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16/09/2014: Weekly Trading Notes


KEY DRIVERS

  • FOMC meeting on Wednesday could contain a hawkish change to the wording of the statement
  • Scottish independence referendum is too close to call – markets do not like uncertainty
  • Sterling being sold off again, equities under pressure (especially those with Scotland exposure); dollar consolidating in front of FOMC
  • Gold looking to recover as ceasefire in eastern Ukraine creaks and US dollar consolidates
  • Equity markets falling amid a lack of positive catalysts.
  • Volatility increasing amid uncertain markets, VIX back above 14 – suggests a demand for portfolio protection by fund managers.
  • WATCH FOR: Dollar consolidation in front of the FOMC and then big end of week volatility, especially with the Scottish independence referendum  

 

EUR/USD – Consolidating, but still expecting further downside   

  • Consolidation into its 8th day now, should continue until FOMC.
  • Sideways ranges have consistently broken lower over past few months as the dollar strength has continued.
  • Momentum indicators suggest that any rallies continue to be opportunities to sell.
  • Key resistance at $1.3000, a break above opens $1.3100 at least.
  • Sub $1.2860 re-opens downside to $1.2750
  • Watch for: FOMC

GBP/USD – Massive volatility depending upon the outcome of the vote

  • In front  of the vote , the risk will be towards caution and meaning a drift lower.
  • However the FOMC could impacting this further tomorrow night if the y move hawkish.
  • This could be one of the most volatile weeks since the financial crisis of 2008.
  • Some financial institutions are forecasting huge moves (JPMorgan saying 3% to 4% upside on a “No” and 6% to 7% downside on a “Yes”).
  • A “No” vote should mean a retracement of the recent decline from $1.6600, where Cable was trading prior to the polls tightening.
  • A “Yes” vote could mean an immediate test of the $1.5850 November 2013 low.
  • Watch for: FOMC and Scottish Independence referendum result

USD/JPY – Buying into a near term correction towards 106.00/106.50 support band

  • Multi-year highs have opened upside with the next real resistance not until 110.65.
  • Momentum remains extremely strong but consolidation in front of FOMC is setting in.
  • Use any unwinding towards 106.00/106.50 support as a chance to buy.
  • Watch for: FOMC

 

Gold – Use rallies into $1240/$1260 resistance as a chance to sell

  • The outlook has turned medium term bearish after the loss of support at $1240 opened $1184.50.
  • Dollar strength remains the big drag.
  • A flimsy ceasefire in eastern Ukraine breaking could drive some near term recovery in gold.
  • But there is plenty of resistance between $1240/$1260 to use as a chance to sell.
  • The real resistance comes in at $1280.
  • Watch for: FOMC – US data driving dollar strength (subsequently gold lower)

 

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

Cautious sentiment is a drag on indices.

Wall Street is struggling to regain the upside impetus outside of earnings season.

S&P 500 outlook remains positive medium/long term even if it threatens a near term correction.

European markets dragged lower by Russian sanctions and Scottish independence vote.

  • S&P 500 is in consolidation mode with support between 1955/1990.
  • 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 however looks more concerning with a top pattern completed intraday and threatening  a correction towards 6640. However, a “No” vote could induce a technical rally.

 

WATCH OUT FOR

Wednesday 17th September

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

Thursday 18th September

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

Friday 19th September

  • Canada – CPI Inflation

 

NEXT WEEK

Monday 22nd September

  • US – Existing Home Sales

Tuesday 23rd September

  • China – Flash Manufacturing PMI (HSBC)
  • Eurozone – French Flash Manufacturing PMI
  • Eurozone – German Flash Manufacturing PMI

Wednesday 24th September

  • Eurozone – German Ifo Business Climate
  • US – New Home Sales

Thursday 25th September

  • US – Durable Goods

Friday 26th September

  • Japan – CPI Inflation
  • US – Q2 GDP (final reading)
  • US – University of Michigan Consumer Sentiment (final reading)

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