Trend analysis for the week beginning October 13th

Oct 14 • Is The Trend Still Your Friend • 2868 Views • Comments Off on Trend analysis for the week beginning October 13th

Once again the debt ceiling impasse, at the heart of the USA government, took the centre stage in terms of economic news during the preceding week. The DJIA fell in the early part of the week, flirting with breaking the 200 SMA to the downside, to then rebound on Thursday and Friday due to the belief that a solution would be found. However, despite the meetings between the two political parties, there was no solution to be delivered and the improvement in sentiment has no foundations other than normal market rumours peddled by the financial mainstream media…

Over and above the debt ceiling impasse there were other high impact news events delivered in the preceding week that were of note. Monday saw the Sentix European sentiment index came in at 6.1, down from the expected print of 10.2. The Canadian housing permits fell by 21.2%, from an expected fall of 2.4%. Consumer credit in the USA rose by $13.6 bn.

Tuesday saw the Swiss deliver decent numbers; unemployment stable at 3.2%, inflation practically non existent and retail sales increasing by 2.3% caused continued franc strength versus the USD over and above its correlated performance versus EUR/ USD.

Wednesday saw the delivery of data from the UK’s ONS which came in below expectations; the manufacturing index, industrial index and trade balance came in worse than expected; manufacturing and industrial production down 1.1%, with the trade balance falling to £9.6 bn from an expected £8.9 bn. This trinity of numbers underlining just how fragile the UK’s supposed economic recovery is. Australian unemployment fell to 5.6% from 5.8, despite the job numbers increase being disappointing.

Thursday saw French and Italian industrial production figures disappointing the market, whilst the USA weekly unemployment claims, beginning to cater for the gaps caused by missing data from the states of California and Nevada, hit hard, with claims spiking to 374K from the previous week’s 308K. The UK kept its bank base rate and asset purchase scheme (at £375 bn) unmoved.

Friday witnessed Canada’s unemployment rate fall to 6.9%, due to many claimants falling off the registers, whilst the preliminary university of Michigan sentiment index fell to 75.2 from 77.2. Saturday saw the production of the balance of trade numbers from China, the positive trade number falling from 25.2 bn to 15.2 bn.

High impact news events for the coming week beginning October 13th.

Sunday and the expectation is that Chinese inflation numbers are expected to come in at 2.8%, Monday sees European industrial production numbers printed, the prediction being 0.8%. Bank holidays in the USA and Canada should see a quiet day as the ticking time bomb of the 17th October, when the USA technically enters default, looms closer.

Tuesday sees Japan’s revised industrial production numbers published, whilst UK inflation figures for RPI and CPI are produced with little deviation from previous figures predicted, CPI is expected to remain at 2.6%. The German and European ZEW sentiment numbers are produced, Germany’s is expected to print at 49.2 from the previous 49.6 for September. The USA Empire State manufacturing data is published; the anticipation is for a rise to 8.2 from 6.3 the previous month.

Wednesday sees the UK unemployment numbers published, with claimant count expected to fall by 24K with the rate of unemployment expected to remain at 7.7%. Manufacturing sales in Canada are expected to come in at 0.3% down from 1.7% previously.

Thursday sees UK retail sales published, expected to rise to 0.5% from the previous month’s unexpected fall of -0.9%. In the USA unemployment figures are expected to once again rise past the median four week average to 357K, with the Philly Fed Manufacturing index predicted to fall to 15.4 from 22.2. China’s GDP for the quarter is expected in at 7.8% with the industrial production number at 10.1% annually.

Friday sees the Bank Of Japan’s governor Kuroda take centre stage with a speech, in which forward guidance in terms of monetary easing and rate setting, will be the focus. Friday also sees the publication of core inflation figures for the Canadian economy, expected to remain at 0.2%.

Technical analysis for the coming week for leading indices, major currency pairs and leading commodities.

Technical analysis will involve using many of the highest regarded swing/trend trading indicators; the DMI, MACD, PSAR, Bollinger bands, RSI, ADX, stochastic lines, price action using the Heikin Ashi bars and paying attention to looming round and key psyche numbers. All indicators, with the exception of stochastic lines adjusted to 9,9,5, are left on their standard setting, usually a 14 day period.

