02/09/2014: Weekly Trading Notes

KEY DRIVERS

  • Geopolitical tensions continue to rumble on in eastern Ukraine, although negotiations between Ukraine and Russia are on-going.
  • Dollar strength is having a significant impact across financial markets (especially on major forex pairs and gold).
  • All eyes on the ECB and what they choose to do (or should that be not do) this week with regards to QE on Thursday.
  • Eurozone sovereign bond yields continue to fall and suggest that the market is pricing in further ECB easing.
  • The slide in gold is being driven by a stronger dollar, interspersed by occasional jumps higher on geopolitical tensions
  • Equity markets continue to improve with Wall Street continuing to push to new all-time highs and European markets trading around key upside resistance levels.
  • Volatility has settled down, with VIX stabilizing around 12.
  • KEY RELEASES: ECB monetary policy, Non-farm Payrolls

 

EUR/USD – Continue to use any intraday rebound as a chance to sell  

  • ECB members continue to look to talk the euro lower, whilst bond markets are pricing in QE.
  • Furthermore the on-going dollar strength is adding a double whammy of downside pressure.
  • A retest of the September 2013 key low around $1.3100 is imminent with the big head and shoulders top pattern targeting $1.3000.
  • Technical indicators are incredibly weak.
  • Watch for: ECB monetary policy and Non-farm Payrolls

GBP/USD – Continue to sell rallies within the 7 week downtrend

  • Price action  in the past 2 weeks suggested perhaps the argument was becoming more balanced but this was hampered by the weak UK manufacturing PMI.
  • Strong US data could drive Cable lower this week, but the Bank of England (may come out more hawkish) is an interesting variable too.
  • A retest of the March low at $1.6460 is now open.
  • Above $1.6645 to improve the outlook.
  • Watch for: Bank of England monetary policy, Non-farm Payrolls

USD/JPY – Breakout targets 105.44 key December high

  • The outlook has turned firmly long term dollar bullish now.
  • Driven by recent dollar strength and sustained by positive US economic data.
  • The bulls are firmly in control with a bullish flag pattern that has formed on a move above 104.43 that suggests the December high at 105.44 will now be tested.
  • Key supports now 104.43 and 103.50.
  • Watch for: Further strong US economic data(ISM data, Non-farm Payrolls) to drive expectations of a Fed rate hike.

 

Gold – Use rallies as a chance to sell, the breach of $1273 has re-opened $1240

  • Dollar strength is a drag on gold and with an absence of the “war premium” perception that investors no longer deem necessary gold is in decline.
  • Expect a channel decline where rallies fall over at lower levels and are seen as a chance to sell.
  • Next support at $1258.85 but little really until $1240 key June low.
  • Watch for: US data driving dollar strength (subsequently gold lower) and geopolitical tensions escalating in Ukraine

 

Indices – Continue to prefer S&P 500

Indices still holding up well, but there could now be a lack of drivers at the end of earnings season.

September is a historically very tough month for investors – could it once more be time to take profits on these recent runs higher?

S&P 500 outlook is strong, whilst DAX remains volatile around the Russian geopolitics, FTSE more sedate in its gains.

  • S&P 500 continues to make gains above 2000, with support around 1990.
  • DAX needs to break through the 9600 pivot level resistance and the 61.8% Fibonacci retracement of the big sell-off at 9612. Support around 9400.
  • FTSE needs to close above the key reaction high at 6834 to continue the rally and open a retest of the 6895 highs.

 

WATCH OUT FOR

Tuesday 2nd September

  • US – ISM Manufacturing PMI

Wednesday 3rd September

  • China – Services PMI
  • Australia – GDP (Q2)
  • UK – Services PMI
  • Canada – BoC monetary policy

Thursday 4th September

  • UK – Bank of England rates decision (plus statement)
  • Eurozone – ECB rates decision (plus press conference)
  • US – ADP Employment Report
  • US – ISM Non-manufacturing PMI

Friday 5th September

  • US – Non-farm Payrolls
  • Canada – Unemployment

 

NEXT WEEK

Monday 8th September

  • China – Trade Balance

Tuesday 9th September

  • Japan – BoJ meeting minutes
  • UK – Manufacturing Production
  • UK – Inflation Report Hearings

Wednesday 10th September

  • New Zealand – RBNZ monetary policy

Thursday 11th September

  • Australia – Unemployment
  • China – Inflation
  • Eurozone – ECB monthly bulletin
  • US – Weekly Jobless Claims

Friday 12th September

  • US – Retail Sales
  • US – University of Michigan consumer sentiment

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