Swing/trend analysis for week beginning Sunday January 5th 2014
German preliminary CPI, month on month, begins the news likely to impact on the markets on Monday, the last increase was by 0.2%, with the expectation that the December print will come in at a similar value. Thereafter, a raft of European services PMIs, courtesy of Markit Economics, dominates the morning session in terms of news events. Italian services PMI is expected in at 48.9, up from 47.2. Final services PMI for Europe is expected in at 51.2 above the 51 in the previous month. The UK’s service PMI is expected to print at 60.4 ahead of the 60.0 the previous month.
The European Sentix indicator is expected to come in at 9.7, ahead of the 8 printed in the previous month. Canada’s RPMI is expected in at 1.1%, a drop from the -2.3% of the previous month. The final services PMI for the USA is expected to come in at 56, no change from the previous month’s reading. The USA non-manufacturing ISM PMI is expected to print at 54.6 from the previous 53.9. Factory orders for the USA are anticipated to have risen by 1.8%, having fallen by 0.9% previously.
Later on in the afternoon session the USA Fed Chairman announces his personal nomination for the position he’s about the relinquish. The US Senate will vote to pass or reject the nomination of Janet Yellen as Federal Reserve Chairperson for a term, Feb 2014 – Jan 2018.
In the late evening we receive data on Australia’s balance of payments with the print anticipated to come in at -$0.30 billion.
Tuesday sees the publication of Germany’s latest retail figures, expected in at 0.5%, up from the previous month’s fall of -0.8%. German unemployment is expected to fall by 1K, down from a 10K increase previously. Europe’s flash estimate for CPI is published, expected in at no change at 0.9%. Canada’s trade balance is expected in down $0.2bn, with the USA’s down by -$40 bn. It’s the difference in value between imported and exported goods and services during the reported month.
Wednesday witnesses the publication of the German trade balance, anticipated to come in at €18.9 bn positive for the month. The German Federal Constitutional Court is due to announce a ruling regarding the constitutionality of the ECB’s Outright Monetary Transactions policy (OMT).
Italy’s unemployment rate is expected in at 12.6%, whilst Europe’s unemployment rate is expected to print at 12.1%, with retail sales expected to come in up 0.2%. Germany’s factory orders are expected to rise by 1.2% month on month.
The USA ADP employment change is expected in at +199K, crude oil inventories may come in similar to the previous week’s reading of -7.0 million barrels down. After a ten year bond auction by the USA, the FOMC meeting minutes are produced. Consumer credit numbers for the USA will be published; the anticipation is for a print at $14.8 bn down from the $18.2 bn previously.
Late in the evening session focus turns to building consents in New Zealand with the anticipation for a print to be positive from the fall of 0.6% previously. Building approvals for Australia are published, with analysts expecting an improved print of -0.9% from the previous fall of -1.8%. Retail sales in Australia are expected in up by 0.5%. China’s CPI is published late on Wednesday, expected in at 2.7%.
Thursday France’s balance of payments data is predicted to fall slightly to -€4.7 bn, whilst the UK’s is expected to come in down -€9.4bn for the month. German industrial production is expected in up 1.6% month on month.
The UK’s base rate, as set by the UK’s BoE, is expected to remain at 0.5%, whilst the asset purchase scheme is expected to remain at £375 bn. Europe’s ECB are also expected to keep the base borrowing rate at 0.25%. A European ECB press conference will then be held later on in the afternoon session.
In the USA the Challenger jobs cuts are expected to print close to the previous month’s down 20.6%. Housing starts in Canada are anticipated in at 197K, up from 192K in the previous month. Building permits are forecast to have fallen by 2.3%. Unemployment claims in the USA are expected to come in at 337K, virtually identical to the previous level published. The final high impact news event of the day is published late on with China’s trade balance expected in at a positive 32.6bn for the month.
Friday sees Japanese data published in the overnight/early morning session; the leading indicators are predicted to come in at 110.9%. The Swiss unemployment rate is predicted in at 3.2%, French industrial production is anticipated to rise from -0.3% to +0.6%. China’s CPI is expected to have fallen by 0.1% with new loans up to 589 bn.
The UK’s manufacturing production is expected in at a positive 0.4% up, as is industrial production at a similar print. Final GDP for Europe is expected to come in up 0.3%.
Canada’s employment change is expected to register up 13.3K, a fall from the 22K of the previous month. The unemployment rate is expected to remain at 6.9%. The USA unemployment rate is expected to have remained static at 7% with NFP numbers expected to show 194K jobs created. Average hours worked by USA workers are expected to have risen by 0.2%, whilst the data for wholesale inventories is expected to show a 0.4% rise.
The week of high impact news events and policy decisions concludes with the UK’s NIESR GDP estimate expected at 0.8% similar to the last ONS print. The National Institute of Economic and Social Research (NIESR), Gross Domestic Product (GDP) prints a change in the estimated value of all goods and services produced by the UK economy during the previous 3 months, NIESR estimates GDP data on a monthly basis in an effort to predict the quarterly government-released data.
