Swing and trend reading analysis for the week beginning Sunday October 20th
The trade balances and industrial activity numbers are published from Japan on Sunday evening, early Monday morning. The expectation is for Japan’s trade balance to worsen to ¥1.06 trillion and for the all industries activity to shrink to 0.3% from the previous month of 0.5%. These figures will be published shorty after Japanese officials have stated their concerns with regards to the deflationary pressures that are harming growth. The Bank of Japan’s fight against deflation may last longer than it had hoped as firms remain reluctant to sharply raise wages, undermining the central bank’s goal of achieving its target of 2% inflation in two years.
Monday sees the publication of Germany’s PPI figure and the monthly report from Germany’s Bundesbank. Inflation is expected to come in at 0.1% month on month. In the USA another member of the Fed will hold court with the focus moving from the debt ceiling issue to the other issues affecting the USA economy, such as the throttling of monetary easing by way of tapering. Existing home sales in the USA are expected to come in at 5.31 million from the previous month’s 5.48 million. Canada’s wholesale sales are anticipated to print at 0.6%. USA crude oil inventory figures are suggested to fall to 3.4 million barrels from 6.8 million barrels the previous month.
Tuesday sees the UK’s public net sector borrowing data published, the anticipation is for a fall to £10.4 bn for the month. Core retail sales for Canada is expected to come in at 0.2% up on the month. The NFP figure for September is finally published by the USA BLS department on Tuesday, the anticipation is for the creation of circa 179K jobs created, as to the quality of those jobs created will become public knowledge once published. As always a figure of circa 250K new jobs needs creating each month over a consistent period for the USA economy to simply stand still. This latest print may fall short of expectations given the partial USA govt. shutdown over the preceding fortnight. The Australian inflation figures are published late on Tuesday/early Wednesday, with the expectation of the data printing at 0.8%.
Wednesday the UK’s BoE MPC publishes its asset purchase ‘votes’ and base interest rate vote decisions. Both are expected to reveal that there were no dissenters to keeping the asset purchase facility and the base rate at current levels. Import prices for the USA are expected to show a 0.3% rise, Canada’s central bank will publish its base rate decision and an accompanying statement outlining its current policy with specific concentration on its forward guidance. New Zealand prints its trade balance, expected to come in at -$677 million, close on half the previous negative print. From China we receive the HSBC manufacturing print, predicted to come in at 50.5.
Thursday sees the monthly rash of ‘flash’ PMI publications courtesy of Markit Economics. French, German and Spanish manufacturing PMIs are published, with all expected to print above 50. Spanish unemployment is published, expected to come in at the incredibly high level of 26.1%. Overall the flash manufacturing PMIs and service PMIs for Europe are expected to print at 51.4 and 52.3. Unemployment weekly insurance claims in the USA are expected to begin to normalize after the partial govt. shutdown. The expectation is for a print of 341K. New home sales in the USA are expected in at 427K. The UK bank of England governor conducts a speech with many investors expecting the commentary to include pointers as to where the governor expects the UK economy to be over the coming months.
Friday witnesses the publication of private loans in Europe and the preliminary GDP figures for the UK economy, expected to come in at 0.8% with annual growth up to circa 1.5% year on year. The quarterly index of services is expected to come in at 0.5% QoQ. The USA will publish its durable goods orders expected up 1.7% month on month. The revised university of Michigan report is expected in at 75.3
Technical analysis for the coming week covering major indices, currency pairs and commodities
Our analysis now moves on from the fundamental key policy decisions and high impact news events, to technical analysis using many of the preferred indicators swing traders prefer. Our analysis will use Bollinger bands, RSI, MACD, DMI, PSAR, stochastic lines, ADX, whilst we’ll look for price action by way of Heikin Ashi bars and look towards key psyche and looming round number levels. Only the daily time frame will be used in this analysis.
The DJIA continued its bullish momentum which began on October 10th, the corresponding SPX 500 index reached record highs in the preceding week, PSAR turned bullish and below price on the 11th, stochastic lines crossed on an adjusted setting of 9,9,5, the DMI and the MACD made new highs using the histogram visuals. The RSI is above the median line is at 57, indicating a strong trend that is not yet at the extreme of an overbought security. The upper Bollinger line is yet to be penetrated indicating that this bullish sentiment momentum move, caused principally by the USA congress finding a solution to the debt ceiling impasse, may have further growth. The ADX reading is at 20. Traders already long this security would be best advised to stay with the trend and lock in profits by way of using a trailing stop. Traders looking for a reason to close the trade would be advised to look for the PSAR to go negative, thereafter bearish trends will become apparent if several of these trend trading indicators print negative characteristics.
EUR/USD broke out sharply to the upside to reach circa ten month highs after the deadlock regarding the congress debt ceiling impasse was finally broken. The upper Bollinger band has been breached, PSAR is below price, the DMI has made higher highs, the MACD is positive and making higher highs, the RSI is at 60 – still short the overbought zone, stochastic lines have crossed. ADX is at 32. Traders who are long would be advised to once again use a trailing stop given that this relative (to the debt ceiling temporary resolution) break out is at the early stages, and perhaps use the PSAR as a reason to potentially stop and reverse.
GBP/USD followed Eurodollar in breaking out to the upside once the ink was dry on the debt ceiling resolution agreed by the two political parties in Congress. PSAR is positive and below price, the DMI is positive and making higher highs using the histogram visual, as is the MACD. RSI is at 62, still below the overbought territory. ADX is at 28. The middle Bollinger band has been breached, whilst the stochastic lines on an adjusted setting of 9,9,5, have crossed. Traders long this security would be advised to stay with trend unless several of the afore mentioned indicators turn negative. Given the debt ceiling resolution many in the investment community expect the USD to continue to come under intense pressure, particularly as any taper may have been put back due to the resolution only ‘lasting’ until the new year, any mention of a taper to the Fed’s asset purchase scheme is likely to be put back beyond that date.
USD/JPY fell sharply in a correlated dollar sell off versus many other of the major currency pairs, DMI is negative, the middle Bollinger band has been broken to the downside, stochastic is yet to cross, and the MACD is yet to go negative. RSI is at 46, ADX at 18, PSAR is yet to turn bearish. Traders yet to short this security may prefer until several of the afore mentioned indicators have turned bearish before shorting this major pair.
WTI OIL began its latest momentum move to the downside on October 9th, since which time the critical psyche level of $100 per barrel has been threatened on many days, without being breached, suggesting that a considerable cluster of orders are positioned at this organic level. PSAR is above price, the DMI and MACD are negative posting new lows on the histogram visual, ADX is at 15, stochastic lines have crossed whilst the lower Bollinger band is being threatened to the downside. Traders short would be advised to lock in their profits by way of trailing stops and be mindful of the USA oil reserves posted as high impact news event in the coming week, Monday to be precise.
Spot gold made a significant break to the upside late last week corresponding with the debt ceiling temporary resolution causing many investors to turn to gold as a safe haven. PSAR is below price, DMI negative and making lower lows, MACD has turned positive, RSI has crossed the median 50 line, the middle Bollinger band has been breached to the upside. Stochastic lines have crossed on the adjusted setting. Investors who have taken this long trade should note that the next significant moving average in sight is the 50 SMA, however the 200 is still some distance away. The last two daily Heikin Ashi candles have been closed with upwards shadows indicating that this positive sentiment move may have further momentum to the upside.
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