11/02/2015: Weekly Trading Notes

KEY DRIVERS

  • Discussions continue over the problem of Greek debt. The Eurogroup is meeting today to discuss the 28th February deadline that Greece has to repay the EU. The likelihood is that this will need to extended (rumour is for 6 months), but the Germans could be a spanner in the works. This is impacting sentiment with traders unwilling to take a view, leading to slightly depressed markets today. An extension would allow equity markets to gain and likely see the euro rally.
  • It is interesting that Eurozone peripheral bond yields continue to trade around record lows despite the Greek yields spiking higher. This suggests that the markets are not excessively worried about Greece and its debt obligations outside the Greek markets. It also shows a lack of fear of contagion. This could translate to the political table and hamper Greece’s argument.
  • The Ukraine is beginning to become an issue again with the US potentially now going to get involved/
  • The oil price continues to be an impact on sentiment for FTSE 100 which has a large weighting in oil majors (c. 18%).
  • Risk appetite has improved since the Non-farm Payrolls report showed strength in the labor market. This has driven US Treasury yields higher, and gold and the yen lower.
  • In forex, the Dollar Index is consolidating after last week’s Non-farm Payrolls related gains. The Bank of England Quarterly Inflation Report could have a big say in near term direction on Cable, with any hawkish lean likely to induce a near term rally.
  • Watch for: The fallout from the Eurogroup decision on Greece, the oil price continuing to find support

Greece EU

MARKETS

EUR/USD – Dollar bulls looking to regain control 

  • Whilst the Eurogroup meeting uncertainty is helping to hold up the euro near term (and may even induce a rally this week), the strong Payrolls report suggests a firm US economic recovery and should ensure dollar strength.
  • Technically, the outlook is consolidating near term but there is little really to suggest that any near term rallies should be seen as anything more than a selling opportunity. The Near term support around $1.1260 is key and holding but there is a lack of buying pressure and this could tell on the euro eventually.
  • Watch for: Updates on the progress of the Eurogroup, Eurozone Flash GDP

GBP/USD – Support at $1.5200 still key near term

  • Sterling has begun to outperform other major currencies and this comes ahead of a Bank of England Quarterly Inflation Report. It would appear that with interest rate hike expectations at around 12 months, the downside risk is light, whilst the potential for a hawkish lean with improving unemployment and wage growth is increasing.
  • The support around $1.5200 is holding and is strong near term. Technical indicators are gradually improving and a confirmed break back above $1.5270 opens at least $1.5350, whilst the base suggests a retest of $1.5500.
  • Watch for: BoE Quarterly Inflation Report

USD/JPY – Bulls are regaining momentum after a period of consolidation

  • Japanese Inflation data continues to underwhelm and if this weekend’s growth data disappoints then the pressure will ramp up on the BoJ to ease further. This would help to fuel the upside with the central bank divergence continuing.
  • Hourly technical indicators are pointing increasingly towards a more corrective outlook and a bull flag targets 120.40, whilst the 120.82 high is also within sight.
  • Watch for: Japan GDP

 

Gold – A breach of $1222 would now turn the medium term outlook bearish

  • The traditional negative correlation between gold and the dollar seemed to return last week with gold sold on a strong Non-farm Payrolls. Gold is still also being seen as a safe haven too.
  • The medium term signals are beginning to improve despite the short term correction. However a reach of support at $1222 would now seriously question the bull control.
  • Watch for: A breakout on the Dollar Index would pressure gold

 

Indices – Indices remain volatile

Indices are still moving on a variety of different factors but volatility remains high. The S&P earnings season is still not great, with c. 350 companies reported, earnings growth is c. 4% and revenue growth just c. 1%. This is keeping a lid on Wall Street bullishness for now. The DAX continues to be supported by the imminent QE, whilst a flare up in Ukrainian geopolitics would weigh on the DAX. FTSE 100 has been held up by the rebound in the oil price but this could easily turn around if the oil price falls away.

  • S&P 500 Is straining to retest the 2094 high, but with trading above the 144 day moving average support the outlook remains positive.
  • DAX has been trading around a key near term pivot level at 10,800 now for over 2 weeks. Momentum indicators are though rolling over and a failure to breakout to new highs could lead to a correction back towards 10552 support..
  • FTSE 100 has continued to struggle with vertigo as it approaches the 6905 multi-year high. The RSI also struggles around mid-60s too. The support band at 6732/6773 remains key near/medium term.

 

WATCH OUT FOR THIS WEEK

Wednesday 11th February

  • EU – Eurogroup meeting of finance ministers
  • 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

NEXT WEEK

Monday 16th February

  • Japan – GDP
  • US national holiday – Presidents Day

Tuesday 17th February

  • Australia – RBA meeting minutes
  • UK – CPI
  • Eurozone – German ZEW Economic Sentiment
  • US – JOLTS Job Openings

Wednesday 18th February

  • Japan – BoJ monetary policy
  • UK – Unemployment
  • US – Building Permits/Housing Starts
  • US – Industrial Production
  • US – Crude Oil inventories
  • US – FOMC meeting minutes

Thursday 19th February

  • US – Weekly Jobless Claims

Friday 20th February

  • Eurozone – Flash Manufacturing PMI
  • UK – Retail Sales
  • US – Flash Manufacturing PMI

 

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