Weekly Trading Notes – Which way to turn when bad news is good?


  • Risk on, risk off. Good news is bad, bad news is good. This will make the assessment of data very difficult in the coming days. Following such a disappointing Non-farm Payrolls report last Friday there are serious question marks over whether the Federal Reserve will be able to hike interest rates at all in 2015. The market has taken this with positivity as it suggests the end of ultra-loose monetary policy is not with us yet, but I have serious reservations as to the longevity of such a rebound. The fundamentals are turning, and if not increasingly corrective, then certainly the US recovery is seriously stuttering. I still see the US 10 year yield as a key barometer and it is still trending lower to suggest that a rebound could still be simply a bear market  rally.


  • What happens now though? Are we back in the position that good economic data becomes bad for sentiment? It is unlikely that the market will continue to rally on bad news, but also rally on good news. I view the falling 10 year Treasury yield as a key gauge of sentiment near term and unless this starts to rise again I struggle to see how any rally will be sustainable.
  • The action on forex markets has been mixed, with the consolidation ranges continuing and a lack of decisive direction. The interesting move could come from the ECB now. Is there going to be a reaction from the ECB to the deterioration in the US data which now could be set to push back expectations of Fed tightening into 2016. There have been investment banks that have come out to revise higher their forecasts for EUR/USD and the prospect of a stronger euro could lead to some sort of verbal intervention, or jawboning from Draghi (he has form in that area).
  • Central banks are in focus this week and we have already had the Reserve Bank of Australia with its monetary policy. The have decided to stand pat this month which has helped to boost the Aussie today (in a dollar negative market mind). However the assertion that the RBA is still accommodative and it is still likely to cut rates again in 2015 (according to the futures markets it is likely to be a 25 basis points cut in December). This may result in underperformance by the Aussie against other forex majors. The yen will be watched on Wednesday as the Bank of Japan announces. The recent dip back into deflation territory could persuade members to vote for an extension of easing measures which currently stand at 80 trillion yen per year. The outlook for sterling also is in focus with the Bank of England announcing also. Highly unlikely to move on rates yet, the latest voting makeup was 8:1 with the one dissenting voice voting for a hike being Ian McCafferty. Could there be other hawks ready to reveal themselves this month? Kristin Forbes and Martin Weale must be close if their rather hawkish recent rhetoric is anything to go by. The Fed also releases its minutes from the latest meeting but the impact will be reduced as Yellen has already given a detailed press conference and there have been several speeches from FOMC members in subsequent days.
  • It is the beginning of earnings season in the US on Thursday as Alcoa unofficially kicks off proceedings. The forecasts suggest that across the S&P 500 there will be a second consecutive quarter of declining earnings. There are a few points to make here. Earnings are expected to decline by 4.5% whilst revenue is expected to be 3.3% lower. However strip out the battered energy sectors and the picture does not look too bad, with the earnings then forecast to grow by 2.9% with revenues showing 2.4% growth. The big question is though whether the slowdown in corporate earnings can justify the market which is still trading on a historic p/e of over 18 and a yield of just 2.6%.
  •  There has been an interesting improvement again in commodities, and I continue to see the support in the oil price as important to prevent further market declines. I see the support on WTI (at $43.20) and Brent Crude (at $46.00) to be the reason behind why the FSTE 100 (over 11% weighted in oil & gas) has been outperforming the DAX (no weighting in oil and gas) in recent weeks. The selling pressure has for now also abated on the base metals. The issue is that if these commodity markets break down then this poses questions on global demand and this would weigh heavy on equity markets.
  • Watch for: BoJ monetary policy, BoE monetary policy, FOMC meeting minutes



EUR/USD – Expect the euro to hold above $1.1100 pivot level      

  • The near term outlook has been supported by the weak Payrolls data but a big unknown is whether the ECB will try to jawbone the euro lower. A lack of US data could mean a quiet week if they do not.
  • The support at $1.1100 is increasingly strong but the euro also appears unable to breach the resistance at $1.1300 and so the pair is rangebound. Technically the momentum indicators are extremely neutral and do not signal any breakout as yet.
  • Watch for: FOMC meeting minutes

GBP/USD – The outlook is on a knife edge amidst consolidation

  • The weak payrolls report means that there needs to be a reassessment of dollar expectations and this has allowed sterling to find support. However focus on the Bank of England will be on the minutes which will show how the MPC views the slowdown in the UK economy with the composite PMIs dipping to lows not seen since 2012 which previously induced BoE easing.
  • The support has come in just above $1.5100 and the near term recovery signals are building, however the support is still uncertain and the sterling bulls have to be firm in the recovery. The momentum indicators are trying to turn around but there is no confirmation yet.
  • Watch for: BoE monetary policy

USD/JPY – Expect the choppy range 118.30/121.70 to continue for the time being  

  • The Bank of Japan is not expected to increase monetary easing despite the CPI moving into deflation territory. However the BoJ may imply future easing which could also push the Dollar/Yen pair higher.
  • The tight range continues between 118.50/121.70 and looking at the Bollinger Bands continues to tighten by the day, which continues to suggest that a breakout could be a big move, consistent with previous trading on Dollar/Yen. For now though we await the breakout.
  • Watch for: BoJ monetary policy, FOMC meeting minutes

Gold – The long term bear trend remains intact as rallies are a chance to sell

  • Gold has rallied on the weak payrolls data that suggests the Fed will struggle to hike rates this year. A continuation of weak US data would be supportive of gold.
  • The top of the rally at $1156 maintained the long term bear trend and although there has been another rebound I still see this as counter-trend and a chance to sell for what I see as a return to the low at $1098. Let the near term bull move play out and then look to sell.
  • Watch for: BoJ monetary policy, FOMC meeting minutes

Indices – Watch the US 10 year Treasury yield and the Oil price which are both gauges of sentiment   

  • S&P 500 – A sharp S&P 500 rally needs to now be built on and needs to make a decisive breach of the 50% Fibonacci retracement of the huge 2103/1867 sell-off at 1985 which has previously been a basis of resistance. Earnings season will now become a distraction but whether it is a positive or not remains to be seen.
  • DAX Xetra – The DAX is in recovery mode, but is now into the key resistance band 9900/10,000 and if the move can continue then the bulls will be eying 10,336.
  • FTSE 100 – The recovery on the FTSE 100 is more advanced than the other major indices (helped higher by support for the oil price). A two day close above 6384 would be a positive move and a real statement of intent by the bulls who have been under so much pressure for so long. RSI moving above 60 would also be a sign of strengthening momentum and a move back to the next resistance band 6430/6500.



Wednesday 7th October

  • Japan – BoJ monetary policy
  • UK – Manufacturing Production
  • US Crude Oil Inventories

Thursday 8th October

  • UK – BoE monetary policy
  • US – Weekly Jobless Claims
  • US – FOMC meeting minutes

Friday 9th October

  • UK – Trade Balance
  • Canada – Unemployment



Monday 12th October

  • US Public Holiday – Columbus Day

Tuesday 13th October

  • UK – CPI
  • Eurozone – German ZEW Economic Sentiment

Wednesday 14th October

  • China – CPI
  • UK – Unemployment/Average weekly earnings
  • US – Retail Sales
  • US – PPI

Thursday 15th October

  • Australia – Unemployment
  • US – CPI
  • US – Empire State manufacturing
  • US – Philly Fed manufacturing
  • US Crude Oil Inventories
  • New Zealand – CPI

Friday 16th October

  • Eurozone – CPI (final)
  • US – Industrial Production/Capacity Utilization
  • US – Michigan Sentiment (prelim)
  • US – JOLTS job openings