Trends prediction, week commencing September 22nd
All of the high impact news events and policy decisions of the preceding week were, without a doubt, overshadowed by the FOMC meeting (held over two days) in which the pivotal announcement, that the FOMC would be sticking to their original inflation and moreover unemployment target of 6.5% and therefore not tapering their monetary easing/asset purchase programmes, caused ripples of shock waves to move through global markets. In particular global indices reacted extremely positively to the announcement. Less than a fortnight back the DJIA was significantly below 15000 with the 200 SMA of circa 14,500 looking under threat. However, as global indices rallied the DJIA index rose to close the week at just under 15,500 with several USA indices reaching record highs during the week.
Naturally the criticism will be firmly laid at the feet of the Fed that they’ve encouraged addiction to monetary easing and that the main markets are now a false construct, devoid of any reality in the working lives of, for example, USA citizens. Subsequently the questions arise as to when the Fed can actually begin to switch off the quantitative easing programmes without causing a crash in equity markets? For now these questions will be put to one side as the markets bask in another new dawn and new reality.
Upcoming high impact news events for the week beginning September 22nd
Monday. Once the markets awake to the result of the German General election result flash PMIs, published courtesy of Markit Economics, dictate the majority of the high impact news events early in the trading week…
The HSBC manufacturing PMI for China is published in the overnight/early morning session on Sunday evening. Thereafter, in the morning European and London trading session, the French flash manufacturing PMI is published, as is the services PMI. German manufacturing PMI is published and services, with the overall European flash PMIs also published on both sectors.
Monday also sees ECB president Mario Draghi speaking in relation to the direction of the European economy. USA flash manufacturing PMI is published. Another high impact news event of relevance is that of the chairman of the Swiss central bank who gives a speech regarding the guidance of the bank, no doubt the ‘pegging’ of the Swiss franc to the euro will be one of several subjects covered.
Tuesday. The German IFO business index is published, as is the core retail sales for Canada and the USA Conference Board consumer sentiment index and the Richmond Fed manufacturing index.
Wednesday. New home sales in the USA and durable goods orders form the majority of the high impact news events on Wednesday. Crude oil inventories are also published and with last week’s print falling by -4.4million barrels investors will be watching this inventory print carefully, whilst keeping one eye on the oil price.
Thursday. The UK’s leading independent building society, the Nationwide, publishes its month on the house price index on Thursday morning. The UK also publishes data on the government’s current account deficit and the final GDP figure is published. Pending home sales are produced by the USA, with the expectation being that the print will be down circa 0.9%.
Friday. The ECB president Mario Draghi once again holds court, whilst in the morning trading session the UK produces its third quarter of services number. Personal spending of USA consumers is published, combined with the revised numbers from the University of Michigan’s consumer sentiment index.
A technical swing/trend trading overview for the coming week
What now follows is a technical analysis preview of the coming week on a daily chart by using; price action displayed using Heikin Ashi bars/candles, pattern recognition, key round numbers and critical levels, significant moving averages and the key swing/trend trading indicators favoured by swing traders. Major currency pairs will be analysed, commodities and leading indices.
EUR/USD. Since the currency pair’s swing long observed on September 9th the momentum towards the upside for this major currency pair has remained unbroken. PSAR is below price, the MACD and DMI are positive and using the histogram visual higher-highs have been reached. RSI is at circa 70, stochastic lines have crossed and are both approaching the overbought zone on a 9,9,5 setting, whilst the upper Bollinger line has been breached. The stochastics and the RSI in the overbought zone and the upper Bollinger being breached, could encourage swing traders to decide that this movement has reached its point of exhaustion. Traders would be advised to move stops to ensure that they’re protecting profits earned, whilst carefully observing the chart for the possibly of a reversal in sentiment. Until such time as several of the commonly used indicators become negative traders should avoid trend trades to the downside.
GBP/USD. Cable began its swing to the upside on September 2nd, since which time the gains have been considerable, over 400 pips. The PSAR is below price, the MACD is positive as is the DMI, although they are failing to make higher highs with the MACD barely ending Friday in positive territory. The RSI is in the oversold area, as are both stochastic lines. The upper Bollinger line has also been breached. The RSI, Bollinger bands and stochastic lines are all indications that the security might be overbought, therefore many traders may want to consider closing this long trade, or to ensure that all the profits earned are locked in by way off a trailing stop. The trading week ended with a classic doji being displayed by the Heikin Ashi bars, adding further conviction that this momentum move may have reached the point of exhaustion. Before committing to a swing short, or indeed closing the long trade traders might consider needing evidence from key indicators such as the PSAR to turn bearish.
AUD/USD. Similar to cable the Aussie began its upward momentum on or around September 2nd. For several weeks prior to this the Aussie had traded in a very tight range. Since the swing to the long side the gains have been considerable and followed the pattern of many other dollar pairs as the USD was sold off. However, since the ‘no taper’ announcement by the FOMC on Thursday evening the Aussie’s advance versus the greenback has been arrested. Looking at the daily chart PSAR is below price, the MACD and the DMI are positive, but have failed to make higher highs in the last two daily trading sessions, whilst two indecisive doji candles, using Heikin Ashi, could indicate that the movement has reached a point of exhaustion as sentiment wavers versus the Aussie. Stochastic lines, on the adjusted setting of 9,9,5 in order to dial out market ‘noise’, are in the over-bought zone, whilst the RSI has fallen from being in the 70 zone, which generally indicates that the security’s move has reached exhaustion. Price has fallen through the middle Bollinger band which, together with stochastics and the RSI, could suggest that traders need to be aware that it may be time to close this long trade. Any traders who’ve enjoyed this long trade since the 2nd would be advised to lock in their profits by way of a trailing stop and to perhaps look for the PSAR to go above price, combined with other negative indicators in order to close the trade.
Spot gold. Gold appeared to have reversed trend to the upside on September 18th, naturally as a safe haven it become in play due to the FOMC statement regarding the continual asset purchase/monetary easing programmes. However, having dramatically broken to the upside the move was arrested in Friday’s trading sessions as the DJIA lost 1.5% on the day after various FOMC members took it upon themselves to diverge from a unified stance and message in favour of suggesting that a taper could take place as early as October.
Having moved above the 50 moving average on September 18th price duly fell back through it to the downside in Friday’s trading sessions. The PSAR is currently below price, the MACD and DMI are negative and have made lower lows, the RSI is below the median line at 43, both stochastic lines are touching the oversold area, whilst the middle Bollinger band has been breached to the downside. Gold currently represents an incredibly difficult trade given the uncertainty created by the mixed messages from the FOMC. Traders currently long would be advised to monitor this security carefully for any reversal indicators to, what appears to be, the current neutral sentiment.
DJIA. The DJIA began its current up trend on or around September 2nd when it posted a recent low of circa 14,800. Having gained upwards of 850 points the index fell back sharply on Friday due to the FOMC statements regarding a possible early taper. The PSAR is below price, the MACD and DMI are positive, both stochastic lines are in the overbought territory, whilst the RSI fell from the overbought area to print at circa 60 towards the end of trading on Friday. Traders who have ridden this bullish trend from early September will have presumably trailed their stops, perhaps by using the PSAR which is a common technique. Traders may be inclined to close their long trade given the considerable gains, alternatively they may wish to wait for further evidence that the trade long momentum trade has reached the point of exhaustion, perhaps as a minimum the PSAR appearing above price.
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