Trend analysis for week beginning November 3rd

Nov 4 • Is The Trend Still Your Friend • 1955 Views • Comments Off on Trend analysis for week beginning November 3rd

trend-analysisSunday evening/Monday overnight is a relatively quiet opening for high impact news events, there’s a bank holiday in Japan, whilst late on Monday the retail figures for Australia are produced, with the expectation that the print comes in at 0.5% from the previous month of 0.4%.

Overall, the key high impact news events for the week are dominated by several PMIs being published, particularly the services PMIs for many European countries, especially the UK whose economy is heavily dependent on services. Thereafter interest rate settings by the central banks of: Australia, the Eurozone and the UK are noteworthy, whilst on Friday we have the return of the traditionally published NFP jobs. The expectation is for a dismal print of circa 126K new jobs created in the month of October, less than half the number that needs to be created consistently over a sustained period in order for the USA economy to simply stand still, yet alone grow.

 

Monday sees an early raft of PMI prints published courtesy of Markit Economics; Spanish and Italian manufacturing PMIs are published, with the key data print being the overall European final manufacturing PMI, predicted to come in at 51.3. The Sentix sentiment index for Europe is predicted in at 6.6 from 6.1 previously.

The UK’s construction PMI may be crucial to establishing how deep the UK recovery really is, the expectation is for a print at 58.9, no change from the previous month. A significant reduction would begin to bring into question the strengths of the UK’s GDP figures printed later this month and perhaps encourage the BoE’s MPC to adjust interest rates, or increase monetary easing.

Looking towards the USA factory orders are printed on Monday, expected in at 1.9 up annually and 0.2% monthly. Two FOMC members will also be holding court on Monday, presumably discussing the recent minutes and decisions from the FOMC meeting last week whilst touching on the ongoing subjects of the taper and the debt ceiling impasse which may be resurrected early New Year.

Late evening traders should be aware that the RBA will announce the base interest rate decision and provide a statement justifying the decision to (as expected) keep the rate at 2.5%.

 

Tuesday the BOJ governor Kuroda speaks, later that morning Spanish unemployment data is published. The print is expected to show unemployment up circa 31K for the month. The Swiss PMI for inflation is predicted at 0.1%, whilst UK services PMI is expected in at 60.4. The ISM USA non manufacturing PMI is published expected in at 54.2. Unemployment numbers for New Zealand are published with the prediction that the print comes in at 6.2% unemployed. Japan will publish its minutes on its interest rate policy decision.

 

Wednesday sees another raft of PMIs printed; Spanish, Italian and finally the final Eurozone PMI for services. Europe’s scheduled to remain static at 50.9. Manufacturing production in the UK is predicted to rise by 1.5%, having previously fallen by the same amount in the previous month.

Retail orders for Europe are published and Germany’s factory orders, whilst from the USA we receive the Challenger job cuts. Building permits for Canada are scheduled to rise by 7.8% after falling by 21% in the previous month. Australia’s unemployment is published, expected to come in at 5.7%, a slight rise on the previous month.

 

Thursday sees Germany’s industrial production figures published expected to fall to 0.2% from 1.4%+ the previous month. Both the UK’s BoE MPC and the ECB’s committee publish their base interest rate decisions and narrative to accompany the decisions, whilst the UK central bank also provides their commitment regarding quantitative easing, expected to remain at £375 billion.

In the USA we’ll receive news regarding GDP, expected to fall to 1.9% from 2.5% year on year. The weekly unemployment claims are anticipated to come in at 332K whilst another member of the FOMC holds court. The ECB president Mario Draghi will hold a press conference explaining the ECB’s rate decision and outlining its forward guidance. The RBA will provide information regarding their rate setting decision later on that evening, whilst China’s trade balance is also published.

 

Friday sees Canada’s unemployment numbers published whilst shortly after that the NFP number is finally published on its ‘normal’ monthly day. The university of Michigan sentiment index will be published, expected to rise to 74.6. The fed chairman Ben Bernanke will hold a press conference on Friday evening. Later that evening China will publish its CPI and PPI data, CPI expected to rise to 3.3%.

 

Technical analysis focusing on the major currency pairs, major indices and commodities for the coming week.

