Fundamental analysis
The continued impasse, at the heart of the USA government – Congress, not only dominated the financial mainstream media during the preceding week, it also overlapped by dominating the political landscape. One of the many key high impact news events in the calendar, the NFP (non farm payroll) employment count, which investors partly use to gauge the overall health of the USA economy, wasn’t printed last Friday due to the impasse. Similarly the weekly unemployment claim number, printed each Thursday, still appears disrupted by the previous two week absence of data from California and Nevada. The ‘good’ print, of 308K unemployment claims for the week, are therefore still distrusted and it may take several weeks for the absent data to smooth out in the print.
Key high impact news event results of the preceding week
The New Zealand business confidence index, the ANZ, rose to 54.1. The HSBC/Markit Economics final manufacturing number for China came in at 50.2, down from an expected 51.2 to a reading of 50.2. Canada’s GDP came in at 0.6%, whilst the USA Chicago PMI came in at 55.7. Japan’s unemployment rate printed at 4.1% with the Japanese Tankan index at 12 from the previous print of 4.
Australia kept its cash rate at 2.5%, whilst Germany’s unemployment count unexpectedly spiked by 25%. Europe’s final manufacturing PMI came in as expected at 51.1. The UK’s manufacturing PMI came in at 56.7, down from an expected 57.5. Europe’s unemployment rate fell to 12%. Building approvals in Australia fell by -4.7%, whilst UK construction data fell to 58.9 from an expected 60.1.
Europe’s cash rate was kept at 0.5%, whilst the USA ADP employment rate came in at 166K jobs created, with a revision to 159K for the previous month’s data. The pivot of the UK economy, the overall services industry, provided a print of 60.3 for September. The USA ISM non manufacturing print came in below expectations at 54.4.
Key high impact news events for the coming week
Europe’s Sentix index and the final GDP figure will be of interest to investors on Monday. The expectation for GDP growth is 0.3%, with the Sentix index expected to print at 10.9 from the previous month’s 6.1. USA consumer credit is expected to rise by $12.6 bn.
Tuesday sees the German trade balance expected to come in at €15.1 bn for the previous month. Swiss CPI numbers and Swiss retail sales are published, with the Swiss central bank to hold court regarding the progress of the economy whilst outlining any relative forward guidance measures, particularly in relation to the current ‘pegging’ of the Swiss franc to the euro. Canada’s trade balance completes the high inspect new events on Tuesday.
Wednesday sees the publication of the UK’s manufacturing production and industrial production numbers. Also the UK trade balance number expected to come in at £-8.9 bn for the month. The FOMC minutes are published on Wednesday, whilst ECB president Mario Draghi holds court. Australia’s unemployment count is published, expected to remain at 5.8%.
Thursday sees the announcement of the UK’s base rate, expected to remain at 0.5%, with the asset purchase facility not expected to increase from the current £375 bn. The UK’s BoE MPC will publish its statement regarding both the rate setting and the asset purchase facility decisions. Unemployment weekly claims in the USA are expected to fall to 307K.
Friday we receive data on Canada’s unemployment change and the unemployment rate, the rate expected to remain at 7.1%. The preliminary University of Michigan sentiment index is published, expected to print at 77.2. For two days, beginning Friday, the IMF meeting/s take place. Whilst such macro economic policy isn’t expected to impact the markets directly investors will be paying attention to the IMF opinion regarding the overall health of the global economy and how the IMF is judging Europe’s recovery. Early Saturday we’ll receive the tentative print on China’s trade balance.
Technical swing/trend analysis for the coming week on major pairs, indices and commodities.
In analysing the current trends we’ll defer to the most commonly used trend indicators; RSI, MACD, DMI, PSAR, ADX, stochastic lines, Bollinger bands. With the exception of the stochastic lines (adjusted to a 9,9,5 setting in an attempt to filter out ‘noise’) all settings will be left on their standard settings, usually the 14 day period. All judgments will be made from a daily chart, we’ll also look for price action/patterns using Heikin Ashi bars/candles, whilst noting the key round and looming numbers and levels that could affect the psyche of market participants.
The DJIA’s current bearish tendency began its development from September 20th, shortly after the FOMC meeting on the 18th, during which a decision was made to maintain the current asset purchase scheme by the Fed at $85 bn per month until unemployment levels reach 6.5%. Thereafter the current Congress impasse, in relation to the debt ceiling disagreement, took centre stage and precedent. The impact on the DJIA index has been considerable with price threatening to significantly and eventually breaching the critical psyche level of 15,000 several times last week. The collapse in points, since the high of September 19th, has been considerable – circa 600 points.
Traders short the index would be advised to keep a ‘weather eye’ on the developments from the USA Congress and the Fed before committing to a long trade. For now all indications are bearish; PSAR above price, DMI and MACD making lower lows for four out of five trading days last week, ADX at 23, RSI at 43, Heikin Ashi bars with closed bodies and downward shadows for the majority of last week’s trading days, with the lower Bollinger band breached on Thursday. Traders must look for several of these indicators to reverse to bullish before considering a long trade. As a prompt. to close with profit, traders would be advised to look for PSAR to reverse trend.
