Trend analysis for the week beginning February 2nd

Feb 3 • Is The Trend Still Your Friend • 3178 Views • Comments Off on Trend analysis for the week beginning February 2nd

The week’s policy decisions and high impact news events begin with the AIG manufacturing index/survey from Australia which could affect the ASX 200/300 and the Aussie. The previous index reading was 47.6, with the anticipation that this coming print may be of a similar value. Building permits for Australia are expected to come in at -1.5% down, whilst the YoY figure is expected to be in at 22% up. The strength of the jobs in Australia will be illustrated by the latest ANZ jobs print.

Later in the day, late evening in the UK on Monday, Australia’s central bank the RBA will reveal its decision regarding the base interest rate expected to remain at 2.5%, the accompanying statement may offer up clues as to how the RBA, through its forward guidance measures, intends to manage the Australian currency through fiscal and monetary policy; rate management and monetary easing to take the value of the Aussie closer to its revealed target of 0.85.

China has a bank holiday, Chinese New Year, therefore indices affected by China’s performance and data may be initially subdued in the overnight session. However, the non-manufacturing PMI for China, courtesy of Markit, is expected to come in at 54.6. This PMI data begins a raft of manufacturing PMIs globally, in particular Europe’s PMI and the individual countries within the zone…

Spain’s PMI, France’s and Italy’s are expected to come in above their previous month’s levels. Spain up to 51.5, France up to 48.8, and Germany up to 56.3. Overall Europe’s E.U. PMI is expected to come in at 53.9.

In the UK the PMI is expected to fall to 57 from 57.3. The latest UK home price data from Hometrack will be published early Monday morning, the prediction is for a rise by 0.5% for the month.

Attention turns to the USA is the form of the USA manufacturing PMI, the prediction is for the final data to come in at 53.8, with the ISM manufacturing PMI predicted to come in at 56.2, below the previous month’s figure. Total vehicle sales in the USA are predicted to have risen by 15.6 million as an annualized figure.

Treasury secretary and lawmaker Mr Lew will speak on Monday; presumably his focus will be on the returning and revolving problem of the USA debt ceiling, which could once again become a problem for the USA govt., on or around the middle of the following week.

Tuesday the hope is that Spain’s unemployment numbers will have fallen, however, the data is unlikely to have improved from the -107K in the previous month, -22K is predicted. The UK’s Halifax houses rice data is expected to show increases of 0.4% month on month, the UK’s construction PMI is scheduled to have fallen in line with the ONS data of the previous week, the print is expected to come in at 61.6. Europe’s PPI is expected to come in at 0.3%.

In the afternoon session on Tuesday attention turns to the USA where factory orders month on month are expected to have fallen by -1.1%. The USA IBD/TIPP Economic optimism is expected in at 46.1.

Employment change in New Zealand q/q is expected to have fallen to 0.7% from 1.2% the previous month. The unemployment rate is expected to fall to 6%. China’s bank holiday is still on during Tuesday. Average wage rises in Japan are expected in up 0.7% for the month.

Wednesday focus returns to PMIs, the final services for Europe is expected in at 51.9, services PMI for the UK is expected in at 59.1. Retail sales for Europe are predicted to come in down -0.7% on the month of January.

The ADP jobs numbers are expected to show that the USA created an extra 191K jobs over the past month. This is the pre-cursor to the NFP number therefore it tends to be keenly watched. Building permits for Canada should have risen by 2.3% according to analysts’ expectations whilst the USA final services PMI number should come in at 56.6, no change.

The ISM non-manufacturing PMI is expected in at 53.8. Crude oil inventories are published whilst FOMC member Mr. Plosser will deliver a speech. New Zealand enjoys a bank holiday Wednesday/Thursday, whilst China’s New Year holiday continues.

Australia’s retail sales are expected in up 0.5%, whilst the trade balance is expected in at $0.23 bn. The NAB quarterly business confidence index is expected to come in similar to the reading of 3 previously. Japan will conduct a thirty year bond auction.

Thursday Germany’s factory orders are expected to come in up 0.3%, retail PMI for Europe will be published, which is expected to come in at a similar figure to the previous month’s 47.7. France will be conducting a ten year bond auction. The UK’s base interest rate is expected to remain at 0.5%, whilst the asset purchase scheme will not be increased from the current £375 bn when the UK’s BoE MPC meet on Thursday at noon UK time. This will be accompanied by a statement from the BoE MPC. The ECB will publish its rate setting decision on Thursday and thereafter a press conference will be held to explain the decisions.

The Challenger jobs cuts from the USA fell by over 5% last month, investors will be looking at this print for clues as to how the NFP print will be on Friday. Canada’s trade balance is expected in positive at one billion, whilst its Ivey PMI is expected in at 51.3. The USA trade balance is expected in at -$35.8 for the month. Unemployment claims for the USA are expected in at 334K. Non-farm productivity is expected in at 2.6%, whilst labor costs are expected to have fallen by 0.5% for the month. Finally the RBA will give its monetary policy statement.

