RISK BACK ON (how long for?) – Inter Market Analysis

Risk On

  • Asian equities fared better – European equities took off overnight as usual – risk on sentiment kick start with a lag after several talk of stimulus
  • Euro-Area inflation rate turns negative – ECB needs to act – talk of additional stimulus by end of year
  • BOJ additional QE by October (bond purchases) = Yen weakened and Risk On sentiment kicks off
  • Big improvement in UK current account give boost to the overall economy picking up / UK GDP final 0.7% – Sainsbury led the FTSE rebound – Glencore dead cat bounce and overall mining industry get relief buying
  • Most of the negative sentiment has been priced in – as argued per yesterday contrarian view
  • Bad News is Good News correlation is back on – VIX hit resistance yesterday

Risk Off

  • Euro and Yen weakened while safe haven commodities took a dive lower – Bunds lower
  • Many of the recent risk off events has yet seen any marked improvement or changes in policy (could well haunt us again)
  • How much longer can the pool of liquidity maintain the market at this pace? If October rate hike did not materialise then another potential turmoil is in the cards?
No comment added as per yesterday’s analysis. The market is heavily underinvested and with start of the month this rally could remain short term which is the only risk for now.

β€œTuesday open could well be a dead cat bounce-overall trend and sentiment at extreme bearish level which a contrarian trader may consider to look for counter rally. End of month and quarter trading – window dressing as per Adam Button of ForexLive has put it nicely.”

Extra Stimulus has yet to kick in but wary of the build up to Santa rally

Multi Time Frame Analysis

USD index

Daily

4 hour

Given that the US dollar index rallied overnight, this has given risk on sentiment a big boost. Price action on the 4 hourly chart may have broken out of the rising channel but again we see this as a period of consolidation as we enter the 1st week of October. We cannot rule out a retest on to the upper resistance line again but failure to do so could well spell trouble for USD/JPY trade as well as equity market that may well fall into turmoil again.

German Bund

Daily

4 hour

Daily chart on the Bunds has a doji yesterday and today mark the start of a sell off but will this last? Safe haven buying remains at the moment as we entered the beginning of the month and final quarter of 2015. However, if RISK ON sentiment comes back with a vengeance then the bunds need to trigger a sell off.

Eur/Usd

Daily

4 hour

Euro stepped into the seller’s zone again in the short term – forming a lower high and higher low. As we are soon entering NFP day, the EUR/USD trade may well converge and consolidate before a big directional move. Bear in mind that EUR/USD bid higher on the back of RISK OFF sentiment – all depending on how the VIX fear index play out as well.

German Dax

Daily

4 hour

Well we have Europe and US open where price action was slumbering as the bulls and bears fight it out. When US equities struggle with retest lower, European equities seems to fare well and this morning gap up is a testament of a squeeze into the beginning of a new month. Current outlook is to buy on pullback for a retest higher since a short term low is potentially in place.

Gold

Daily

4 hour

Gold continue to sell off – VIX fear index confirms that Risk is back on – safe haven buying has dissipated and we have the German Bunds to confirm. Only a break below 1120 will break the current structure to target lower prices but if we see a bounce then we could potentially form a RHS for a head and shoulder formation. This is certainly one to watch as we head into NFP day which could suggest the next directional play.

Silver

Daily

4 hour

With Silver prices hitting a band of support and the order block of buyers, we expect a short term rebound within the 4 hour time frame. We have a potential double bottom but current formation looks like a bear flag. Despite that, short term rebound could be in place as it hit 76.8% retracement and we continue to use the daily 20 ma as resistance to the upside for now.

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Time to be a Contrarian? Inter Market Analysis

Risk On

  • RBI cut rates much more than expected though Indian Finance Minister do not think it is an aggressive move yet
  • Talks of additional stimulus and change in policy to drive the Chinese economy in the right path is underway but bear no fruit yet
  • US economy remain steadfastly strong – NFP week that could shed more lights into employment numbers
  • UK mortgage lending surges most – business lending pick up – encouraging data
  • Euro area confidence rose on Industry and Services (foundation for Santa rally?)