This technical analysis will concentrate on the swing/trend trading positions of many of the most actively traded securities. The swing traders’ most preferred indicators will be used (on daily time frames only) to attempt to determine trend.

Indicators used such as: Bollinger Bands, RSI, DMI, MACD, PSAR, stochastic lines and ADX. We analyse the critical psyche number levels/looming round numbers and using Heikin Ashi bars/candles we look at the price action being displayed. All indicators are left on their standard settings, with the exception of stochastic, altered to 9,9,5, in an attempt to smooth out false readings.

 

EUR/USD ended the trend (that had developed since 17th October) on or around October 30th, from the 31st the PSAR appeared negative and above price, MACD and DMI are negative and have posted lower lows in the last two trading sessions using the histogram visual. RSI is at 40, ADX at 31, both indicators suggesting that the trend is strong in this short position. Stochastic lines have crossed and exited the overbought zone. Having breached the middle Bollinger line on the 30th the lower Bollinger was breached on November 1st. The last two days’ candles have been closed with the protruding lower shadows also indicating strong momentum to the downside. The lower Bollinger band is also positioned close to the fifty day SMA. Traders short would be advised to stay short until such time as several indicators turn bullish, such as the PSAR appearing under price. The reason for the sell off on the Euro was due the speculation that the ECB will lower their interest rate to 0.25% during their meeting on Wednesday.

 

AUD/USD finally broke its uptrend on October 24th, which had been in position since early October. On October 24th PSAR went above price, stochastic lines crossed and exited the overbought area on the same day. MACD is currently making lower lows on the histogram, RSI is at 44, ADX at 28, the lower Bollinger band has been breached on the last day of the preceding week’s session. The 50 SMA is in sight whilst the DMI has turned negative and made lower lows. All the weeks’ Heikin Ashi candles were closed with downward shadows suggesting that the current sentiment is still bearish on this security.

The reason for the sell off on the Aussie was the announcement of up to $200 billion in the form of monetary easing by the central bank the RBA and speculation that the RBA may reduce interest rate by 0.25%. Traders short would be advised to stay short until such time certain key indicators turn bullish. Perhaps using the PSAR as a trailing stop and adjusting the current pip gains accordingly.

 

USD/JPY has proven to be a difficult trend trade over recent weeks. Price finally broke to the upside on or around October 28th. However, it took several days’ trading before all the most commonly used indicators turned bullish. By November 1st nearly all indicators were bullish; PSAR below price, MACD and DMI positive and making higher highs, RSI at 55, ASX at 17 suggesting that the trend may have reached a point of exhaustion. The middle Bollinger had been breached several days previously, eventually the upper Bollinger being threatened, but not breached on Friday’s candle. The Heikin Ashi candle for Friday was inconclusive, a spinning top suggesting that traders’ sentiment may have turned. Stochastic lines had crossed on the adjusted setting of 9,9,5 whilst the 50 SMA was breached for several days during the week. Traders would be advised to treat this security with great care given that the recent break to the upside appears inconclusive. If long then traders should monitor their positions by way of using indicators such as the PSAR and DMI to observe trend changes.

 

WTI oil. The sell off in oil since early September has been considerable, oil finally breached the 200 SMA on October 22nd as the preceding day had seen the critical psyche level of $100 per barrel breached. Currently the DMI and MACD are negative making lower lows, RSI is at 28 with ADX at 30. The lower Bollinger band has been breached to the downside, whilst both stochastic lines are in the oversold area on their adjusted settings. The preceding week’s three days’ ending candles were closed with downward shadows. Traders must trail price by way of stops to ensure that the considerable points oil has surrendered over recent weeks is not given up through poor trade management.

 

Spot gold ended its break to the upside on or around October 30th. Since such time many indicators have turned bearish. MACD is negative and making lowers lows as is the DMI. Stochastic lines have crossed, whilst exciting the overbought area. RSI is at 46 whilst the ADX is at 17. The middle Bollinger band has been breached in the week’s trading session whilst price has stubbornly remained around the 50 day smoothed average. Spot gold has been an incredibly difficult security to trade over recent months, traders may prefer to wait until PSAR has turned bearish to swing short on this security. Conversely traders short, looking for guidance to close and reverse, should be guided by the PSAR turning positive and appearing below price.

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