16/12/2014: Weekly Trading Notes

KEY DRIVERS

  • The precipitous decline in the oil price continues to play havoc across asset classes. Fears that a lack of demand as well as the on-going supply glut continue to pull oil lower – Brent Crude falling below $60 for the first time since July 2009.
  • Investor “fear” spiking with index volatility gauges spiking higher (VIX Index above 20). This is also driving investors into safe havens such as Treasuries (US 10 year yield is now falling back towards 2.00% again) and the Japanese yen.
  • A remarkable deterioration with the US dollar coming under significant pressure and huge FX volatility too, with euro, yen and sterling all breaking key downtrends. The gold price whilst no longer trading directly as a “safe haven” asset, is also benefitting from the weaker dollar. The Dollar Index is now testing its bit uptrend in place since August. Incredible spike higher on Dollar/Rouble (ie. Rouble weakness) has been driven by the market panicking about the 6.5% hike in interest rates – expect volatility to continue.
  • What will the FOMC do on Wednesday? Could expectations of a hawkish removal of the words “considerable time” be scaled back with financial markets facing significant volatility? Major forex price action on Tuesday would suggest this is increasingly the case.
  • Eurozone economic data has just started to improve slightly, it will be interesting to see if these are isolated improvements in the flash PMIs, although the German ZEW has now risen and beaten expectations for a second month in a row.
  • Watch for: US CPI, FOMC, German Ifo Business Climate

FOMC

MARKETS

EUR/USD – Turning neutral, but a move above $1.2600 suggests continued upside 

  • Along with the deterioration in the US dollar, the euro has also been boosted by a strong reaction to the Eurozone flash PMIs and German ZEW.
  • Jens Weidman (Bundesbank President) continues to say that sovereign debt purchases by the ECB will not happen – this is also euro supportive.
  • The euro has now been rallying steadily since the $1.2245 and has now pushed above $1.2530 which was a key reaction high within the downtrend, to now neutralise the outlook (ideally needs a close above to confirm though).
  • The key resistance remains $1.2600 and a move above there would suggest the euro rally has got some legs in it.
  • Watch for: US CPI, FOMC, German Ifo Business Climate

GBP/USD – Looking to sell into any strength

  • A remarkable rally on Tuesday belies the economic data (weaker UK CPI should have been a drag on sterling, or at least held back the dollar correction to a certain extent).
  • Cable now looks to be moving to break a downtrend in place since mid-July.
  • The key resistance is still at $1.5825 and much work needs to be done to suggest Cable will be in a rally of any substance.
  • There could be significant volatility on Wednesday though with US inflation and the FOMC.
  • This could also help to guide direction through to Christmas.
  • Watch for: US CPI, FOMC

USD/JPY – Head and should top suggests the correction will now continue

  • The big flight into safe haven assets has been strong for the yen and therefore been a significant drag on Dollar/Yen.
  • The key support at 117.22 has now been broken and a top pattern has formed.
  • This now suggests a retreat at least back towards the previous 100% Fibonacci target level at 113.77 (with a maximum downside target of 112.60.
  • Still waiting for a close below 117.22 to confirm the pattern and the pullback is yet to be seen.
  • Band of resistance 117.22/117.50.
  • Watch for: Dollar/Yen remaining a key gauge for market sentiment, US CPI, FOMC

 

Gold – Near to medium term outlook remains positive but the longer term trends all remain negative and intact

  • Gold continues to trade strongly when the dollar is under pressure.
  • The sequence of higher lows is also intact and the top of the big downtrend channel could come under threat.
  • The key resistance remains at $1255 which was the October high.
  • Watch for: FOMC, negative correlation to performance of the Dollar Index (.DXY)

 

Indices – Indices remain under pressure with the oil price tending to drive sentiment

The corrections are yet to find any real support and with Index volatility gauges spiking higher, the indices could continue to struggle whilst volatility remains high.

  • S&P 500 is testing the support around 1980.
  • DAX has been volatile today and expect this to continue. Key support at 9150.
  • FTSE 100 remains the key laggard and the October low at 6073 remains intact for now. RSI oversold at 25.

 

WATCH OUT FOR THIS WEEK

Wednesday 17th December

  • UK – Unemployment
  • US – CPI
  • US – FOMC monetary policy + Janet Yellen press conference

Thursday 18th December

  • Eurozone – German Ifo Business Climate
  • UK – Retail Sales

Friday 19th December

  • Japan – BoJ monetary policy

 

NEXT WEEK

Tuesday 23rd December

  • UK – Trade Balance
  • UK – GDP (final Q3)
  • Canada – GDP (final Q3)
  • US – GDP (final Q3)
  • US – Durable Goods
  • US – University of Michigan consumer sentiment (revision)
  • US – New Home Sales

Wednesday 24th December

  • US – Weekly Jobless Claims

Thursday 25th December

  • Japan – CPI

 

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