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11/11/2014: Weekly Trading Notes


KEY DRIVERS

  • US dollar remains strong and is key to the prospects of the majors – however a lack of US economic data this week means that focus is elsewhere (namely on Sterling and the Euro)
  • Economic Data: Bank of England Quarterly Inflation report will be a big driver of Sterling.
  • Economic Data: Eurozone GDP growth data and final CPI inflation will drive the Euro on Thursday and Friday.
  • US corporate earnings season has been strong but is beginning to wind down now – could this mean the market begins to lose traction?
  • Eurozone sovereign yields remain anchored by the market’s perception of a slide towards deflation and stagnant growth. Treasury and Gilt yields are stabilizing their rallies as economic data in US and UK have begun to show signs of strain.
  • Commodities remain under significant pressure again with gold and silver (inversely correlated to the dollar) still under serious strain and oil prices showing little sign of any recovery
  • WATCH FOR: BoE Quarterly Inflation Report driving Sterling, with commodities still being driven by the strength of the dollar

 

MARKETS

EUR/USD – Sentiment remains negative under $1.2600 

  • Combination of dollar strength and euro weakness is still a drag on EUR/USD.
  • Mario Draghi’s showing at the ECB press conference (portraying a united ECB in the fight against deflation) should help to weigh on the Euro.
  • Eurozone growth figures this week should suggest the constituent countries remain sluggish, although Eurozone-wide GDP is expected to pick up slightly to +0.1%.
  • Euro is still showing a series of lower highs in the past few weeks below $1.2500, whilst the pattern completed below $1.2600 implies $1.2320.
  • Expect downside pressure to continue with rallies still seen as a chance to sell.
  • The caveat is that this is a crowded trade and suggestions that the ECB will struggle to implement further easing could result in a technical rally.
  • Watch for: ECB monetary policy, Non-farm Payrolls

GBP/USD – Looking to sell into strength

  • In the BoE Quarterly Inflation Report watch for comments on wage growth and slack in the economy painting the dovish picture.
  • The market is already anticipating a cut in growth outlook, inflation and wages, whilst the market is pricing in the first rate hike in mid-2015.
  • However exactly how dovish a picture is painted by Carney will drive Sterling in the next few days.
  • The medium term strategy remains selling into strength.
  • Expect a retest of the support at $1.5788 and $1.5750 in due course.
  • Watch for: Bank of England Quarterly Inflation Report

USD/JPY – Looking to use near term corrections into support 114/115 a chance to buy

  • After the BoJ opened further easing the outlook remains very strong for Dollar/Yen both fundamentally and technically.
  • There is very little real resistance until 117.95, whilst the Fibonacci projection of 161.8% suggests upside towards 119.07.
  • There is good support now in the band 114/115, with 113 now key.
  • Any weakness should be seen as a chance to buy.
  • Watch for: end of week US data in Retail Sales and Michigan sentiment impacting

 

Gold – The old crucial support of $1180 is now key resistance

  • Gold remains under pressure despite the Non-farm Payrolls related rebound.
  • With little gold demand (China demand was 21% down over the first 3 quarters of the year on a like for like basis) there is little to support the price.
  • However the big caveat is the 30th November Swiss Gold Initiative referendum which if the polls begin to tighten it could create some significant volatility.
  • Technically the old floor of $1180.70 is now the key resistance.
  • Expect further weakness to retest the $1131.85 low
  • Watch for: Gold continuing to trade in negative correlation with the US dollar.

 

Indices – Gains in the indices are becoming more sedate again.

Wall Street is into all-time high ground again, with the rebounds in European markets continuing.

As volatility continues to unwind and markets drift higher is this a key contrarian signal?

Earnings season in the US has been positive but is almost at an end.

Are the uptrends beginning to lose upside momentum?

FTSE 100 continues to underperform DAX and Wall Street.

  • S&P 500 has rallied 12% since the market bottom into new high ground, support band 1980/2010.
  • DAX Xetra has also rallied 12% since its low – Resistance band 9400/9600.
  • FTSE 100 has only rallied just over 9% but the uptrend remains decent, resistance c. 6640/6700.

 

WATCH OUT FOR THIS WEEK

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)

 

NEXT WEEK

Monday 17th November

  • US – Industrial Production

Tuesday 18th November

  • Australia – RBA meeting minutes & mid-year economic outlook
  • UK – CPI
  • Eurozone – German ZEW Economic Sentiment

Wednesday 19th November

  • Japan – Monetary Policy statement
  • UK – Bank of England meeting minutes
  • US – Building Permits and Housing Starts
  • US – FOMC meeting minutes

Thursday 20th November

  • China – HSBC Flash Manufacturing PMI
  • Eurozone – French Flash Manufacturing PMI
  • Eurozone – German Flash Manufacturing PMI
  • UK – Retail Sales
  • US – CPI
  • US – Weekly Jobless Claims
  • US – Existing Home Sales

Friday 21st November

  • Canada – CPI

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