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.

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