So far the US markets have continued to be a massive market driver in the recent weeks, as the recent political events and the volatility surrounding the race for the presidency caused markets to create large opportunities for traders. With all the passing euphoria now over the Donald Trump victory the markets are looking forward and at the possibility of Trump fulfilling promises to ‘make America great again’ and the expectations thus far are that he will spend up to 1 trillion USD in order to boost infrastructure spending and help bolster the economy. For the economy this will have a very large effect and the flow is expected to see an increase in inflation rates and the possibility of further rate rises to match the inflation rate. This was bolstered with retail sales m/m coming in at 0.8% (0.6% exp) which represents the economy being stronger than expected, and with the US economy consumption orientated it’s likely to have large flow on effects for the economy. It will now be quite interesting to see the reaction of the FED and how it anticipates inflation rising in the near term and if they look to still increase interest rates before December is out. There is still hope amongst a few economists that this may come true and the dollar bulls are likely to be ready.
The flow on effects are likely to be felt for some time in the US market and none more so than the S&P 500 which continues to be a catalyst for the growth that is expected. So far the S&P 500 has rallied strongly on the back of trumps win and today touched a key resistance level at 2183. For me this level for some time has remained strong, but the current prognoses is that it could break and markets will be looking to test this level over the coming days. Anything above this would be psychological levels at 2200 and 2250 for resistance.
Once again oil continues to find itself under pressure. The idea of the economy increasing in the USA has so far been positive for oil markets, and there are even reports of OPEC leaders flying between the various oil producing states in an effort to discuss the flagging prices. However, what can’t go unnoticed is the current surpluses that we are seeing in the long run, and if they are going to continue to hamper the prospect of oil prices continuing to go higher.
So far Oil has moved higher on the charts, but it’s unlikely to remain that way if the surplus build up does come true and well above expectations. Resistance at 46.19 was slowly missed and the market is looking slightly down as a result. Expectations though around the surplus could lead to a push back lower and support could possibly be found at 44.90 on the charts. Regardless of the surplus though OPEC continues to be the wild card element for oil traders and could lead to further volatility.
The explosive Trump fueled market rally displayed signs of exhaustion on Tuesday with global stocks trading in a modest range as investors redirected their focus back to global fundamentals. Asian shares were noticeably higher during early trading on Wednesday, following the firm finish on Wall Street and oil’s sharp rebound which renewed risk appetite. European stocks may be in line to open higher from Asia’s bullish domino with Sterling weakness from the persistent Brexit anxieties potentially propelling London’s FTSE100 higher. With sentiment towards the US economy turning bullish amid the rising optimism of higher economic growth under Trump’s presidency, Wall Street could be poised for further gains moving forward.
Sterling ranges ahead of UK labor report
Sterling remains dogged by the ongoing Brexit saga with uncertainty weathering buying sentiment towards the currency. Tuesday’s unexpected decline in consumer price growth for October was the invitation needed for bearish investors to attack the vulnerable GBPUSD back towards 1.2400. Sentiment is clearly bearish towards the Sterling with further declines expected on the GBPUSD as a rising Dollar caps upside gains. From a technical standpoint, bears can attack below 1.2400 or above 1.2700 with targets stretching towards 1.2200.
Investors may direct their attention towards the pending UK labor report which could provide some clarity on how the UK economy is faring in the aftermath of the Brexit vote. The number of new claimants for unemployment has been predicted to edge higher in October, and if such becomes a reality then concerns could elevate over the Brexit woes contaminating the UK labor markets. Another batch of soft domestic economic releases from the UK could be the catalyst bears need to install another heavy round of selling on the GBPUSD during Wednesday’s trading session.
WTI Oil rebounds to $46
WTI Crude staged an incredible rebound on Tuesday evening with prices charging towards $46 as expectations heightened over OPEC securing a production freeze deal at the November 30th meeting. Talks of the cartel general secretary and Saudi Energy minister having informal discussions with Russia ahead of the formal meeting have also enticed speculators to add bets on a potential freeze deal. Although OPEC may be repeatedly commended on their ability to exploit the oil prices sensitivity to create speculative boosts, this could come at a cost if investors are disappointed again. The lingering oversupply concerns still weigh on sentiment while growing fears of a potential decline in demand amid slowing global growth may stop bulls in their tracks.
