Swing-trend trading analysis for the week beginning Sunday December 15th

Dec 16 • Is The Trend Still Your Friend • 3074 Views • Comments Off on Swing-trend trading analysis for the week beginning Sunday December 15th

trend-analysisSunday evening witnesses the publication of the Westpac consumer sentiment survey for New Zealand, the previous print came in at 115.4, the anticipation is for a similar result. The Japanese Tankan manufacturing index is published late Sunday evening, predictions are for a figure of 15, up from the previous month’s figure of 12. The non-manufacturing Tankan index is also published, expected in at 16 from the previous print of 12. In the UK the Rightmove asking house price index is published, in the previous month asking prices fell by 2.4% therefore an improvement is expected.

The Chinese HSBC flash manufacturing index is published late Sunday evening with the expectations that a small rise from 50.5 to 51 will be witnessed.

Monday sees the publication of French flash PMI manufacturing and services data courtesy of Markit economics; both indices are expected to rise, manufacturing to 49.1, services to 48.9. Germany’s twin PMI Markit gauges are also published; manufacturing predicted in at 53.1 services at 55.2. Finally Europe’s are published with manufacturing predicted in at 51.9 with services at 51.5. Europe’s trade balance published Monday is expected in at €15.2 bn, meanwhile the Bundesbank’s tentative monthly survey is published.

In the USA we witness the publication of the Empire State manufacturing survey, last month saw a surprise fall to -2.2%, a restoration of positive data is expected, with the print potentially coming in at 4.9. Flash Markit manufacturing PMI is published for the USA, expected in at 54.9, whilst industrial production is expected to rise by 0.6% from the previous month’s figure of -0.1%.

The ECB president Mario Draghi speaks mid-afternoon European time on Monday, the expectation is that he’ll cover the subjects of: the strength of the euro, countries such as Ireland moving out of various bailout imposed austerity measures, interest rate reductions, European banking union and the potential for quantitative easing – through a bond buying programme.

Later in the evening Australia publishes several important prices of data; motor vehicle sales and the Conference Board index which is a reading of 7 economic indicators related to: money supply, building approvals, profits, exports, inventories and interest rate spreads. Australia’s deputy governor of the RBA speaks ahead of the minutes being published of the last meeting at which the base interest rate was kept at 2.5%.

Tuesday sees the publication of a raft of inflation data for the UK, CPI expected in at 2.2%, PPI expected in at -0.5%, RPI at 2.7%, and HPI (house price inflation) expected in at 4.2% year on year. Also in the UK the CBI publishes its industrial orders expectation data, expected to print at 12 up from 11 the previous month.

In Europe the ZEW economic sentiment index is published; expected in at 60.9. German ZEW data is expected in at 55. The Eurogroup meetings are held with once again focus expected on banking union, potential monetary easing in the form of QE and the improving backdrop of the European economy. Europe will also see CPI published, expected in at 0.9% year on year.

Canada publishes its manufacturing sales data on Tuesday, expected to come in at 2.2% annually. CPI for the USA is expected in at 0.1% month on month. The current account for the USA is expected in at -$101bn.  Mid-morning UK time the BoE governor Mark Carney speaks in a press conference.

High impact news events take a breather until later evening; New Zealand’s current account is expected to print at -$4.45 bn. The ANZ business consumer index is expected in at 60.4, similar to the previous month. Australia’s RBA governor at events speaks with analyst and investor attention focused on the Aussie dollar’s drop versus its major peers during the preceding week due to the comments attributed to him regarding a loose target of 0.8500 for the Aussie versus the USD. Japan’s trade balance is expected in at -¥1.13 trillion.

Wednesday sees the publication of the German IFO business climate index, expected in at 109.7. The UK publishes its latest claimant count figures, predicted to be down 35.2 K month on month. The expected percentage claimant count is expected in at 7.6%. The UK’s BoE MPC reveals the votes on interest rate setting and quantitative easing both expected in as unanimous votes. ECONFIN meetings continue through the week, whilst the Swiss ZEW sentiment index is published.

In the afternoon session attention turns to the USA data, housing starts data is predicted in at 0.91 million year on year, whilst crude oil inventories might have the capacity to shock again with the previous week’s figure coming in -10.6 m barrels. Then attention turns to the FOMC and the expected news regarding the potential taper, the Fed’s base rate decision will be announced expected to remain at 0.25%, thereafter the FOMC will deliver an explanatory statement and deliver their economic projections.

Thursday we receive data on Europe’s balance of payments which is predicted to print at €14.2 billion positive. Retail sales in the UK are predicted to come in at 0.3% up on the month.

USA unemployment claims are predicted in at 336K, down from 368K, existing home sales are predicted in at 5.04 million annual rate, a slight seasonal fall from the previous month. The Philly Fed manufacturing index is predicted to come in at 10.3, significantly up from 6.5 the previous month. Natural gas storage data is printed for the USA. Last week was down -81bn.

Late evening Japan publishes its monetary policy statement and the Bank of Japan holds a press conference.

Friday sees the publication of German PPI for the month, predicted to come in flat with the German GfK business climate expected in at 7.4. The UK’s current account data is expected to worsen at -13.8 bn, with public sector borrowing predicted to remain steady at £6.6 bn and final GDP expected in at 0.8%.

Core data for Canada includes CPI predicted to come in at 0.1% with retail sales expected to be flat and CPI expected in up 0.2%. The USA final GDP data is predicted to show growth of 3.6% annually. Europe’s consumer confidence is predicted to come on at -15 whilst the last high impact news event of the week sees the nomination vote for Fed chairman.