Technical analysis of major currency and commodity pairs, indices and commodities
Attention now shifts from the fundamental policy decisions and high impact news events to the technical analysis for leading tradable securities over the coming week.
Using the most commonly used indicators an attempt is made to define the current trends and to identify any developing trends. The indicators used are: the PSAR, Bollinger bands, MACD, DMI, stochastic lines, ADX and the RSI. We refer to the main simple moving averages such as: 20,50,100,200. We’ll analyse critical price action by way of Heikin Ashi bars, whilst attention will be focused on key looming round numbers. All analysis is conducted on the daily time frame only. All indicators are used on their standard settings, bar the stochastic lines, which are adjusted to 10.10.5., in an attempt to dial out ‘false’ breakouts and signals.
EUR/USD fell sharply on Thursday during the preceding week once the holiday period ended. The trend appeared to reverse violently from the bullish trend in evidence in the Xmas week to bearish in the trading session after the New Year celebrations. Currently PSAR is above price, the lower Bollinger band has been breached to the downside, the 20 SMA has been breached with the 50 day SMA being threatened. The DMI and MACD are both negative and printing lower lows – when observed through the histogram visual. The stochastics have crossed, but are short of the oversold zone. The RSI is at 42 with the ADX at 17. Looking at the price action the Heikin Ashi candles are closed with full bodies and shadows to the downsides since the break to the downside observed from January 2nd. The next key looming round number (to the downside) would be the 13500 ‘handle’ where the 100 SMA is close to being situated.
Given the violent break to the downside traders would be advised to stay short if they’ve recently entered the trend. Traders looking for a reason to close their short trade, whilst looking for possible reversals in sentiment, would be best looking for several of the bearish indicators to turn bullish, as a minimum perhaps the PSAR to reverse, to appear below price as a minimum.
USD/JPY finally broke the upward momentum prevalent since early November, with the emergence of PSAR above price the bullish two month trend finally appeared to be broken. The lower Bollinger band has been breached to the downside, price is above all the major SMAs, whilst the price action can only be analysed on the one daily bar given that the potential trend is still so early in its development. DMI is making lower highs, but is yet to turn negative, the MACD is negative and making lower lows. Both stochastic lines are in the overbought zone and exhibiting tendencies suggesting that the momentum bullish trend has reached its organic end. The RSI is over 70, whilst the ADX is over 40, suggesting that price is in the overbought zone and that a strong trend is evident. Traders who have enjoyed the long trade momentum, who have closed their long trades, would be best advised to wait until several other of the key indicators to turn bearish before committing to short swing trades.
AUS/USD finally broke the downward momentum evident since circa December 12th with the emergence of a strong bullish Heikin Ashi candle on January 1st. The candle was closed with a shallow body and an upward shadow. The upper Bollinger has been broken to the upside, whilst the major SMAs are currently above price. DMI is still negative, but making higher lows, whilst the MACD is positive and making higher highs. The stochastic lines have crossed, but are ‘mid-range’ between oversold and overbought on the adjusted setting of 10.10.5. The ADX is at 35. Naturally 90.00 will be the next strong psyche level and handle for this security should a bullish breakout occur. Given the reversal in sentiment is early in its genesis traders would be advised to wait for several more indicators to turn bullish before considering entering into committed long trades. Whilst there are several bullish indicators, after such a strong momentum move to the downside, the market can experience many flash/false break-outs to then recover the previous trend.
The DJIA index broke to the upside on December 18th with the announcement of the Fed’s decision to taper their monetary easing/asset purchase scheme. Since which time the index has gained circa 500 points, finally breaking through the critical record psyche level and handle of 16,500. However, that strong trend appears to have reached a point of exhaustion late in the preceding week’s sessions with the emergence of a daily doji on January 2nd. Thereafter January 3rd’s daily candle also indicated a potential reversal of sentiment. Currently PSAR is still below price, the middle Bollinger band has been breached to the downside. Price is currently above all the major SMAs. Both the MACD and DMI are positive, but making lower highs using the histogram visual. Both stochastic lines are close to crossing on their adjusted setting of 10.10.5. and in the overbought zone. The ADX is at 28. Traders would be advised to stay with the current trend until as a minimum one or several of the key indicators have registered bearish tendencies, perhaps the PSAR turning negative. Thereafter, given the previously strong trend, traders would be advised to wait for several indicators to become bearish before committing to short trades.
WTI oil experienced a significant sell off during the preceding week, having breached the critical psyche level and handle of $100 per barrel, the selloff was a significant 500 (to $95 per barrel) points at the extreme. The trend reversal began on December 31st as price appeared to reject the critical 200 SMA (breached to the upside) as the critical $100 a barrel was breached. Price has breached the lower Bollinger band to the downside and is now below all the significant simple moving averages. Both the DMI and MACD are negative, many making lower lows when observed through the prism of the histogram visual. The stochastic lines have crossed and have exited the overbought zone. The ADX is at 28. Traders who entered the short trend since December 31st should have locked in significant points by way of trailing stops. As is the nature of oil volatility, particularly given the seasonal factors affecting the USA currently, traders would be advised to proceed with extreme caution were this security is concerned.
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