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26/08/2014: Weekly Trading Notes


KEY DRIVERS

  • Meeting between Putin and Poroshenko could drive investor sentiment either to or from safe haven assets in the next couple of days.
  • Jackson Hole has been supportive of the dollar strength (Yellen failing to rein in the FOMC hawks with a  mixed speech), while the euro remains weak after Draghi talked about the divergence in monetary policy between central banks and ECB using all the tools available.
  • Plunging Eurozone sovereign bond yields in focus again this week in the approach to Eurozone inflation on Friday.
  • Gold being driven by geopolitics still
  • Corporate earnings have been positive in both US and Europe
  • Equity markets remain positive as Wall Street pushes on new all-time highs and European markets continue to rebound
  • Volatility has settled down, with VIX falling (below 12).
  • Eurozone CPI is the key release this week

 

EUR/USD – Sell into strength into resistance band $1.3240/$1.3300  

  • Should be driven lower by both Draghi and Yellen at Jackson Hole.
  • A retest of the September 2013 key low around $1.3100.
  • Watch for: German CPI, Eurozone CPI

GBP/USD – Selling any rallies within the 6 week downtrend

  • Improving US economic data and comments from FOMC members are driving the dollar strength
  • Resistance of the 6 week downtrend currently around $1.3390, with key resistance at $1.6700
  • Minor consolidation may turn into a technical rally within the downtrend but indicators remain weak
  • A retest of the March low at $1.6459 I likely
  • Watch for: US Consumer Confidence and US Q2 GDP

USD/JPY – Continue to play the range 101/103

  • Breakout above 103.00 has changed the outlook.
  • Technical indicators now increasingly medium/longer term positive.
  • Slightly overbought near term and a near term correction is threatening.
  • Support at 103.50 and then 103.00 with any correction that forms a new low around there looking to be a good chance to buy.
  • Watch for: Further strong US economic data to drive expectations of a rate hike.

 

Gold – Price drifting lower as geopolitical tensions improve, sub $12800 has opened $1240

  • In the absence of a “war premium” gold trades weaker, but there has been a habit of this changing very quickly in the past few weeks if geopolitics deteriorate.
  • Key support at $1280 has been breached and should now open weakness towards $1240 in due course.
  • Technical indicator turning negative.
  • Upside resistance band $1290/$1305.
  • Watch for: Newsflow from the meeting between Poroshenko and Putin

 

Indices – Continue to prefer S&P 500

Indices still looking strong as geopolitics calm down and following a strong earnings season.

S&P 500 outlook is strong, whilst DAX remains volatile around the Russian geopolitics, FTSE more sedate in its gains.

  • S&P 500 is pushing through 2000 for the first time. Outlook remains positive with further upside potential. Support around 1980/1990
  • DAX pushing back towards the 9600 pivot level resistance. 61.8% Fibonacci retracement of the big sell-off is at 9612.
  • FTSE is testing the underside resistance of the old primary uptrend c. 6815, but needs a break above the key reaction high at 6834 to continue the rally.

 

WATCH OUT FOR

Tuesday 26th August

  • US – Durable Goods Orders
  • US – Consumer Confidence

Thursday 28th August

  • Eurozone – German Consumer Price Index
  • US – GDP (prelim)
  • US – Pending Home Sales

Friday 29th August

  • Eurozone – Consumer Price Index (Flash)
  • Canada – GDP

 

NEXT WEEK

Monday 1st September

  • China – Manufacturing PMI (both official and HSBC)
  • Eurozone – Manufacturing PMI
  • UK – Manufacturing PMI
  • US – Labor Day bank holiday

Tuesday 2nd September

  • Australia – RBA Monetary Policy
  • UK – Construction PMI
  • US – ISM Manufacturing PMI

Wednesday 3rd September

  • China – Services PMI
  • Australia – GDP (Q2)
  • UK – Services PMI
  • Canada – BoC monetary policy

Thursday 4th September

  • UK – Bank of England rates decision (plus statement)
  • Eurozone – ECB rates decision (plus press conference)
  • US – ADP Employment Report
  • US – ISM Non-manufacturing PMI

Friday 5th September

  • US – Non-farm Payrolls
  • Canada – Unemployment

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