Participants may direct their attention towards Wednesday’s Crude oil inventories report which if displays a buildup could spark a selloff in oil. From a technical standpoint, bears could reclaim control if WTI slides back below $45.00.
Oil market as predicted yesterday continue to show signs of weakness, as US Crude Oil Inventories continued to show surpluses in the marketplace. This has been a target squarely on the back of oil bulls who have been looking to finally drive oil higher. It feels that the only way we are going to see a deficit of oil is if OPEC actually intervenes and is able to push down the production levels of oil. Russia also continues to be a strong voice in the oil market, how much can be believed is slightly debatable as they are not an official member of OPEC but have been working with OPEC to get some benefits. Regardless of today I would expect markets to continue to remain bullish in the long given the recent boost from Trump that is expected when he announces his promise to get America working again.
Chart wise, oil continues to be a slightly mixed bag with the markets playing off news, but also the movements around oil surpluses and deficits in the US. This will continue to be the main theme for some time, but the technical patterns continue to remain strong. Resistance can be found at 46.19 and has been very strong as of late, with today's movements failing to close out above this key area. Support levels on the way down can be found at 44.90 and 43.47 and are likely to come under further pressure in the coming days, especially if the US dollar continues to strengthen.
The New Zealand economy has been going through some rocky times at present (no pun intended), but the employment situation has been improving to say the least as ANZ job advertisements were slightly up to +0.6% on the previous month, showing that there was still room for growth in the labour market. For the most part there is a lot uncertainty around the New Zealand economy after the recent earth quakes and this might put more pressure on the Reserve Bank of New Zealand to cut interest rates sooner and faster than previously expected to help businesses and home owners who are struggling. Even though banks have not been carrying over the most recent cut on their own interest rates.
The NZDUSD is looking very bearish at present as the USD bulls have so far been quite strong, but also the NZD has come under immense pressure in the wake of recent natural events. So far the NZDUSD has dipped sharply and the 0.70 psychological level is ever present in traders' minds and has been holding back further lows. Support at 0.7032 lead to some buying today, but it's unlikely to be sustained given the bleak outlook in the face of what has happened. Any pull back higher on the charts is likely to find resistance at 0.7113, which has been acting as a strong level in recent times.
The so called Trump rally has been ongoing for USD dollar bulls in recent times, and this can be very clearly seen on the USDJPY, as the market has done an about turn and is currently seeking risk than the previous attempt to hedge its bets. So far the rapid ascent of the USDJPY has been something that the Bank of Japan will be happy with, as the market continues to scrutinise the Japanese economy and its ability to generate inflation. Abenomics might have had a struggle but the recent Trump change in the US economy might be the helping hand it so needs to get ahead. Despite the drop today in Core CPI to 0.1% (0.2% exp) and the Philly fed manufacturing index dipping lower; the market continued to rally on the basis that unemployment claims were better than expected. As the market continues to believe that Trump will look to spend and stimulate the economy, especially around the areas of infrastructure.
For the USDJPY the bull rally has been strong and any admission of running of steam looks off the cards for the time being as it continues to charge forward. The only question is will it pause and there are some strong resistance levels on the horizon. So far 111.843 is likely to be the first major level for the USDJPY as it climbs higher, but I would also look even further to 114.030 for the next level of resistance. Any pull backs on the chart are likely to play of the 20 day moving average which is closely following the bullish movements that we have seen. If we do see a breakthrough of the 20 day moving and an ABC pattern forming I would expect a bounce to occur around support at 109.147 at this stage. Unless we see higher highs over the next few days.
