Trend analysis for the week beginning November 10th
We begin our analysis with a detailed analysis of the upcoming fundamental policy and high impact news events that will affect the coming week’s trading sessions. Thereafter we’ll move onto technical analysis using the most commonly favoured trend/swing indicators.
Monday sees several bank holidays that will affect the volume of trading activity during the various trading sessions. France, Canada and the USA have bank holidays. The German Bundesbank president Weidmann will hold court with a conference on Monday. Whilst the German central bank is subservient and defers to the ECB, on matters such as quantitative easing and rate setting, investors and analysts will look for ‘code’ in Weidmann’s speech concerning the direction the singular German economy will be headed for and directed towards over coming months.
Towards the end of the trading day we’ll receive the consumer confidence publication from Australia’s National Bank. The previous month’s reading came in at 12, a print close to this figure is expected.
Tuesday witnesses the publication of several inflation reports from European nations, the UK’s arguably being the most eagerly anticipated with the expectation that CPI will fall to 2.5% and RPI printing at 3% falling from 3.2%. Later that day the USA NFIB small business index is published with analysts expecting a moderate fall from 93.9 to 93.5. Late on in the evening the New Zealand RBNZ financial stability report will serve as a document to predict where the NZ economy will be headed over the short to medium term. The report will be followed sometime after by the RBNZ governor Wheeler holding a press conference to discuss the findings.
Wednesday sees the UK publishing its claimant count numbers and the percentage of the population unemployed, both numbers expected to be favourable, with the percentage count at 7.7% and the claimant count number to have fallen by circa 30K month on month.
Figures for European industrial prediction are published on Wednesday, with the expectation that the number will fall to -0.2%. The UK’s BoE will provide its inflation report with Governor Mark Carney discussing the implications of the latest report and any policy changes he may implement as a consequence. Retail sales for New Zealand are published, with the anticipation that the figure will be 0.9%. The USA Fed chairman Ben Bernanke will give a speech later in the evening.
Thursday witnesses preliminary GDP figures published by many European countries, Italian French and German GDP figures are delivered with Germany’s expected to print at 0.3%+ from 0.7%+ the previous month. The overall flash figure for Europe’s GDP is expected in at 0.2%. Thereafter the Eurogroup holds various meetings. The UK’s retail figures are published with an improvement of 0.2% expected. Canada’s trade balance is expected to show a negative balance of $1.2bn, whilst the USA trade balance is scheduled to come in at -$39 bn for the month. Unemployment claims for the month are scheduled to come in at 331K with a normalization of the figures now in place after the temporarily govt. shutdown. Later on Thursday the Fed chairperson delegate Janet Yellen will give testify in front of a select committee.
Friday witnesses the publication of Europe’s inflation figures; CPI expected in at 0.7%. The ECOFIN meetings could prove to be of interest given the recent base interest rate reduction of 0.25% by the ECB in the preceding week. Friday also sees a raft of North American data which could affect market sentiment in the latter part of Friday’s trading session; Canada’s manufacturing sales are predicted to rise by 0.3%, whilst the Empire State Manufacturing Index is predicted in at 5.2 from 1.5 the previous month. Industrial production in the USA is predicted to fall to 0.1%.
Technical analysis of major currency pairs indices and key commodities.
Our technical analysis is conducted using the indicators that the majority of trend/swing traders prefer; MACD, DMI, stochastics, Bollinger bands, ADX, RSI, and the PSAR. We also highlight what we term key psyche number levels and looming round numbers, whilst we look for key price action activity on the daily chart only.
