03/02/2015: Weekly Trading Notes

KEY DRIVERS

  • The oil price and Greek debt negotiations are the key factors.
  • The oil price has been a key concern for market sentiment in recent months and it now seems to finally be building. The catalyst appears to have been the news of a sharp reduction in the US rig count but also the major oil companies announcing a reduction in capex which should help to curb future supplies. Oil has subsequently rallied c. 17% on WTI and c. 25% on Brent crude since their respective lows. This has helped to bolster share prices of the oil majors which are large constituents of equity indices.
  • The new Greek administration is to propose a debt swap rather than haircuts. It appears that the idea is to swap and re-profile for growth-linked and perpetual bonds. The market is taking this as a positive so-far on the perception that this should be more agreeable than mere haircuts for bondholders. The key question is whether Angela Merkel for example will accept such an offer. She  has been adamant in her stance so far that there would be no negotiation.
  • In forex the Dollar Index has come under pressure – much of which has been driven by a bounce in the euro. Near term support at 93.7 on Dollar Index.
  • Central banks continue to ease monetary policy, with the notable exception of the Fed (the Bank of England has hinted at a more dovish stance recently), with the Reserve Bank of Australia becoming the latest to cut rates. This has put pressure on the commodity currencies.
  • Non-farm Payrolls will be key (anything between 230k & 250k would be considered to be decent) but watch out for earnings growth which disappointed last month.
  • Watch for: Oil price continuing to find support, the Developments in Greece’s negotiation over its debt obligations, Non-farm Payrolls

Greece EU

MARKETS

EUR/USD – Outlook threatening to improve near/medium term 

  • News that the Greek finance minister is ready to offer the debt re-structure is being viewed favourably by the market. For the time being, the dovish news for the euro is all in the price and this heightens the prospect of a short covering rally. Non-farm Payrolls could see euro beginning to consolidate again on Friday but expect direction to be garnered from Friday’s report.
  • The outlook seems to be improving again as a near term consolidation is breaking out in the past few hours. Look for support being formed above $1.1420. Whilst there is much that needs to be done, with immediate next resistance at $1.1460.
  • Watch for: Updates on the progress of the Greek debt swap, Non-farm Payrolls

GBP/USD – Resistance at $1.5200 still key near term resistance

  • Sterling has rallied strongly on the UK construction PMI, but the focus will be on ISM Non-manufacturing and then Non-farm Payrolls. The dollar under pressure from the rallying euro, with sterling riding on that.  The Bank of England gives monetary policy update on Thursday but in front of the important Quarterly Inflation Report next week the chances of any significant shift are minimal.
  • A sharp turnaround in sentiment today has reversed what had looked like downside continuation. A move through the resistance band $1.5100/$1.5120 would suggest the near term bulls gaining confidence for another retest of $1.5200 which is the key near term resistance. The outlook has been improved by today’s rally but the downside pressure remains greater and there is still much for the bulls to do. Furthermore they are behind the euro in the recovery, with the euro already having broken out of its consolidation.
  • Watch for: ISM Non-manufacturing, BoE and Non-farm Payrolls

USD/JPY – Outlook is neutral but there is pressure mounting to the downside

  • The medium term prospects of Dollar/Yen are neutral, as the pair continues to consolidate previous gains. Consistent trading below 117.90 (23.6% Fib retracement) suggests downside pressure towards 115.50 which is also key medium term support. A near term confirmed breach of 117.20 would also encourage a correction.
  • Hourly technical indicators are pointing increasingly towards a more corrective outlook.
  • Watch for: ISM Non-manufacturing and Non-farm Payrolls

 

Gold – Look to form a medium term low c. $1252/$1255

  • The old key lower high of the October peak of $1255 is a key medium term level. Considering with the 38.2% fib retracement (at $1254) adds to the significance of this support. Technical momentum indicators suggest a near term correction within a bullish outlook. Expect a medium term low to be formed around here. Above $1285 re-opens the recent highs again.
  • Watch for: Non-farm Payrolls

 

Indices – Indices remain extremely volatile

Indices are still moving on a variety of different factors but volatility remains high. The S&P is still being held back by weak revenue growth in earnings season and outlook statements that have been citing a strong US dollar for their struggles. The DAX continues to move on the QE story but will also be buoyed by good news on Greece’s proposed debt re-structure. Support for the oil price and metals prices is helping to support FTSE 100, with the two sectors around a quarter of the market capitalisation of the index.

  • S&P 500 once again using the support around the rising 144 day ma (c. 1999) as the basis of support (the 4th time in 6 weeks), but the medium term outlook is increasingly neutral on technical indicators. Needs a break above 2064 resistance to re-open the highs
  • DAX trading at an all-time high but the implied projection target at 10,957 has now been achieved. Key initial support at 10,552.
  • FTSE 100 has struggled previously with vertigo as it approaches the 6905 multi-year high. The RSI also struggles around mid-60s too. The support band at 6732/6773 is now key near/medium term.

 

WATCH OUT FOR THIS WEEK

Wednesday 4th February

  • China – Services PMI
  • Eurozone – Services PMI
  • UK – Services PMI
  • US – ADP Employment
  • US – ISM Non-Manufacturing PMI
  • US – Crude Oil inventories

Thursday 5th February

  • UK – Bank of England monetary policy
  • US – Trade Balance

Friday 6th February

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

NEXT WEEK

Tuesday 10th February

  • China – CPI
  • China – Trade Balance
  • UK – Manufacturing Production
  • US – JOLTS Job Openings

Wednesday 11th February

  • US – Crude Oil inventories

Thursday 12th February

  • Australian – Unemployment
  • UK – Bank of England inflation report
  • US – Retail Sales
  • US – Weekly Jobless Claims

Friday 13th February

  • Eurozone – Flash GDP
  • US – University of Michigan Consumer Sentiment

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