The Australian economy is struggling at present after the recent Reserve Bank of Australia comments it comes a slight surprise, but the unemployment figures were much worse than expected coming in at 9.8k (16k exp). I've voiced concern over Australian unemployment figures as they have shown temporary jobs taking centre stage and this does not equal a strong economy at the end of the day. But for now the unemployment rate has remained static at 5.6% which will be somewhat of a positive sign. However, going forward the AUDUSD will struggle as the USD strengthens and Australia's economy shows signs of weakness.
On the charts the bears are firmly in control of the AUDUSD as it dips down the charts being chased by the 20 and 50 day moving average. Right now with the current speed of movement and the volatility the only stable support level possible is looking like 0.7328 and 0.7226. The question is now how long can the bears take control before the Trump euphoria wears off. But in reality it may be a case of only just getting started as he has not even come to power yet.
Week Ahead: Fed minutes, French politics, UK’s Autumn Statement
The reflationary trade or as some like to call it “Trump trade” probably led some big name bearish investors who were calling the end of 8-year bull market to reconsider their judgments.
Since Trump won the elections on Nov-9, the dollar index gained 3.6%, the Dow Jones traded at new record highs, and yields on U.S. 10-year treasury bonds rallied 25%. The shift in market sentiment was based on hopes that Trump presidency means businesses profits skyrocketing due to sharp cut in taxes, more capital expenditures, and finally some inflation supported by aggressive government infrastructure spending. It’s difficult to know how much further this bull can run especially that it’s driven by animal spirits, and yet no fundamental evidence. However, when everybody turns bullish, this is the time when you should get worried.
The week ahead likely to see markets cool down a bit as U.S. breaks for Thanksgiving and economic calendar is relatively light, but here’s the top events to watch.
Fed minutes
On Wednesday, the Federal Reserve will release its monetary policy minutes for Nov 1-2 meeting, and with markets already pricing in 95.4% rate hike in December’s meeting, reiterating the phrase used in the statement “to wait for further evidence” won’t change sentiments. Chair Janet Yellen already signaled that a rate increase is becoming appropriate soon, and voting member James Bullard said that the Fed will raise interest rates in December barring major shock. A rate hike appears to be a done deal in December unless something destructive occurs.
French politics
In a year, full of surprises with the Brexit vote shocking markets in June and Trump winning the elections in November, it’s time to start taking French elections seriously as it tests the rise of populists in EU. Today voters head to the polls for the first round of a centrist and conservative primary to nominate a presidential candidate who will be facing far-right leader Marine Le Pen. The Euro is already under lot of pressure and if populist continues to gain traction in Italy and France this will lead to further selloff in the single currency and parity against the dollar will be the topic to discuss in the weeks ahead.
UK’s Autumn Statement
Back in the UK, all eyes will be on the Chancellor of the Exchequer, Philip Hammond, on Wednesday as he unveils his first Autumn Statement. The statement is likely to end years of Austerity measures and focus back on spending that’s likely to end Osborne’s hopes of achieving a budget surplus by 2020. Sterling traders will be concerned about how much further the deficit will increase, which is likely to put some additional pressure on sterling.
Global stocks were noticeable mixed during trading on Monday as bullish investors took a break from the Trump fueled market rally. Asian shares casually floated between losses and gains, pressured by a resurgent Dollar and rising US rate hike expectations that could spark further outflows from emerging markets. European stocks were contaminated by the lack of direction in Asia with the absence of momentum potentially trickling into Wall Street later today. It is becoming clear that market participants have digested the Trump reality with most waiting for further news relating to Trump's economic team which could provide additional clarity on how he plans to lead the U.S economy.
Dollar bulls unstoppable
The market shaking Dollar appreciation has highlighted how the combination of Trump’s presidential triumph and heightened hopes of a US rate hike in December can provide the foundation needed for bulls to attack incessantly. Sentiment towards the Dollar is extremely bullish and the optimism towards Donald Trump’s presidency bolstering US economic growth has ensured the greenback remains buoyed. With economic data in the States repeatedly pointing to economic stability and Fed officials all singing a similar hawkish chorus, the Dollar has become a buyers dream. Much attention may be directed towards Wednesday’s FOMC meeting minutes which could provide the final piece of clarity needed to cement expectations of a US rate increase in December.
