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18/11/2014: Weekly Trading Notes


KEY DRIVERS

  • US dollar rally has been consolidating for the past week with a lack of key US economic releases – however lots of tier one US data during the second half of the week could drive the next bull leg.
  • In the meantime, in the absence of US data, the European data has been key in forex. Strong German data supporting the euro, a dovish Bank of England driving sterling lower and Japan moving into recession weakening the yen.
  • Economic Data: Central bank updates – BoJ monetary policy to drive the yen, whilst BoE and FOMC minutes driving sterling and the dollar. With the FOMC meeting minutes, the market expectations is increasingly pushing the Fed to the front of the line for the first central bank to hike rates. The latest FOMC minutes will be watched for any telling clues as the BoE recently looks to be moving more dovish again.
  • US corporate earnings season winding to a close now – coinciding with the stalling of the S&P 500 bull run.
  • Eurozone sovereign yields continue to fall, by the market’s perception of a slide towards deflation and stagnant growth. Treasury yields have stabilized their advance in front of the FOMC minutes, whilst Gilt yields have begun to fall again following the dovish Bank of England Quarterly Inflation Report.
  • Commodities: Gold has rallied sharply helped higher by a weaker dollar – do not forget also the Swiss Gold Initiative referendum on 30th November. Oil prices remains anchored with Brent below $80 and WTI below $75. The OPEC meeting is on 27th November and could result in cutting of supplies to prop up the price. However noises from Saudi Arabia (world’s most important oil producer) have not suggested they want a cut, also suggestions they have an agreement with the US, deliberately trying to price Iran and Russia out of the market.
  • WATCH FOR: FOMC meeting minutes, US CPI and US housing data driving sentiment at the end of the week

 

MARKETS

EUR/USD – $1.2600 remains a significant overhead barrier 

  • Mario Draghi still trying to talk the Euro down, but at some stage he will have to back up with the only action the market is now accepting of (QE of sovereign debt purchases).
  • German ZEW improvement has driven the euro higher, but could be the start of increased volatility on Wednesday and Thursday.
  • Starting with the FOMC minutes on Wednesday then we look for the Eurozone flash PMIs and then US CPI and housing data.
  • The $1.2500/$1.2600 resistance area remains a barrier for the euro rallies.
  • The euro has traded sideways now for much of the past week, but with significant US data approaching the $1.2600 resistance is strong overhead.
  • Watch for: FOMC minutes, Eurozone flash PMIs, US CPI

GBP/USD – Looking to sell into any strength

  • The dovish BoE Quarterly Inflation Report has resulted in the need to re-price a UK rate from mid-2015 into Q3 2015 probably at the earliest now.
  • This has put strong downside pressure on sterling.
  • Lower highs and consistent breaches of support suggests that any rallies should continue to be seen as a chance to sell.
  • There is minor resistance now around 1.5800 but expect further downside pressure below $.5591
  • Watch for: BoE meeting minutes, FOMC minutes, US CPI

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

  • Markets still struggling what to make of the disappointing Q3 GDP which sent Japan into recession and also has resulted in a delay of the sales take hike and Shinzo Abe calling a snap general election (which he is expected to win).
  • Ultimately it should all result in further yen weakness but with the uncertainty of the election this could cause increased volatility.
  • I remain a buyer into weakness with the latest band of support 114.88/115.44.
  • Key support remains at 113.84
  • Watch for: BoJ monetary policy, FOMC Meeting minutes, US CPI

 

Gold – The $1180.70 level has now become a crucial near/medium term pivot level (currently supportive)

  • The outlook for gold has improved dramatically in the past week.
  • Having broken out above key resistance at $1180.70, this is now being used as the basis of support again.
  • Momentum indicators are rising and the outlook is improving.
  • Needs a sustained move back above $1200 to suggest the bulls have a shot at remaining in control near term.
  • However, with all moving averages still in decline this remains a bear market rally for now.
  • Volatility could continue to rise though in the next couple of weeks with the Swiss Gold Initiative referendum looming which could completely change the outlook for gold medium term.
  • Watch for: Gold continuing to trade in negative correlation with the US dollar.

 

Indices – Indices continue to gain on dovish central bank policy

With earnings season all but at an end, the rally on Wall Street has been threatening to run out of steam. This is a concern as the indices have been dragged higher by Wall Street performance. DAX has been helped higher by stronger German ZEW data, and it will now be interesting to see the flash PMIs which could drive the end of the week FTSE 100 continues to underperform DAX and Wall Street.

  • S&P 500 has seen 42 record closing high so far this year (3 less than the total achieved in 2013). Still yet to see a correction within the 5 week rally. Support band 1980/2010.
  • DAX threatened a top but the strong data (and a dovish Draghi) has helped a rally. Looking to push on resistance at 9600.
  • FTSE 100 rally has not been as spectacular as DAX or Wall Street, but it continues to push steadily higher. If resistance at 6700 can successfully be overcome there is little to suggest the index will now continue to push back towards it key highs again around 6900.

 

WATCH OUT FOR THIS WEEK

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

 

NEXT WEEK

Monday 24th November

  • Eurozone – German Ifo Business Climate
  • Japan – BoJ meeting minutes

Tuesday 25th November

  • US – Q3 GDP (Preliminary i.e. second reading)
  • US – CB Consumer Confidence

Wednesday 26th November

  • UK – Q3 GDP (Second reading)
  • US – Durable Goods Orders
  • US – Weekly Jobless Claims
  • US – UoM Consumer Sentiment (revised)
  • US – New Home Sales

Thursday 27th November

  • Eurozone – German CPI (flash)
  • OPEC – meeting all day
  • US – Thanksgiving public holiday
  • Japan – CPI

Friday 28th November

  • Eurozone – CPI (flash)
  • Eurozone – Unemployment
  • Canada – GDP

 


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