Friday sees Japan’s leading indicators published, Germany’s trade balance is expected in at a positive £17.3 bn. France’s trade balance is expected in at -€5.6bn. The UK’s manufacturing index is expected in up 0.6%, whilst the trade balance for the UK is expected in down £9.3 bn for the last month. German industrial production is expected up by 0.6% month on month.

Moving onto North American news Canada’s unemployment rate is expected in at 7.2 with unemployment numbers to have fallen by similar numbers to the -46K previously. The USA NFP print is expected to come in at 184K extra jobs created for the month, whilst the unemployment rate is predicted to come in at 6.7%, with earnings up 0.2% month on month.

Technical trend/swing trading analysis for the coming week

Our attention now turns to analysing several major currency pairs, the DJIA and WTI oil. We’ll use: the seven most commonly favoured indicators, the leading SMAs, Heikin Ashi candles, key levels and price action in order to attempt to determine direction. The indicators we’ll use will be the PSAR, DMI, MACD, Bollinger bands, stochastic lines, RSI, ADX. All indicators will be left on their standard settings with the exception of stochastic adjusted to 10, 10, 5 in an effort to ‘dial out’ false readings.

EUR/USD reversed trend violently on Friday falling through support to S2. PSAR appeared above price, the MACD and the DMI are negative – posting lower lows on the histogram visual, the RSI is at 37, the ADX is at 14. The lower Bollinger band is breached, whilst price has fallen below several significant SMAs – the 20, 50 and 100. The stochastic lines, on their adjusted setting, are threatening to cross. The euro had broken to the upside in the preceding week, however, that break was short lived in particular as the increased taper in the USA caused a return to the safe haven of the dollar versus the euro. Traders who have shorted this security should be mindful of their stops, perhaps placing them at the recent high of January 24th.

AUD/USD broke to the downside on January 16th. Currently PSAR is above price, Stochastic lines have crossed to the upside, DMI is negative, but making higher lows, whilst the MACD is positive and making higher highs. The middle Bollinger band has been breached to the upside, whilst the 50 SMA is in range to be broken to the upside, whilst the 21 SMA has been breached to the upside. The final days’ candle of the preceding week was a classic doij indicating indecision. The RSI is at 41 with the ADX is at 25. Traders need to exercise caution if they’re still long as many of the commonly used indicators are turning bullish which could be suggesting that the security is ready to break to the upside.

USD/JPY broke to the downside on January 13th; price broke through the 50 day SMA on January 24th. The 100 SMA is now in range. The last Heikin Ashi daily candles of our preceding week were inconclusive after a further break to the downside on January 24th. The final candle of our preceding week was a doji also indicating indecision. PSAR is above price. The MACD is negative and making lower lows on the histogram value. The DMI is making higher lows. The stochastic lines have crossed earlier in the move and are approaching the oversold zone. RSI is at 38, whilst the ADX is at 26. Traders would be advised to stay short until several of the afore-mentioned indicators have changed sentiment. Traders looking for a reason to close this short trade would be advised to use the PSAR to close, whilst using the same indicator as a guide to trail their stops.

WTI oil broke to the upside (after a major sell off) on January 15th. Price is within range of the 200 SMA whilst the last Heikin Ashi candle off our preceding week was a spinning top, suggesting a preference of sentiment to the upside. PSAR is below price, the MACD and DMI are positive and making higher highs on the histogram visual. The upper Bollinger has been recently reached during mid-week of the preceding week. Both stochastic lines are in the overbought area, but are yet to cross on the adjusted setting of 10, 10, 5. RSI is at 56 and the ADX is at 20. The 200 SMA is positioned close to the critical psyche level of $100 per barrel. The price action displayed by the Heikin Ashi candles is suggesting that there could be more momentum left in this long position. Traders would be advised to proceed with caution given that the 200 SMA could act as an organic area of rejection due to the heavy clustering of orders that will exist there and close to the critical 100 level.

The DJIA index broke to the downside on January 23rd. This break was enhanced by the news from the FOMC meeting last week that the taper of asset purchases would be continued, but at a slightly lower rate of $65 billion. The index has shed circa 700 points since January 23rd. The MACD and DMI are negative and making lower lows, PSAR is above price whilst the lower Bollinger band has been reached to the downside. Stochastic lines are closing in on the oversold zone. The RSI is at 32 with the ADX at 32 suggesting that this trend is still strong. The key SMAs have been breached with the exception of the 200 SMA which is in range and close to the next arguably critical handle of 15500. Traders would be advised to stay short, whilst ensuring that their use of stops ensures that they lock in profits and perhaps use the PSAR as a trailing stop measurement whilst using it to indicate if a change in trend is imminent.