From a technical standpoint, the Dollar Index is bullish on the daily timeframe as there have been consistently higher highs and higher lows. Previous resistance around 100.50 could transform into a solid support which could provide bulls encouragement to send prices back towards 102.00.
Sterling bears here to stay
The ongoing Brexit episode may have irritated traders with the battle of words between financial heavyweights on how to handle the hard Brexit scenario adding to the nasty cocktail of uncertainty. Sterling remains heavily weighed down by this anchor known as Brexit with steeper declines expected if buying sentiment towards the currency continues to deteriorate. With expectations rising over the Fed raising US rates in December, the bearish combination of Sterling weakness and Dollar strength could spark a sharp decline on the GBPUSD. The weekly close below 1.240 on the GBPUSD may have sealed the deal for bears to drag prices lower towards 1.220.
WTI commences the week positively
WTI Crude staged a miraculous rebound during trading on Monday with prices rallying to $47 as expectations were revived over OPEC members securing a freeze deal at the November 30th formal meeting. Comments from Iran’s oil ministers and Russian President Vladimir Putin on their optimism of OPEC agreeing to a proposed supply cut coupled with the Trump effect has renewed some investor attraction towards oil. While the abrupt short-term gains are undeniably impressive, WTI still remains dogged by the overwhelming oversupply woes. The current technical bounce could act as an opportunity for sellers to pounce if OPEC repeats the events of Doha at the formal November meeting.
Currency spotlight – EURUSD
The EURUSD descended deeper into the abyss last week with prices closing below 1.060 as a dovish Draghi coupled with concerns revolving around political instability in Europe swiftly haunted investor attraction towards the Euro. Expectations remain elevated over the ECB extending its monetary policy amid the uncertainty while a strengthening Dollar from rising US rate hike expectations continues to enforce downside pressures on the EURUSD. Mario Draghi is due to testify before the European Parliament in Strasbourg today with any further dovish hints potentially leaving the Euro vulnerable to further losses. From a technical standpoint, the EURUSD is heavily bearish on the daily timeframe as there have been consistently lower lows and lower highs. Previous support around 1.075 could transform into a dynamic resistance which could re-open a path back below 1.060.
The US political shake up has been polarising markets as of late, and none more so that in the Federal Reserve as there are 3 governors seats up for grabs on the FED board this year and it looks extremely likely that Trump will look to fill them all with hawks. The question will be how big will the impact be, many believe they will look to spend up heavily in infrastructure in the United States which will in turn lead to the US market rallying further and the USD jumping higher. The trade issues though are the black mark for many, and with Trump threatening them the flow over effects in to the FX and equity markets are likely to be great. For the equity markets though it's certainly a boost as many expect that US based companies will be the greatest benefactor as Trump is pro business and looking to stimulate the economy. So far the S&P 500 has seen some strong rallying and it was further helped by the news out of OPEC today, and during the last part of the year we traditionally see some further buying before the new year rolls over.
The S&P 500 has so far struggled to maintain momentum past 2200, as it represents a psychological barrier for the market. For the next level of resistance I would expect the market to look for another level and this would be likely found at 2250. Support would likely be found at 2200 as well in the event it breaks out and looks to find some safety, with 2168 the next level of support. I would also be watching the 20 day moving average as this has previously been a key area for dynamic support for past movements.
It's easy to forget the other parts of the world with the current market climate that we have today, but for the Australian dollar it has been a bumpy ride, and this even comes in the face of commodity prices rising recently. The Australian dollar had been causing headaches for the Reserve Bank of Australia given how high it has been in recent times and the recent rate cuts were meant to remedy that. However, as ever the case the markets have not agreed and the AUD had remained quite high. The recent political moves have in turn caused the USD to rise and the AUD to slip lower on the charts, and many are expecting further slips with the hawks likely to come to power in the FED in the USA.
For the AUDUSD it's likely looking a little bearish despite the fixed interest rates being attractive to overseas investors. The recent bounce on support at 0.7328 has shown that the bulls are still in the market, but only at certain opportunities. Any larger drops will likely be to 0.7226 where it would struggle to find any further movements unless there was a strong sell-off in the AUD.