Technical analysis

Our focus now turns to using technical analysis in order to determine the latest trends on certain major currency pairs, indices and commodities. We use the most commonly favoured indicators such as; Bollinger bands, PSAR, DMI, MACD, stochastics, RSI and ADX, whilst using Heikin Ashi bars to determine price action. We make reference to looming round and psyche numbers and the key simple moving averages such as the: 20, 50, 100, 200. All indicators (bar the stochastics) are left on their standard settings whilst the stochastic is adjusted to 10,10,5 in order to attempt to ‘dial out’ certain market noise. Only the daily time frame is used in our analysis.

EUR/USD continued its momentum to the upside during the preceding week. The trend began to develop as far back as November 12th, with nearly all the most commonly referred to indicators turning bullish by November 19th. Currently PSAR is below price and positive, the upper Bollinger band was breached late in the preceding week to then reject the level. Price is above all of the simple moving averages. The price action is suggesting that the move’s momentum to the upside may have may have run its organic course. The earlier candles during the week were closed with upper shadows; however, Friday’s candle was indicating indecision and a potential reversal in sentiment. The DMI is positive, but failing to make new higher highs using the histogram visual, this pattern is repeated using the MACD. Both stochastic lines are in the overbought zone, the RSI is reading 62 and the ADX is reading at 20, suggesting that the trend is weakening. Traders who have ridden this move since early middle November must have locked in significant pips and profit by the effective use of trailing stops. Traders looking for a reason to close might consider the PSAR as an effective tool to close and then look for other indicators to also turn bearish before reversing their trend position. 

USD/JPY; the move to the upside (that began on November 1st) has continued throughout the first weeks of December. Early December the trend appeared to have been broken, however, from December 9th the upside momentum was once again in evidence. PSAR reversed to appear once again under price, whilst price breached the upper Bollinger band to the upside on the Friday candle of the preceding week. Friday’s candle was bullish with a closed body and upward shadow. Price is above all the major simple moving averages. DMI is positive and making higher highs on the histogram visual, whilst the MACD is neutral. Both stochastics are in the overbought zone. The RSI is at 64 and the ADX at 34. Traders long would be advised to stay with the trend and not reverse until several indicators have indicated bearish tendencies. Perhaps the PSAR turning negative as a reason to close the long trade.

AUD/USD suffered a sell off Thursday as the RBA governor Stevens was quoted as stating that he saw 85000 as being a medium term target level for the Aussie dollar versus the USD in order to encourage Aussie trade visa exports. Consequently the Aussie reversed what appeared to be the beginnings of a tentative break to the upside. Currently PSAR is above price, the lower Bollinger was breached to the downside by Friday’s candle. Price is below all the mostly used simple moving averages; 20, 50, 100, 200. DMI is making lower lows using the histogram visual,      whilst the MACD has reversed trend to once again become negative and print lower lows. The RSI is at 32 with the ADX at 35. Stochastics have failed to cross but are not in either the oversold or overbought zone. Traders short would be advised to stay with trend until several of the indicators turn bullish.

The DJIA began a sell off on December 2nd, since which time the points fall has been considerable. Having printed record highs above 16100 the index closed the week down at 15745. Naturally the catalyst for the selloff was taper rumours. Currently PSAR is above price, price is threatening to breach the 50 day moving average having broken through the twenty day simple moving average earlier in the preceding week. The lower Bollinger is also being threatened to the downside. Both stochastics are in a downward trajectory but short of the oversold zone and have yet to cross. The MACD and DMI are negative and making lower lows. RSI is at 44 with ADX at 23, suggesting that the trend still has the capacity to develop. The price action suggested in the latter days candles of last week suggest strong downward pressure; the last two days’ candles were closed with shadows to the downside. Traders short the DJIA would be best advised to stay so until several of the aforementioned indicators turn bullish.

WTI oil broke to the upside on December 4th, since which time the gains have been considerable. However, the last two days’ candles of the preceding week indicated indecision as the move appeared to run out of momentum. The 50 simple moving average has been broken to the downside, having being broken to the upside on December 5th. PSAR is below price, whilst the middle Bollinger band has been breached to the downside. The DMI is positive but making lower highs using the histogram visual. The stochastics are close to the overbought zone, but yet to cross. The MACD is also positive, but failing to make higher highs. RSI is at 51 whilst the ADX is at 30. As often with oil it’s an incredibly tricky security to trade with any level of certainly given its relationship with macro events and the ‘see-saw’ of the USA’s levels of reserves, seasonal factors should not be ignored in the USA either. Traders long would be advised to trade cautiously and look for signs of weakness before committing to short opportunities. Should those opportunities arise traders’ would be best advised looking for several indicators to turn bearish.

Spot gold had begun to appear as if the recent sell off had been arrested with a break to the upside looking on. However, despite PSAR appearing below price and the MACD becoming positive and making higher highs early in the preceding week, price failed to continue any short term momentum. The DMI remained negative and made lower lows in the last two days of the preceding week. RSI is at 44, ADX at 32, Stochastics are threatening to cross to the downside. Price is below all the critical moving averages, having breached the 20 day moving average to the upside early in the week, to then fall back through to the downside. Traders long should treat spot gold very carefully during the coming week. The short term break to the upside failed to develop any momentum suggesting that trader sentiment remains insecure regarding this security.             

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