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14/10/2014: Weekly Trading Notes


KEY DRIVERS

  • Concerns over global growth (especially Eurozone/Germany) impacting investor sentiment.
  • Despite the US dollar rally losing its uptrend, volatility remains elevated in forex trading.
  • Volatility in equity markets is huge now, with the VIX Index of S&P 500 options volatility at its highest since June 2012 – however a correction in the VIX could be a buy signal.
  • General market sentiment is cautious bordering on fearful with safe haven assets trading well.
  • US Treasury yields plummeting, Gold remains in a recovery uptrend and the yen is strengthening against the dollar.
  • Oil prices continue to fall with little support – demand negatively impacted by lack of growth and supply remains high (Saudi Arabia is apparently content to see the oil price below $80)
  • Economic Data: Eurozone inflation could be a drag on the euro if it misses; a bit of tier 2 US data (Manufacturing Production and Building Permits/Housing Starts).
  • WATCH FOR: US big banks earnings, Eurozone Inflation, Euro continuing to outperform Sterling

 

EUR/USD – Still a suggestion that rallies will be sold into   

  • Disappointing German ZEW has driven the euro lower again, speculation of further German economic weakness will continue this move.
  • Any talk of QE could pull the euro lower now.
  • Recent trading has been increasingly volatile, but there is little real suggestion that this rebound is anything more than another medium term chance to sell.
  • Near to medium term technical indicators are mixed, however a breach of support at $1.2600 re-opens the recent low at $1.2500.
  • Initial resistance now at $1.2691 (then at $1.2900).
  • The bounce off $1.2500 is still likely to be retested though and still there is very little real support now until the key July 2012 low at $1.2040.
  • Watch for: Eurozone CPI (final reading)

GBP/USD – Expect a test of $1.5850 Nov 2012 lows and beyond

  • The dreadful UK CPI reading will have markets scrambling to re-price the expectations of a Bank of England rate hike – now at least into mid-2015.
  • This will help to drive GBP lower against USD (also probably against EUR too).
  • An 1 month low now looks set to challenge the November 2012 low at $1.5850, but there is little to suggest this support will hold for too long if the bears get hold again.
  • Technical indicators are incredibly weak and suggest there is further downside potential.
  • Needs a rally above $1.6226 to suggest a recovery – but don’t expect one.
  • Watch for: Positive US data will help to drive GBP lower.

USD/JPY – Looking out for a medium term buy signal now

  • Flight into safe haven assets has helped to drive a stronger yen in recent days.
  • The break below 108.00 implies 106.00, but I see this as a bull market correction which is unlikely to reach its target.
  • The rate is looking to use the support band 106.70/107.40.
  • Momentum indicators have unwound to levels where we are now looking out for medium term buy signals.
  • Expect a rebound towards 110.08 in due course.
  • Watch for: US Manufacturing Production and Housing data on Friday

 

Gold – The medium term resistance at $1240.60 is an inflexion point

  • The safe haven asset preference and stalling of the dollar rally has helped gold to rebound.
  • The recovery from $1183.50 is now eyeing a test of the resistance at $1240.60.
  • With momentum indicators also unwound, this means that gold is at a medium term inflexion point.
  • A solid move through the resistance would encourage a move towards $1260 and $1280.
  • Continued failure at $1240.60 could see the bulls run out of impetus and the momentum indicators begin to generate sell signals again.
  • Watch for: Any turn around in investor sentiment and resumption of dollar strength will hit gold

 

Indices – Global indices remain under pressure.

Watch the VIX index – each of the spikes over the past 2  years have been associated with market bottoms WHEN THE VIX STARTS TO FALL AGAIN

Banks earnings in the US start well with Citigroup beating estimates.

Indices are still under pressure but are European markets are oversold.

  • S&P 500 has broken key support at 1900/1905, breaching the 200 day ma. Support at 1860 with the support around 1900 turning into resistance again.
  • DAX has broken crucial support at 8903 to complete a large top pattern. It is now crucial to see how the DAX reacts in a rally to unwind oversold momentum. The old 8903 turns into new resistance.
  • FTSE 100 remains oversold and is threatening some turnaround signals. Resistance for a rally now 6415/6500. Next real support not until 6023.

 

WATCH OUT FOR THIS WEEK

Wednesday 15th October

  • China – CPI
  • UK – Unemployment
  • US – Retail Sales

Thursday 16th October

  • Eurozone – CPI (final)
  • US – Weekly Jobless Claims
  • US – Manufacturing Production

Friday 17th October

  • Canada – CPI
  • US – Building Permits and Housing Starts
  • US – University of Michigan consumer sentiment

 

NEXT WEEK

Monday 20th October

  • Eurozone – Current Account

Tuesday 21st October

  • China – GDP
  • China – Industrial Production
  • US – Existing Home Sales

Wednesday 22nd October

  • Australia – CPI
  • UK – Bank of England MPC meeting minutes
  • US – CPI
  • Canada – Bank of Canada monetary policy
  • New Zealand – CPI

Thursday 23rd October

  • Australia – mid-year economic and fiscal outlook
  • China – Flash Manufacturing PMI
  • Eurozone – French flash Manufacturing PMI
  • Eurozone – German flash Manufacturing PMI
  • UK – Retail Sales
  • US – Weekly Jobless Claims

Friday 24th October

  • UK – GDP Q3 (preliminary)
  • US – New Home Sales

 


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