Risk Off

  • Strength in the Euro and Yen – add pressure for Risk Off environment
  • Emerging economies blood bath – suffering commodity rout and slowdown in the global economy (although we argue that most of the negative news have been priced in)
  • Seasonality – VIX index hit another intraday high but has not reached a total panic mode yet
  • Sudden market realisation of the struggle to debt refinancing – liquidity sap? Could too big to fail start to re-emerge and who will bail them out?
  • Copper took a hard knock – the barometer suggest further slowdown (oversupply)|
As mentioned in last week Inter Market Analysis report – Yellen speech gave the market a short term risk on burst which waned off. Given all the negative news have been priced in-we are at the aftermath crime scene scenario assessing the damage-Tuesday open could well be a dead cat bounce-overall trend and sentiment at extreme bearish level which a contrarian trader may consider to look for counter rally. End of month and quarter trading – window dressing as per Adam Button of ForexLive has put it nicely.

Extra Stimulus has yet to kick in but wary of the build up to Santa rally

Multi Time Frame Analysis

USD index

Daily

4 hour

A big host of speakers from the Fed could certainly add spice and dampness to the dollar index. We maintain the view that price action will continue to be volatile as it consolidate at the higher end of the ascending triangle pattern. How will this play out remain a big question, given that a rate hike is imminent and should once again as we argued – bake in.

German Bund

Daily

4 hour

Bunds suffered a mini pullback but then rose with VIX index rising and the uncertainty of the global market – bunds bid as safe haven kicks in. Technically, we could see a pullback as price action touch potentially a strong resistance. A break above could well clear out stops and rose higher.

Eur/Usd

Daily

4 hour

Risk off sentiment has certainly propelled the Euro higher against a basket of currencies – despite talks of additional QE waiting on the side line, there has yet any major action from the ECB. One thing we continue to take note of is the daily chart that show how price action could well ping pong within a large bear flag.

German Dax

Daily

4 hour

As per last week commentary, we mentioned another pullback before price can rebound higher is here. On the daily chart, a retest of previous low and in fact a new low is made this morning – with a positive RSI divergence. We will take this with a pinch of salt that this could well be a short term low for a snap back rally before another retest lower.

β€œWe felt that a pullback is due and we could have one before a retest higher”

Gold

Daily

4 hour

We now have a clear resistance at 1156 – which coincide with the daily 100 ma acting as resistance and also confluence with a downward channel. As per our weekly report, we stressed the importance of what has changed in the gold price action and we stated none! It is still in a bear market and remain so – which in this case – rallies remain selling opportunity.

Silver

Daily

4 hour

We were right to raise concern that another rip higher without taking out the previous high is a big red flag. Our weekly report again highlighted this and Silver sell off on the back of poor Chinese data – this white metal remain sensitive and any rallies are deemed as selling opportunities. Many traders got sucked in with the view that current price is cheap. 4 hour price action shows that silver should have some support here but failure could well target much lower numbers again. With a flurry of Chinese economic numbers due this week and given that most of Asia is on holiday, more often than not precious metal suffer a bout of fresh selling.

A Balancing Act

This week key economic data coming from China, Europe and the US will be heavily scrutinised. Analysts are expecting a somewhat lower than expected given the summer doldrums. However, a surprise number to the upside should be taken as a positive sign that things are indeed changing for the better. Next week mark the all-important Non-farm payroll week and it is already forecasted to be better than previous number. If it comes lower than last month number, it could well spell trouble and turn the market upside down. However, we felt that the market could remain indecisive as uncertainty remains on the surface.

Investors are afraid to commit and many remains on the side-lines with cash – as they mull over the possibility of β€œcalm before the storm” scenario. It could be a double edge sword scenario because if they missed the opportunity to get into the market – they are under invested and could be chasing after higher prices. Meanwhile, the end game here is to minimise risks given that the projection of the global market is deem slightly treacherous. The VIX index remains the barometer to watch as we come to the end of September and entering the final quarter of 2015. This index has remained alleviated by concerns of a Chinese slow down, Yuan devaluation, emerging market instability, rate hike scenarios and many more.

