21/10/2014: Weekly Trading Notes

KEY DRIVERS

  • With market “fear” calming down (ie. the VIX Index in decline) equity markets have formed some support and are once more looking to challenge overhead key resistance.
  • Corporate earnings season is progressing nicely, with almost two thirds of companies beating estimates on earnings (26% missing) and Q3 earnings on track for c. 7% growth – though watch out for forward statements warning of a slowdown.
  • Sovereign yields are looking to rebound and interestingly the Dollar Index is increasingly under pressure resulting in some key improvements in major pairs.
  • Commodities are improving once more, with oil prices forming support and beginning to rebound again, whilst gold is also continuing its medium term improvement
  • Economic Data: Flash PMIs from China and Germany will be key, as will US housing data.
  • WATCH FOR: US tech earnings, whether the dollar weakness continues and Dollar Index falls

 

MARKETS

EUR/USD – Sentiment has turned more positive if support can hold above $1.2700 

  • Disappointing German data has impacted the euro recently so focus will be on the effect of the Flash PMI on Thursday
  • The pivot level at $1.2700 has become near term key as the Euro retains a slight bullish bias.
  • Any breakdown would be disappointing now for the bulls.
  • The key support for a prospective recovery comes in at $1.2600
  • Watch for: US CPI, German Flash PMI

GBP/USD – 13 week downtrend broken, with the bulls in control near/medium term above $1.6226

  • Terrible UK inflation impacted sterling negatively last week, so the focus turns to US inflation on Wednesday.
  • Sterling has rebounded as the reassessment of potential US monetary tightening has needed to be undertaken.
  • A miss on inflation would add to this upside momentum on Sterling.
  • Bank of England meeting minutes unlikely to show anything too hawkish and should be largely a non-event.
  • The broken downtrend is an improvement but there now needs to be a move above the key lower reaction high at $1.6226 to suggest that the medium term bulls are in the ascendency.
  • Watch for: US CPI, BoE meeting minutes, UK Q3 GDP and US housing (existing homes and new homes).

USD/JPY – Will yen strength scupper the medium term buying opportunity?

  • The resistance at 107.50 remains intact and the renewed yen strength calls into question the outlook of buying the dip.
  • The pair has been hit by the general dollar weakness in the near term, but will this last?
  • Key support now 105.18/105.50.
  • Watch for: US CPI, with housing data on Friday

 

Gold – Breaching medium term resistance at $1240.60 has re-opened upside to $1260 and then $1280

  • The demand for gold in the past two weeks continues as a period of consolidation has ended and the upside is now open.
  • Closing above the $1240.60 medium term resistance is a key move and now suggests the bulls are in control.
  • There is a support band $1240/$1245 near term, with $1221.70 now a key low.
  • Watch for: Signs of improvement for the dollar could negatively drag on gold once more.

 

Indices – Strong rebounds in global indices to unwind the huge declines.

The VIX index is now in sharp decline and this tends to coincide with key bottoms in the market – something which I believe has now been seen (at least near term).

Key overhead resistance levels need to be breached to suggest the rally is going to continue.

The big question is whether this is all just a bear market rally – the legacy of the selling fear is going to still be fresh in the memory if there is another macro shock.

  • S&P 500 needs to hold the break back above 1905.
  • DAX is approaching the key overhead resistance at 8903.
  • FTSE 100 is nearing 6400

 

WATCH OUT FOR THIS WEEK

Tuesday 21st October

  • 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

 

NEXT WEEK

Monday 27th October

  • Eurozone – Results of the banks stress tests (Asset Quality Review)
  • Eurozone – German Ifo Business Climate

Tuesday 28th October

  • US – Durable Goods
  • US – Consumer Confidence

Wednesday 29th October

  • US – FOMC monetary policy and statement
  • New Zealand – RBNZ monetary policy

Thursday 30th October

  • Eurozone – German CPI (flash)
  • US – Q3 GDP (Advance)
  • US – Weekly Jobless Claims

Friday 31st October

  • Japan – BoJ monetary policy statement + press conference
  • Eurozone – CPI (flash)
  • Canada – GDP
  • US – University of Michigan consumer sentiment (final)

 

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