NZ economy lifts on better than expected trade balance data
The New Zealand economy has been positive so far today after the recent trade balance data came out and was stronger than expected at -846M (-950M) this was lead in part by stronger than exported exports coming in at 3.90B (3.75B). It's likely that after the recent natural disaster that the New Zealand economy will see some GDP growth as spending picks up sharply in the wake of it all to repair everything over the next few years. It will be interesting to see how the Reserve Bank of New Zealand reacts in the coming months, and if inflation picks up in line with all the spending that is predicted.
So far the NZDUSD on the chart continues to find heavy pressure by the bears as they look to push it lower on the back of USD strength. So far the NZDUSD has managed to find strong support at 0.6994 and the market is continuing to see if it can find itself below the psychological barrier level at 0.70. Further support levels lower are likely to be found at 0.6948 and 0.6888 as the market looks to drift lower. However, if the market were to turn upwards they would find resistance at 0.7030 and 0.7060, but given the current market sentiment which is bearish towards all commodity currencies it seems less likely to happen than the bears clawing their way down further.
The Canadian dollar has also been one of the radar of traders with the recent movements in the oil markets and the likelihood that OPEC may in fact sign a deal in the short term. However with Iran and Iraq not agreed and American oil drillers likely to keep pumping at full capacity, it could be some time off before we actually see a rise in oil, and in turn a rise in oil prices which many have been predicting. For the Canadian dollar this means it's unlikely to fight back against the USD movements that we have been seeing lately.
The USDCAD has been pushing up the charts on the back of the USD strength and the 50 day moving average has so far been acting as dynamic support. The market has seen some brief volatility and consolidation around the major support level of 1.3402 and this has so far held up against any bearish movements. I would anticipate that this area will likely see some further movement before the bulls look to continue on their recent run, especially as oil markets continue to show a lack of general momentum higher.
The ongoing Brexit saga has exposed Sterling to prolonged periods of pain this year with uncertainty effectively damaging buying sentiment towards the currency. It has become quite clear that Brexit fears have left a painful scar on the Pound, with weakness becoming the new norm as anxiety repels investor attraction. Much attention may be directed towards the latest third quarter GDP revision which most expect to come in unchanged at 0.5% on a quarterly basis and 2.3% annually. While the unchanged GPD figures could point to some economic stability, concerns still remain elevated over the Brexit outcome diminishing business investment and consequently pressuring the vulnerable Sterling further.
Sterling/Dollar has been a major loser this year with the pair closing negative every month post Brexit. This pair remains heavily bearish on the daily timeframe with a resurgent Dollar reviving the parity dream. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A decisive breakdown below 1.240 could trigger a steeper decline lower towards 1.220.
EURUSD parity dream…
The heightened fears over diminishing Eurozone growth coupled with ongoing political instability in Europe have left the Euro extremely vulnerable to losses. Sentiment remains firmly bearish towards the EUR with steeper declines expected as speculators bet over the European Central Bank extending its QE program at December’s policy meeting. The bearish combination of Euro weakness and a resurgent Dollar could ensure the parity dream on the EURUSD becomes a reality in the medium to longer term. From a technical standpoint, prices are bearish on the daily timeframe as there have been consistently lower lows and lower highs. Previous support around 1.065 could transform into a dynamic resistance which encourages a steeper decline lower towards 1.050.
Oil under pressure again
WTI Crude edged lower on Friday with prices sinking towards $47.40 as expectations fluctuated over OPEC securing a meaningful freeze deal at next week’s formal meeting in Vienna. The persistent discussions over major oil producers cooperating to fight the oversupply woes have provided oil a temporary lifeline but fear still linger over the success of any OPEC deal. Many investors will be paying attention to how the cartel solves this classical prisoner’s dilemma which may dictate where oil concludes this year. The overall sentiment towards Oil still remains bearish with another OPEC let down sparking a sharp selloff towards $40.