Economic stability is one of the ingredients for a confident global economy to prosper while political stability is also very much needed. Election campaign in the US may add fuel to the much needed stability – Mr. Boehner recent resignation is the first sign of what could be in store in the next few weeks and months. Debt ceiling debate will be the hot topic – highlighting again another kick of the can down the road. Ever since Mr. Obama re-election, rival politicians will take this opportunity to undermine the economy and promote promises on how they can steer the β€œAmerican Dream” back online.

β€œTaking all the considered known and unknowns, volatility will remain for the next few weeks – adding fresh pressure for some sort of results that market confidence is back. We expect a hard and difficult ride in the equity market which will find its footing for some sort of Santa Rally come what may. Commodity prices will pick up slowly while dollar will remain strong as long as the rate hike scenario is on the table.”

What can weΒ deduce for next week? One thing for sure, the global market needs to regain its mojo back and the underlying foundation of easy monetary policies remains as central banks across the globe is cutting interest rates. Low inflation as argued by Miss Yellen is transitory as low oil prices and other commodities could propel in extra income that should boost spending in the months to come. Employment remains a key index while wage growth is very much needed catalyst to boost business confidence. Central banks are aware of the risk going forward if they failed to act – last few weeks action and jawboning has failed to say the least to bring about any scant of confidence. One could argue that they could run out of options or time – meaning that there is a possibility for a deeper correction if this runs out of control.

The chart below is a little reminder ever since the 2008 financial crash what really got us here and certainly worth a thought as to how the global economy can claw itself out of this hole.

Dollar Technical Outlook

You just cannot fight the dollar bull as it resurged back into life –Miss Yellen gave the market an extra boost rate hike is on the table before the end of 2015. Many will be pondering if it is a one-off hike in October only – thus ending the hype of the hike once and for all? Two possible scenarios are at play here – one rate hike and none in December or a double rate hike? We think the former is a more conservative and viable scenario – given that the Fed failed to hike in September and the lack of clarity on their tone during the FOMC statement.

The weekly chart is setting out for a potential breakout higher – range trading within the ascending triangle remains. Daily chart also shows a period of consolidation – as the market try to gauge the next big move. Dollar seasonality index is suggesting further weakness is due till the end of the year but we remain uncertain how to translate this into the current price action given that a rate hike is imminent.

β€œOtherwise, a period of consolidation is expected but we also envisaged that as long as the low is respected then we expect another strong dollar recovery. We envisaged a much lower dollar for the next week or so – but the run up to the β€œRocktober” Fed meeting will certainly give the bulls the fire power it much needed for retest higher.”

Weekly

Daily

Gold Technical Outlook

Analysing gold chart on the daily and weekly basis, we stumbled upon a difficult outcome to the recent price action and what to expect in the coming weeks. However, one thing that helps us separate the noises from the facts are as follows:

  • Overall trend remain bearish and we cannot rule out a retest of previous low at 1070
  • This could just be a period of dead cat bounce – short covering and short term safe haven buying
  • Have anything major changes which could undermine the bearish view?

Gold did break above the 20 weekly ma but failed to close above it. We think that this is a very important level – a break and close above should give the bulls more firepower. Given that it failed, we are adamant that a deeper pullback is still in the cards.

Position Valid Date Price Action Stop Loss Target Results
SHORT 21st – 25th 1156 Live 1165 (raised to Breakeven 1156) 1135
LONG 21st – 25th Open 1139 Closed 1110 1155 +16
LONG 21st – 25th 1128 Order Cancelled 1110 1155

Weekly

Daily

Silver Technical Outlook

If Silver rally into next week, we are looking to short the white metal at the daily 100 ma 15.50 levels which coincide with the 20 weekly ma levels. Our argument has not changed on the fact that it is remain a bear market and rallies are shorting opportunity.

