04/11/2014: Weekly Trading Notes

KEY DRIVERS

  • Central bank policies have been key to forex moves recently – especially from the Federal Reserve and the Bank of Japan.
  • Corporate earnings season is strong – over 75% of S&P 500 companies beating on earnings.
  • S&P 500 back around all-time highs again, FTSE and DAX lagging though once again
  • Sovereign yields are showing an interesting dichotomy – Treasury and Gilt yields continue to drift higher; but Eurozone sovereign yields have started to move lower again in front of the ECB,  suggesting continued concern with the Eurozone economic condition and the threat of deflation remains paramount.
  • Commodities are under significant pressure again with gold the lowest since July 2010, Silver the lowest since February 2010, and WTI Oil the lowest since October 2011. Precious metals weakness driven by strong dollar post the end of QE, oil driven lower by Saudi Arabia cutting US prices and also lack of global demand.
  • Economic Data: ECB monetary policy (unlikely to do anything drastic), but could it induce another Euro technical rally?
  • Economic Data: Non-farm Payrolls: 231,000 expected would be another decent number, strong data driving a stronger dollar.
  • WATCH FOR: Further oil price weakness(theoretically bullish for global economy, but could it hide a deeper issue of struggling demand).

 

MARKETS

EUR/USD – Sentiment remains negative under $1.2600 

  • Combination of dollar strength and euro weakness continues to be a drag on EUR/USD.
  • Disappointing Eurozone PMIs and a stronger US ISM number should continue to drive the euro low.
  • A series of lower highs over past few weeks has pulled the euro below the support at $1.2600 and subsequently below $1.2500.
  • Pressure should continue and selling into any rallies seems to be the viable strategy.
  • The caveat would be that the ECB continues to shy away from further easing measures and this could induce a snap rally on Thursday
  • Watch for: ECB monetary policy, Non-farm Payrolls

GBP/USD – Early signs of an improvement in outlook 

  • Sterling is beginning to outperform the euro again (see the dip in EUR/GBP).
  • Whilst using the near term rebounds as a chance to sell remains a viable strategy (the series of lower highs continues) be careful as the selling momentum is not all that strong now.
  • Expect a retest of the support at $1.5873 but there may be initial signs of a bottoming in sentiment.
  • Watch for: Bank of England monetary policy, Non-farm Payrolls

USD/JPY – Looking to use near term corrections into support as a chance to buy

  • Big divergence in central bank policy with Fed stopping QE and BoJ extending QE.
  • An incredible move followed the extended easing by the BoJ from 60 trillion yen (c. $640bn) this year to 80 trillion yen (c. $730bn).
  • The 100% Fib projection target at 113.77 is providing an initial stopping area, however buying into any weakness seems to be a good idea now.
  • Support initially 112.50/113.
  • If the market consolidates around these new levels to validate the breakout there could be room for further upside in due course.
  • Watch for: Non-farm Payrolls

 

Gold – Breaking the support at $1180 has opened further downside

  • Gold is under pressure amid the dollar strength.
  • Technically outlook is incredibly weak and the next supports are $1157 and $1123.
  • However volatility could be a feature over the coming weeks.
  • The BoJ QE should be supportive (if the dollar doesn’t continue to soar).
  • Also as the 30th November Swiss Gold Initiative referendum draws near there could be some significant volatility if the polls suggest a close vote.
  • Watch for: Gold continuing to trade in negative correlation with the US dollar.

 

Indices – Strong rebounds in global indices to unwind the huge declines.

Earnings season in the US has been positive and helped to drive Wall Street back towards its highs again.

European indices continue to underperform Wall Street.

  • S&P 500 has rallied over 10% since the market bottom and yesterday broke an intraday all-time high.
  • DAX has also rallied over 10% since its low – but the sell-off was so significant that the index is almost 9% below it all time peaks. Resistance around 9400.
  • FTSE 100 has only rallied just under 7% and is stumbling around the resistance band 6529/6588.

 

WATCH OUT FOR THIS WEEK

Wednesday 5th November

  • UK – Services PMI
  • US – ADP Employment Change
  • US – ISM Non-manufacturing PMI
  • Japan – BoJ meeting minutes

Thursday 6th November

  • Australia – Unemployment
  • UK – Manufacturing Production
  • UK – Bank of England monetary policy
  • Eurozone – ECB monetary policy and press conference

Friday 7th November

  • Australia – Reserve Bank of Australia monetary policy statement
  • US – Non-farm Payrolls

 

NEXT WEEK

Monday 10th November

  • China – CPI

Tuesday 11th November

  • US – Veterans Day public holiday

Wednesday 12th November

  • UK – Unemployment and earnings growth
  • UK – Bank of England Quarterly Inflation Report

Thursday 13th November

  • China – Industrial Production
  • US – Weekly Jobless Claims

Friday 14th November

  • Eurozone – French/German/Italian and Eurozone GDP
  • Eurozone – CPI (final)
  • US – Retail Sales
  • US – University of Michigan consumer sentiment (prelim)

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