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.

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