EUR/USD maintained its momentum trend, which began to develop once the market turn was identified on September 9th. However, Friday’s close saw the development of a classic doji which could indicate that the bullish trend on this security has reached a point of exhaustion. For traders who have ridden this trend since inception the gains have been considerable, circa 350 pips, therefore traders must manage their positions by way of trailing stops to ensure the pips gained are not reduced significantly.
Currently PSAR is below price, the DMI and MACD are positive, but both failing to make new or higher highs when observing using the histogram visual. RSI is above the median level at 62, both stochastic lines have entered the overbought zone and remained there for over a trading week. The middle Bollinger band is threatening to be breached to the downside, whilst the ADX is at 35, indicating that a strong trend arguably still exists, despite many of the other indicators indicating that the current trend may have reached its limit. Traders would be advised to close their long trade should the PSAR reverse, similarly they should look for a short opportunity only when several of the other indicators are in line given that this current bullish trend has existed for close on a month..
GBP/USD finally saw the bullish trend, that had developed from September 2nd, reach a point of exhaustion. Trend traders should have closed their long trade taken from September 2nd with the emergence of PSAR above price on September 24th retaining an impressive circa 400 pips. A further long opportunity presented itself on the 30th which many traders will have passed up given that they may have viewed the currency pair reaching a technical and indeed a fundamental high. That conviction may have been reconfirmed with what appears to be reverse sentiment developing during Friday’s trading sessions. The session closed with a closed bearish Heikin Ashi bar with a pronounced shadow to the downside.
The MACD is currently negative, the DMI positive, but making new lows (using the histogram visual), the RSI is still above the median 50 line, the ADX at 42 suggesting that the trend is strong. The middle Bollinger band has been penetrated to the downside, whilst the stochastic lines have crossed. Traders looking to short cable would be advised to wait for further indicator confirmation; perhaps as a minimum PSAR to appear above price, DMI to become negative, RSI dipping below the median line.
AUD/USD climbed significantly from September 2nd with the trend finally arresting on September 20th and trend/swing traders may have avoided reversing their mentality, in taking a short opportunity, given that several of the most commonly used indicators remained bullish. A further long opportunity presented itself on October 4th with the emergence of PSAR below price, DMI bullish and making higher highs, RSI at 60, the middle Bollinger band breached to the upside, and the MACD making higher lows. The stochastic lines on the adjusted setting of 9,9,5 are close to crossing. Traders looking to trade long may be advised to await the MACD turning positive in order to justify a bullish stance on the Aussie.
USD/JPY has continued its bearish momentum which began on September 12th, it is now approaching the 200 day simple moving average. PSAR is above price, the lower Bollinger band has been breached, DMI and MACD are negative and made lower lows using the histogram visuals for four of the trading days in the preceding week, whilst Heikin Ashi bars were bearish for the last three trading days of the week with closed bodies and shadows to the downside. Stochastic lines have crossed and are still short the oversold area, as is the RSI at a reading of 41. The ADX appears to indicate a strong trend at 22. Traders currently short will have enjoyed considerable pip gains since September 12th, consequently they must lock in prices by way of trailing stops.
A key area may be a rejection of the 200 SMA to the downside where undoubtedly a cluster of buy, sell and take profit limit orders will be placed, particularly by institutional level traders. Traders currently short would be advised to stay short until several indicators suggest a reversal of trend; such as the PSAR turning positive which could also provide a reason to close their current short position.
WTI OIL entered into a significant down trend from September 10th when days previously the security reached a yearly high at circa $110 per barrel. The sell off appeared to come to an end on October 2nd when many swing/trend trading indicators turned bullish. PSAR reversed trend to appear below price, the DMI and MACD became positive, both making higher highs, RSI approached the median 50 line, the middle Bollinger line was breached to the upside, whilst both stochastic lines had crossed and exited the oversold zone. Traders looking to take a long trend position would be advised to wait for more confirmation by way of the ADX displaying a stronger trend, and perhaps the RSI breaching the median line.
Spot gold has proven to be an incredibly difficult trend/swing trade during recent weeks, currently bearish tendencies are dominating with PSAR above price, the DMI and the MACD negative making lower lows on the histogram visual, accompanied by Heikin Ashi candles being closed with downward shadows to be then followed by inconclusive dojis. ADX is at 21, RSI at 43, whilst the middle Bollinger has been breached to the upside. Stochastic lines have crossed but appear to be trapped in a range. Gold traders will do well to avoid the security until a clearer direction is apparent. Those currently short should manage their positions carefully, with one eye on the safe haven qualities, should the Congress impasse continue to develop up to, or past the critical date of October 17th.