The DJIA experienced a reversal from the sell off which had been in place since circa September 20th. Having hit the 200 SMA on October 8th-9th the index rejected this level as sentiment regarding the USA debt ceiling impasse improved. The fall from 15600 to 14800 appeared to be set to fall further, however, the index staged quite a rally on Thursday and Friday to close at 15,245. Currently the PSAR is below price, the MACD and DMI are negative, but making higher lows, the stochastics have crossed and exited the oversold zone, the RSI is at 53, the ADX at 24, with the middle Bollinger band having been broken to the upside. Traders who are yet to close their swing short position should now do so based on the PSAR appearing below price suggesting this trend has now ended. Traders looking for further confirmation before committing to a long position may prefer to await the MACD and DMI finally becoming positive.

EUR/USD finally saw its bullish trend, identifiable from September 5th, end with the appearance of several bearish indications. The trend ended on October 9th. Traders who have ridden this trend, from start to end by using our commonly used indicator set, should have enjoyed a considerable pip gain, circa 400 pips. Currently the PSAR is above price, the MACD is negative having made lower lows over recent days using the histogram visual, the DMI is positive and made a higher high on Friday. The middle Bollinger band had been breached to the downside on Thursday, however, this appeared to reverse trend on Friday breaching to the upside. Stochastic lines have crossed, on the adjusted setting of 9,9,5, with the RSI on 58 and the ADX on 33. The evaluation of this security, arguably the most liquid security in the currency markets, is highly sensitive to the USA debt ceiling impasse. Currently it’s acting as a sentiment barometer. Traders who have closed their swing long may be advised to await the confirmation of more negative indication by way of, for example, the DMI, RSI and price breaching the lower Bollinger line before committing to a short trade. Traders were left with an inconclusive doji candle as Friday’s trading sessions closed adding to the overall levels of uncertainty, in the USA situation mirrored by Eurodollar.

GBP/USD. The bullish trend, which began on cable circa September 5th, finally ended on or around October 3rd. Currently PSAR is above price, MACD has made new lows, DMI is still positive, stochastic lines have crossed and exited the overbought zone, RSI and ADX are reading at 50 and 35 respectively, whilst the lower Bollinger band was breached to the downside on previous trading days, but failed to make and further breach to the downside on Friday. The Friday HA bar is indecisive, the shallow bar is closed with a small shadow, whilst not indicating the indecision of, for example, a doji the price action of previous days remains inconclusive. Traders who have followed the indicator set we suggest (since early September) will have made considerable gains having closed their bullish trend, however, before committing to the short side traders may be advised to look for more indicator proof, perhaps the DMI exhibiting negative tendencies and the RSI falling below the median fifty line.

USD/JPY changed trend during the middle of the preceding week, price having ridden the bearish trend since circa September 9th. The trend turned on October 9th with many of the commonly favoured indicators turning bullish. PSAR below price, the MACD turning positive making higher highs, the DMI threatening to become positive having made higher lows, stochastic lines have crossed and exited the oversold zone, the ADX is at 23, RSI is above the median 50 line, with the middle Bollinger line being breached to the upside. Traders not already long, waiting for further confirmation, may make their commitment once the DMI becomes positive. Whilst this security is sensitive to the debt ceiling impasse the rise versus JPY is also due to domestic issues in the Japanese economy, most notably the continued monetary easing commitment made by Japanese govt ministers and BOJ officials.

WTI OIL has proven to be a difficult security to trade lately, many traders will have been tempted to take a long position on October 2nd based on the preferred indicator set and the price action displayed. However, the security then began another break to the downside. The current position shows the PSAR above price, the MACD and DMI negative using the histogram visuals, the stochastic lines on the adjusted setting of 9,9,5 yet to cross, RSI at 45, whilst the lower Bollinger band has been breached to the downside, the ADX is indicating a weak trend with a reading at 12.5. Traders may be advised to await further confirmation by way of the ADX exhibiting indications of a strong trend, and the stochastic lines to cross before committing to a short trade.

Spot gold broke to the downside on October 1st having threatened to break to the the upside from September 18th. PSAR is above price, DMI and MACD negative making lower lows, the lower Bollinger band has been breached, stochastic line have crossed on the adjusted setting of 9,9,5, with the ADX indicating a strong trend at 25 with the RSI likewise suggesting a strong trend at 35. Traders already short would be advised to keep a ‘weather eye’ on the situation in the USA regarding the debt ceiling impasse given the potential safe haven qualities of gold, similarly traders may wish to await confirmation of an end to the current trend before committing to a long trade, the minimum suggested would be for PSAR to appear below price as an encouragement to close the trade and the emergence of further bullish indications.