Commodity spotlight – Gold
Dollars resurgence has made Gold a sellers dream while the mounting US rate hike expectations continue to sabotage any upside gains. This metal remains under noticeable pressure with prices hovering around 9-month lows of $1170.80 as of writing. Bears remain in firm control which should encourage steeper declines in the coming weeks. Previous resistance around $1200 could transform into a dynamic resistance which encourages a steeper decline lower back below $1170.
An air of caution swept across the financial markets during trading on Monday as doubts of a successful OPEC deal weigh heavily on global sentiment. Stock markets were noticeably shaky with Asian shares trading in a lacklustre fashion after oil’s sharp depreciation soured investor risk appetite. European markets may be vulnerable to losses if the mounting political instability in Italy ahead of its referendum encourages participants to scatter away from riskier assets. Although Wall Street concluded last week near historical highs, losses could be realised if Asia’s and Europe’s bearish contagion contaminate American shares.
An action-packed week lies ahead and such could place stock markets on another chaotic rollercoaster ride if the upcoming OPEC meeting; US GDP figures and heavily anticipated NFP create explosive levels of volatility.
Dollar bulls on a tea break
The Greenback retraced from gravity-defying levels on Monday as investors booked profits ahead of a data-packed week which could reinforce the firm expectations of the Fed raising US rates in December. November has been a game changer for the Dollar with Trump's market shaking victory, repeated positive US data and hawkish comments from Fed officials ensuring Dollar strength remains a recurrent theme. Sentiment remains firmly bullish towards the Dollar with any depreciation seen as a correction for bulls to propel the Greenback even higher. Much attention may be directed towards the pending third quarter GDP release and November’s NFP which could provide a clearer picture of how the world’s largest economy is faring. A solid GDP and rising employment may be critical chess pieces to solidify the already firm expectations of a December US rate increase.
The Dollar Index remains firmly bullish on the daily timeframe with bulls remaining in firm control above 100.00.
ECB Draghi discusses Brexit
The Brexit contagion has slowly spread its tentacles of uncertainty into the Eurozone economy which may place the nation under further pressure. Mario Draghi is due to testify on Monday in Brussels on economic developments and consequences of Brexit to Europe which should attract investor attention. It is widely known that the Eurozone is entangled in a losing battle with faltering growth while political instability in Italy has left the Euro vulnerable to losses. A resurgent Dollar against the Euro is making the EURUSD a sellers dream with the parity reality materialising in the medium to longer term as bears install repeated rounds of selling. From a technical standpoint, the EURUSD may be in the process of a technical bounce with a breakdown back below 1.06 sparking a selloff towards 1.050.
Oil sinks lower
WTI Crude found itself vulnerable to painful losses last week Friday with prices sliding towards $46 as doubts were revived over the ability of OPEC members securing a meaningful freeze deal on Wednesday’s formal meeting in Vienna. Saudi Arabia’s absence from Monday’s pre-OPEC meeting coupled with Iran’s incessancy to an exemption from the output has sparked concerns over the success of the pending meeting. Although OPEC may be repeatedly commended on their ability to create speculative boosts in oil via freeze deal hopes this may come at a very heavy price if nothing is achieved on Wednesday. The classical prisoner’s dilemma OPEC members face coupled with the persistent oversupply woes could ensure low oil prices remains a recurrent theme in the medium to longer term. From a technical standpoint, bears are back in town and a breakdown below $45 could spark a further selloff towards $43.
Commodity spotlight – Gold
Gold displayed its safe-haven status on Monday with the metal edging higher towards $1195 as OPEC jitters triggered a wave of risk aversion. In times of uncertainty Gold is man’s best friend and such could become the theme this week if the combination of Dollar weakness and anxiety attract bullish investors. While bulls may enjoy the limelight in the short term, upside gains could be capped on Friday if the NFP exceeds expectations.
From a technical standpoint, intraday bulls have taken centre stage with prices bullish on the hourly timeframe. Previous intraday resistance at $1190 could transform into a dynamic support which encourages a further incline higher towards $1200. Intraday bulls remain in control above $1180.