β€œImpulsive move higher often depict an impulsive sell off as well. A pullback to retest the 20 daily ma is in the cards and with the opening of trading, we are placing a short with tight stop to test last Friday ominous doji.”

Position Valid Date Price Action Stop Loss Target Results
Long 14th – 18th 14.56 (bought at Open) Live 14.65 (raised 13.90) 15.35
SHORT 21st – 25th 15.25 Closed 15.40 14.75 +50
SHORT 28th – 2nd 15.55 Order Placed 15.65 14.65

Weekly

Daily

Platinum Technical Outlook

Platinum prices rocked by VW scandals – price action crushed and the 940 levels come back into play. We were not aware of such scenarios but as we have argued over the last 2 weeks, the fractal could remain in place and we have boldly marked a retest of the lower level. With 2015 low of 925, this has created a positive RSI divergence and as long as price can stay above into next week – a possible resurgence higher is in the cards. However, a deeper pullback could play out if the car industry is rock by another scandals.

Going forward, we will only be bullish on a break and close above the daily 20 ma.

Position Valid Date Price Action Stop Loss Target Results
Long 21st – 25th 955 Closed 945 995 -10

Weekly

Daily

Palladium Technical Outlook

There we have it, the strongest performance by Palladium – as short covering commences but we now warned that a major pullback is next. We will not rule out a retest of previous low or at least the weekly orange coloured trend line. Short term price could still test higher into next week but rallies could be an opportunity to add on short.

β€œWeekly RSI is encouraging, palladium may have found the low for 2015 – thus we cannot rule out for higher prices in the short term.”

Position Valid Date Price Action Stop Loss Target Results

Weekly

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Β 

September Madness Ending? Inter Market Analysis

Risk On

  • Rebound galore as Miss Yellen assert certainty of a rate hike later this year
  • Poor Japanese data added pressure of extra stimulus
  • ECB members suggest December additional QE programme
  • A stronger rebound on the dollar force a risk on – USD/YEN and EUR/USD trade went to reverse
  • Yellen need to rate hike so Fed can be flexible and cut rate again if severe economic condition took a turn
  • US second quarter GDP growth revised up – China see steady growth to achieve 7%

Risk Off

  • Emerging market carnage – strong dollar add pressure for EM banks to intervene
  • China stocks derail – Japan Nikkei play catch up – Europe open with flurry
  • Boehner to resign – Debt ceiling into consideration (see our weekly report)
Every FOMC statement followed by Miss Yellen individual speech has a large degree of contrast – she flipped the overall dovish September FOMC statement to hawkish – which took the market by surprise again. Short term risk on is at play while the medium term risk is the aftermath of a rate hike (potentially lower dollar and equity prices?)

Extra Stimulus has yet to kick in but wary of the build up to Santa rally

Multi Time Frame Analysis

USD index

Daily

4 hour

As per previous drawn channel, price action looks contained within and should continue to bounce on an upward trajectory. With Yellen comment that a rate hike will happen later this year, it easily took the crowd to back the dollar. Given this consolidation phase, we cannot rule out a rather choppy session – despite a better US GDP numbers – Mr. Boehner resignation could spun uncertainty in the US market.

German Bund

Daily

4 hour

No additional comment needed from previous post.

β€œPost FOMC and Bunds remain well bid since we have weakness in Dax although we felt that price action is starting to get heavy and unwinding the FOMC trade could be in the cards. Short term we will look for bearish signal for a pullback.”

Eur/Usd

Daily

4 hours

The sell off began a few hours prior to Yellen’s speech – which resulted in strong dollar and a timely unwinding of euro long – risk on. Today we have buyers step in and create another layer of support at 1.1118 levels and the structure still stand that Euro could go higher from here. It will take a major catalyst to break this – given that we have a better US GDP data – unless we have ECB committing to do QE.