EUR/USD endured a further sell off during the preceding week as a consequence of the base interest rate reduction by 0.25% to 0.25%. The rumours regarding the potential base rate reduction began on October 29th, on the 29th-30th the security reversed trend and broke to the downside, since which time the security’s sell off has been extreme. Currently PSAR is above price, the lower Bollinger band has been breached, the DMI and MACD are negative and printing lower lows, RSI at 33, with ADX at 31. Stochastic lines have crossed using an adjusted setting of 9,9,5. In the preceding week the 50 day simple moving average was breached to the downside whilst the 200 moving average, currently positioned at circa 13200, should not be ruled out as a medium term target given that the impact of the base rate reduction has not been completely ‘absorbed’ by the markets. Traders who have enjoyed the bearish trade from the 29/30th October onwards must adjust their position to lock in substantial profits. Unless there is some major fundamental policy adjustment by the USA administration, the Fed or ECB, or outlier news concerning either currency, then a further momentum sell off on the euro cannot be ruled out. Traders should therefore stay short until several of the current bearish indicators reverse sentiment.
USD/JPY broke to the upside on or around October 28th, subsequently the pip gain has been considerable. Looking at the preferred indicators PSAR is below price, RSI is at 58, MACD is positive and making higher highs on the histogram visual, price has breached the 50 day simple moving average to the upside, the 200 SMA is closely clustered to the 50 SMA, suggesting that overall this security has remained stuck in a fairly thin trading range for several weeks. The upper Bollinger band has been reached, whilst DMI is negative and the ADX at 13 could be regarded as weak and an indication that the trend may have run out of momentum. Stochastic lines are crossed and still yet to reach the overbought zone. The last two days candles were dojis with long shadows indicating not only indecisive sentiment, but increased volatility. Traders long would be advised to proceed with caution ensuring that (through the correct use of trailing stops) they have locked in some of the profit gained since late October.
AUD/USD began its bearish momentum move on or around October 24th. The momentum to the downside looked under threat on or around November 4th, however, on the last two days’ trading sessions of the preceding week the Aussie began a further break to the downside. The 50 SMA was breached, lower Bollinger band breached, DMI and MACD are both negative making lower lows on the histogram visual, RSI is 40 with the ADX at 22. The PSAR is above price, whilst the stochastic lines are very close to crossing on the adjusted 9,9,5, setting. Traders short the Aussie should monitor their positions carefully to ensure that by the use of stops they lock in some gains. As a reason to close the trade, in anticipation of a reversal of trend, the standard PSAR would perhaps be the ideal indicator to use.
The DJIA has maintained its momentum bullish move since circa October 10th when the 200 SMA was rejected to the downside. The 50 SMA was breached to the upside on or around October 11th, since which time the points gained have been considerable, circa 750 points since the 200 SMA was rejected to the downside. It’s therefore essential that traders long this security have locked in gains. Currently PSAR is below price; DMI and MACD are positive, but not making higher highs on the histogram visual. The upper Bollinger band has been reached but not breached; the RSI is at 60 indicating an overbought security, whilst the ADX at 30 is indicating a strong trend. The stochastic lines have crossed and exited the overbought zone on a setting of 9,9,5. The last two days Heikin Ashi candles are indicating that this move may have reached a point of exhaustion. Traders need to observe their positions carefully given that the DJIA reached record highs in the preceding week.
WTI oil has continued the longer term trend fall evident from mid-September. The medium term trend fall began on circa October 10th. The 50 SMA was broken to the downside on September 17th, the 200 SMA was breached on October 22nd. Currently the security is displaying characteristics suggesting that the security may be oversold and this bearish trend has reached a point of exhaustion. ADX is at 39, RSI at 31, MACD is negative but making higher lows, DMI likewise, both stochastic lines are in the oversold zone. PSAR has reversed trend and is below price. The sale of circa $16 per barrel may be close to its end. However, traders considering a long trade may be mindful of the key psyche level of $100 per barrel, breached to the downside on October 21st, which is the absolutely critical level, where WTI oil is concerned. Traders may be best advised to not trade long oil until several other indicators turn bullish.
Spot gold began a bullish trend on circa October 16th, the end of that bullish trend was confirmed by PSAR reversing to appear above price on November 5th. MACD and DMI are currently negative making lower lows on the histogram visual, RSI is at 47, with the ADX at 20 suggesting that the trend is yet to develop. Both stochastic lines have crossed, but are short the oversold area, the lower Bollinger band has been breached to the downside, whilst price is below the 200 SMA. Traders short would be advised to stay short unlit several indicators suggest otherwise.
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