09/09/2014: Weekly Trading Notes

KEY DRIVERS

  • As chances of Scottish independence increase this is impacting on UK assets: Sterling sold off, equities under pressure (esp those with Scotland exposure)
  • EU sanctions stepped up on Russia, but what will the retaliation be? Restriction of air space?
  • Dollar remains very strong, testing a 14 month high – but looking overbought against several key forex majors.
  • Gold is still under pressure (on strong US dollar and talk of eastern Ukraine ceasefire).
  • Equity markets rebound is stumbling.
  • Volatility has settled down, with VIX between 12/13.
  • WATCH FOR: Scottish referendum polls creating volatility  

 

EUR/USD – Extreme oversold position runs the risk of a technical rally  

  • The euro has been under renewed pressure since the ECB’s latest easing measures.
  • Sell-off now below $1.3000 to open the next key support, the 61.8% Fibonacci retracement of $1.2040/$1.3992 at $1.2786, also the key July 2013 low at $1.2750.
  • Technically it is extremely oversold though – RSI now at 16, which is similar to the bearish momentum from August/September 2008.
  • A technical rebound is increasingly likely at some stage.
  • Watch for: US Retail Sales

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

  • Huge sell-off, huge volatility since polls started suggesting Scottish independence was a distinct possibility.
  • Losing 500 pips in a week is incredibly severe and suggests a huge re-rating on the risk of a Union breakup.
  • Cable is hugely oversold (RSI at a level last seen in September 2008).
  • But the fear of a breakup of the Union means that the market has to price in massive uncertainty.
  • Next technical support is $1.6000 (50% Fibonacci retracement of $.4812/$1.7191 and also psychological)
  • Watch for: Polls on the referendum creating volatility

USD/JPY – Buying into a near term correction towards 104.65/105.35 support band

  • Multi-year highs are being seen as the rate breaks out.
  • The next real resistance is not until 110.65.
  • Momentum is extremely strong but is a touch stretched near term.
  • Use any unwinding as a chance to buy.
  • Watch for: Further strong US economic data(US Retail Sales)

 

Gold – Use rallies into $1273/$1280 resistance as a chance to sell

  • Dollar strength remains a big drag on gold, with the prospect of a ceasefire in eastern Ukraine taking out a support element.
  • Expect the channel decline to continue with rallies falling over at lower levels and are seen as a chance to sell.
  • A test of the key June low at $1240 looks likely now.
  • Watch for: US data driving dollar strength (subsequently gold lower)

 

Indices – Continue to prefer Wall Street over European markets. Prefer DAX over FTSE

Indices losing upside momentum near term.

Without the positive story of earnings season, macro factors harming markets in Europe especially (Russian sanctions and counter sanctions, Scottish independence).

September is a historically very tough month for investors.

S&P 500 outlook is strong medium/long term, DAX remains volatile around the Russian geopolitics, FTSE could be dogged by uncertainty of Scottish referendum

  • S&P 500 is in consolidation mode with support around 1990.
  • DAX needs to hold above the 9600 pivot level that has now become support, with the 61.8% Fibonacci retracement of the big sell-off at 9612 also now supportive. A break above 9800 re-opens the highs.
  • FTSE needs to hold above the key near term support now at 6773 to prevent a top pattern formation.

 

WATCH OUT FOR

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

 

NEXT WEEK

Monday 15th September

  • US – Industrial Production

Tuesday 9th September

  • Australia – RBA meeting minutes
  • UK – CPI Inflation
  • Eurozone – German ZEW economic sentiment

Wednesday 10th September

  • UK – Unemployment
  • US – CPI Inflation
  • US – FOMC rates decision plus press conference
  • New Zealand – GDP

Thursday 11th September

  • Switzerland – SNB rates
  • UK – Retail Sales
  • US – Building Permits
  • UK – Scottish Independence Vote

Friday 12th September

  • Canada – CPI Inflation

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