term outlook continues to pivot around the $1.1050 level, with the bounce off $1.0808 in the past week unwinding selling pressure once more. However unless the Fed turns unexpectedly dovish, this is simply likely to be a chance to sell once more. Watch the falling 144 day ma as a basis of resistance now.
  • Watch for: FOMC monetary policy and Advance US Q2 GDP, and Eurozone flash CPI

GBP/USD – Choppy trading to continue, with data driving moves

  • Choppy trading continues to come with data fluctuations (from both US and UK side) which are doing little to tidy up the issue of when the central banks will move on rates. The FOMC could give direction this week, but it could prove to only be short lived as the BoE seems intent on sending out signals that the MPC is ready to follow suit.
  • There is little real technical direction and until Cable trades clear of $1.5670 to the upside or below $1.5330 there is not going to be any decisive move on the cards.
  • Watch for: FOMC monetary policy and Advance US Q2 GDP

USD/JPY – Resistance at 124.50 holds the key

  • The lack of safe haven flow is underpinning the pair and any hawkish moves from the Fed is sure to send the dollar strongly higher.
  • Failure at the key near/medium term resistance band at 124.20/124.43 suggests that this resistance is increasingly growing. A closing breakout would open the multi-year high at 125.85 but the momentum indicators are suggesting the bulls are struggling to gain traction. Maybe a hawkish FMC would do the trick. Support again around 122.00.
  • Watch for: FOMC monetary policy and Advance US Q2 GDP, and Japan CPI

Gold – Sell the bounce

  • Gold could get another bout of volatility this week on the FOMC as anything hawkish would drive a stronger dollar and impact negatively on the gold price.
  • The longer term implication of the break below $1132 old support suggests that rallies are now a chance to sell because the old support is new resistance. The technicals indicators are stretched near term and this adds to the potential for a rebound, but I would expect it wo be sold into as there is little to back for a sustained gold price rebound.
  • Watch for: FOMC monetary policy and Advance US Q2 GDP

Indices – Wall Street to still move on earnings, DAX is still a mover on the negative correction with the euro  

  • S&P 500 – 174 companies in the S&P 500 are reporting this week with earnings season in full swing. However lacklustre sales growth and the commodities rout has seen the index sharply lower in recent days and there could be a test of the key support band at 2040 if this downside pressure continues. Momentum is negative.
  • DAX Xetra – With negative momentum, bearish sentiment for equities and a rebound on the euro, the DAX has not been spared the selling rout. It is important for the bulls to build from today’s rebound as if they are not careful then the market could find a test of the key July low once more. Any good news out of the Greek bailout negotiations (oh no, are we here again…?) then this could help to drive the index higher again.
  • FTSE 100 – The impact of metals and oil price declines on the FTSE 100 is significant and is a big factor in why the index has been under so much pressure in the past week. The bulls will need to build on this support to prevent another look at the 6430 July low again. Overhead resistance in the band 6650/6700.



Tuesday 28th July

  • US – Consumer Confidence

Wednesday 29th July

  • US – Pending Home Sales
  • US – Crude Oil Inventories
  • US – FOMC monetary policy

Thursday 30th July

  • US – GDP (Q2 Advance)
  • US – Weekly Jobless Claims

Friday 31st July

  • Japan – CPI
  • Eurozone – Flash CPI
  • Eurozone – Unemployment
  • Canada – GDP
  • US – University of Michigan Consumer Sentiment (revised)



Monday 3rd Aug

  • China – Manufacturing PMI
  • Eurozone – Manufacturing PMI
  • UK – Manufacturing PMI
  • US – Personal Consumption Expenditure
  • US – ISM Manufacturing PMI

Tuesday 4th Aug

  • Australia – RBA monetary policy
  • UK – Construction PMI
  • US – Factory Orders
  • New Zealand – Unemployment

Wednesday 5th Aug

  • UK – Services PMI
  • US – ADP Employment Report
  • US – Trade Balance
  • US – ISM Non-manufacturing PMI
  • US Crude Oil Inventories

Thursday 6th Aug

  • Australia – Unemployment
  • UK – Manufacturing Production
  • UK – BoE monetary policy
  • US – Weekly jobless claims

Friday 7th Aug

  • Japan – BoJ monetary policy
  • US – Non-farm Payrolls
  • US – Average hourly earnings


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