German Dax

Daily

4 hours

We have broken out of the downtrend channel that was previously drawn on the 4 hour chart. RSI is also diverging on the bullish side and Dax price action reacted positively from the low of 9370 as sellers run out of steam – an elastic snap back occur but the next candle on the 4 hour will determine if we get another positive move higher or consolidation. We felt that a pullback is due and we could have one before a retest higher.

Gold

Daily

4 hour

Price broke above 1143 and stopped at 100 daily ma which also coincide with the downward channel. A pullback to retest breakout level has occurred and if gold managed to hold on above the IHS neckline, we could kick start next week with higher prices. Should we break below then expect another round of selling to take prices much lower.

Silver

Daily

4 hour

Silver bounced higher prior to Yellen speech and the rebound from 20 dma is a positive one. However, we were expecting price to take out previous high which it has failed. Those who went long should consider taking some off the table and raise stop loss as we head to the weekend. Β As long as silver trade above its daily 20 ma, we remain positive and the 20 ma is about to cross above the 50 ma which could give a big boost.

Missing Person: BTFDs – Inter Market Analysis

Risk On

  • Norway (record low) and Taiwan Central Banks cut rates to stimulate the economy
  • HSBC thinks China stocks rout is nearly over (define nearly then?)
  • Chinese Premier doing deals – should transform into better numbers in the coming numbers
  • Β β€œECB Draghi speaks – often a risk on event – but wary that post speech a Risk Off event”

Risk Off

  • After VW – BMW on the firing line – German Car industry at stake
  • Japan Nikkei open with series of selling as the index trying to play catch up
  • Draghi says patience and will wait before doing additional stimulus (matter of when not if)
  • Thai Baht slides – emerging stocks continue to perform badly post FOMC uncertainty
  • Commodity market especially metals greatly affected by VW scandal
  • Post Draghi speech turned the market into reversal after several fake high
VW and now BMW + Uncertainty – Bear market continues as rallies are sold – Redemptions?

Extra Stimulus has yet to kick in but wary of the build up to Santa rally

NO CHART UPDATES TODAY

Another High Volatility Week – Inter Market Analysis

Risk On

  • Rising dollar should help risk on equities higher – Bonds sell off help abate the short term trend
  • ECB Draghi speaks – often a risk on event – but wary that post speech a Risk Off event
  • Post Draghi we have Yellen Thursday speech – Central banks remain dovish

Risk Off

  • Poor Caixin Manufacturing PMI from china sent global equities lower
  • French Manufacturing PMI comes in better but Germany came in poor while EU slightly lower than expected
  • VW scandal could widen scope of investigation – snowball effect among the car industry
  • Eurozone business growth slows in September as Asian demand weakens
Extra dovish foundation build by global central banks – summer correction is in process but once this is over a series of stimulus effect should have presence. Unless of course we have another black swan event or sudden lack of liquidity. Remember central banks are backing the economy and will do whatever it takes to save it.Β For today only, Draghi will jawbone Euro lower but post Draghi we may see a reversal.

Extra Stimulus has yet to kick in but wary of the build up to Santa rally

Multi Time Frame Analysis

USD index

Daily

4 hour

Short term looks overbought but the dollar could still propel higher on the hopes of a rate hike as early as October. The dollar index is still in a process of higher high and higher low – a break out of the ascending triangle will certainly mark an important turnaround. We feel that the dollar crowd is in a sort of distribution phase and not really sure how much longer the US economy can sustain a strong dollar.

German Bund

Daily

4 hour

Post FOMC and Bunds remain well bid since we have weakness in Dax although we felt that price action is starting to get heavy and unwinding the FOMC trade could be in the cards. Short term we will look for bearish signal for a pullback.

Eur/Usd

Daily

4 hour

Should Mr. Draghi hurt the Euro lower, we are interested at 1.0301 as a potential entry zone for a long since the dollar could hit resistance. Lower time frames has RSI build up for a potential base but it will depends on the reaction on the Euro if we ever get there.

