As the SPX reaches record highs the NFP numbers disappoint, but the dollar remains bought.
As if proof were needed that the Fed's continual commitment to monetary easing is fueling the rise in the main equities indices of the SPX, the DJIA and the NASDAQ, it came in the form of several disappointing news events last week failing to dent the 'bidding up' of these gravity defying times and markets. The list of poor data emanating from the USA last week was quite significant, but it was the poor job print that caused many analysts to sit up and pay attention. The poor economic prints included the following;
- Pending home sales fell from 5.8%+, to 0.4%-
- Conference board confidence fell to 80.3
- NFP job creation fell to 163K
- Factory orders fell to 1.5% from 3.0%
Despite unremarkable positive news events to counter the negative data, other than USA GDP rising to 1.7% month on month and various consumer confidence surveys being positive, the markets rose, as did the dollar versus many of its peer currency pairs.
This rise of the greenback in last week's trading sessions caused the change in longer term trends plotted on the daily chart and its these changes we'll take a closer look out with regards to potential trend continuations in the current week.
Policy events, or news events ranking as high impact over the week, that could affect sentiment and alter trends.
Services PMI for the UK are published Monday. In an economy heavily dependent on the service economy to bolster confidence and economic performance analysts are pricing in an improved reading of 57.4 versus 56.5 previously. Manufacturing figures, courtesy of the UK's ONS will also be printed on Tuesday. Previously the print was 0.8% negative, the expectation is for a print of 0.9% positive. Should the number stay negative this could begin to question the positive PMI delivered by Markit previously and affect the price of sterling versus its major peers.
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The USA trade balance will be monitored carefully on Tuesday for sustained economic performance and to determine if the recent growth has any tangible weight. Crude oil inventories for the USA will also affect oil price and reveal how 'thirsty' the USA economy is for energy.
The Australian employment rate printed on Wednesday evening/Thursday morning could determine how hawkish, or dovish the Aussie government is and whether there's any appetitive in the RBA to lower interest rates more aggressively than previously discussed.
Thursday sees the BOJ press conference which will determine how fully committed the BOJ and Japan's government are to their various stated aims on inflation, growth and monetary easing.
The USA's continuous unemployment claims could be monitored more closely than in previous weeks on Thursday given the extremely disappointing NFP print. The prediction is for continuous claims to come in at 336K.
Trend observations for the week
Forex
EUR/USD failed to reach higher highs during last week's trading sessions heightening the suspicions that the current trend has come to its organic end. Four out of the five trading days ended with Hiekin Ashi dojis of various strength and appearance. However, the DMI is still positive, the MACD likewise, the RSI is currently reading over 70, whilst the stochastics are still in the overbought territory but yet to fall.
The middle Bollinger band was breached to the downside during Friday's trading sessions, this was the only indication, bar the price action pattern displayed by the Heikin Ashi daily candle, which suggested that the current bullish trend had ended. If traders entered the trade, as per the classic trend indications on July 11th, then the pip gains should be significant. Traders would be advised to look for further negative indications, perhaps as a minimum PSAR to appear above price and several of the histograms to become negative (the DMI and MACD) before closing their current long trade and thereafter committing to a short trend trade.
GBP/USD. Cable ended its current bullish trend at the latest on July 31st. The up-trend had commenced similar to other trends versus the dollar on or around July 11th. The trend ended with many of the classic trend trading indicators turning negative; PSAR above price, the DMI and MACD displaying negative readings, stochastics crossing on an adjusted setting of 9,9,5 and exiting the oversold territory, whilst the RSI fell below the median line of 50. However, the week ended by providing a dilemma for traders who may have taken short trend trades based on the popular indicators and the price action displayed by the Heikin Ashi candles. Due to the poor NFP print sentiment changed versus the dollar in the final trading session. Cable rose through R1, having hovered near to the daily pivot level before the jobs print. Friday's trading close produced a doij candle. Traders who are short cable will now have to monitor the price action over the next two trading sessions to determine if their short trade is still viable. Hopefully traders who are short can derive some comfort from the current situation if they entered as per the indicators on or around July 31st and as a consequence are still pip positive, or only demonstrating a small trend trading loss.
USD/JPY maintained its behaviour during last week's trading sessions as an incredibly tricky trade. The greenback has traded in a tight range since July 11th when many traders would have been tempted to short the currency pair. Thereafter the downside momentum visible on the chart has been extremely weak, whilst yen has developed strength due to its recent safe haven status as the Nikkei suffered severe losses in several of the overnight/early morning traded sessions last week.
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USD/JPY is developing many of the tendencies of a security ready to break out to the upside. DMI is positive on an adjusted setting of 20 (to diffuse noise), the MACD is making higher lows, using the histogram as a visual, whilst the RSI has been above the 50 median line on successive days. The stochastics are yet to cross and are potentially trending upward on an adjusted setting of 9,9,5. Traders would be advised to monitor their charts carefully looking for further evidence, such as the PSAR appearing below price, in order to take a long trend, or position trade.
AUD/USD. the Aussie versus the USD has also proved to be an incredibly difficult trade over recent weeks given that this popular commodity pair has, similar to dollar yen, traded in a very narrow range. However, on July 30th the moribund nature of this currency pair's behaviour ended as a breakout to the downside was observed with all the major trend trading indicators becoming active. PSAR above price, MACD making lowers lows on the histogram, likewise the DMI. The RSI is printing in the 30 zone, generally accepted as a trending indication that this aggressive fall has further momentum. The lower Bollinger band has been breached whilst the stochastics have crossed on an adjusted setting of 9,9,5. Traders in this short trade would be advised to stay with it until indications to the contrary are exhibited. Perhaps as a minimum traders should look towards the PSAR to appear below price to exit and wait for further indicator corroboration before altering their sentiment to bullish.
Indices
The SPX reached new highs during last week's trading sessions, similarly the DJIA followed suit. Despite these new highs and judging by the price action displayed on the daily chart, many analysts and traders appear unconvinced that any breakout to the upside has much further momentum. The DJIA, SPX and NASDAQ have traded in tight ranges over recent weeks providing a very difficult situation for trend traders to manage.
The constant narrative of Fed stimulus tapering may be responsible for this impasse, or the simple fact that traders appear reluctant to bid up price on the main indices beyond the recent record levels without clear indications that the USA economy is indeed repairing. For trend traders; using many of the most commonly preferred trend indicators, staying long the DJIA is the obvious decision pending any significant negative news events that could cause a sell off. Traders long the DJIA would be advised to look for the PSAR appearing above price as a minimum reason to arrest their long trades. Whilst also looking for further confirmation by way of the MACD, DMI and RSI printing bearish signals.
Commodities
WTI oil recommenced its bullish tendencies following a recent sell off, corresponding with the relatively low USA inventory numbers and increased tensions in the Middle East. WTI began a break out to the upside on August 1st after the appearance of a classic doji candle using Heikin Ashi closed on July 31st. Oil has once again threatened to take out its yearly highs printed two weeks prior. Looking at the most preferred swing trading indicators both WTI and Brent oil appear bullish, the DMI is printing higher highs on the histogram as is the MACD, whilst the RSI reading is at 60. Trend traders long oil would be encouraged to stay long until bearish signals, by way of the most commonly used indicators, become evident on the daily chart.
Gold
Gold failed to maintain its bullish breakout to the upside having traded in a bullish tight range for several of the previous weeks' trading sessions. The signal to close and potentially trade to the downside, came courtesy of the PSAR indicator appearing over price whilst RSI flirted with the 50 median line. The middle Bollinger band has been breached whilst the stochastics, (on an adjusted setting of 9,9,5) have crossed and exited the overbought zone. Gold traders would be advised to stay short until many of the leading trend indicators suggest otherwise. Very little faith can be placed in gold's safe haven status currently, given the risk off risk on paradigm and subsequent correlations are currently impossible to determine.