German Dax

Daily

4 hour

4 hour chart shows we are in a downtrend channel and the overall sentiment is to sell on rallies until we see a breakout of it. Current price action reacted positively and we expect a series of consolidation before another leg lower.

Gold

Daily

4 hour

As per the 4 hour chart, there are several key support levels to keep this inverse right hand shoulder of the daily IHS formation to work. Failure to hold above 1110 will spell trouble and invalidate this formation while a break of the neckline at 1143 could potentially kick start a move higher to test 1185 levels.

Silver

Daily

4 hour

Price bounced above the 20 daily ma which is positive for silver to test higher. We mentioned yesterday that a pullback is healthy and now we need to see a strong rebound to take out previous high. Buyers who entered late should have the opportunity to go enter long position with a stop at the daily 20 ma. Should the 20 ma cross above the 50 ma, we could get higher prices.

China + VW = what rate hike?

Risk On

  • Nikkei close while Asia shares mixed with the exception of Chinese shares
  • Question mark that safe haven such as gold did not transpire into higher prices on equity sell off
  • Apple to join car industry

Risk Off

  • VW issue profit warning – set aside 6.5 billion – share price plummeted – Bonds rally
  • Overnight ramp on US shares all underwater as Europe open with a crash
  • Post FOMC uncertainty dominate the market place – Chinese Caixin Manufacturing data is key for Wednesday open
  • No rate hike vibe wearing off – talk of additional stimulus have had no effect yet
  • UK budget deficit widest since 2012 despite talk of austerity by the Conservative government
  • UK major super markets all suffer sales despite price cuts
  • VIX remains alleviated
Dollar has recovered after the FOMC slippage – over the next few weeks, the dollar index could stabilise at the high end again. All eyes on Equity market – a retest of previous low or a break lower first. Remember that Central banks will intervene and it is not ready to see a bloodbath in stock market. A low will set a platform for Santa rally that we discussed.

Extra Stimulus has yet to kick in but wary of the build up to Santa rally

Multi Time Frame Analysis

USD index

Daily

4 hour

Despite the sell-off, heavy rounds of buying re-enter as talk of rate hike remains on the table. As previously discussed, price action will continue to ping pong within the ascending triangle pattern with the daily chart conforming to a higher low and higher high. Price action will start to get tighter within the band and a breakout is imminent once the market get better understanding of where the Federal Reserve would like the dollar to be.

German Bund

Daily

4 hour

Buyers flock into safety – Euro tumbled lower while Dax struggles to find its footing. Technically, we cannot rule out a retest higher within the flag with a potential target of 157.74 if uncertainty continues with the market heavily on Risk off mode.

Eur/Usd

Daily

4 hour

Despite there is no rate hike decision by the Fed, the euro enjoyed the brief moment higher but gave back all of its gain. Traders remain jittery and unable to hold on to their trades – volatility and fear remains to be the backdrop that caused the lack of conviction in holding to a stronger Euro. Daily chart paints a rising bear flag and prices can continue to ping pong within that range.

German Dax

Daily

4 hour

Weaker Dax on the back of the VW scandal – because of one company – the Dax has retested lower as it broke out of the channel. Despite a weaker Euro, Dax has not managed to break higher – possibly the safety in Bunds has ceased interest for investors to invest in the short term. Market turbulence certainly has not helped – money flows to safe haven in the short term but we envisage that the Dax could rebound once it has priced in all the negative vibe.

Gold

Daily

4 hour

We are witnessing a pullback and this will be a good test on how strong the bulls are in holding on to their position. Hedge funds are heavily short and we will not be surprise to see a squeeze higher first before a bigger sell off. Pullback remains a buy to test 1155 levels.

Silver

Daily

4 hour

The daily doji last Friday was an early signal that a pullback is due. This could well be the opportunity for dip buyers to enter the market but one has to be cautious as to how strong the 20 daily ma can hold. A retest there and a bounce right back up will allow the metals to move higher. Otherwise, we cannot rule out a retest lower first.