Inflation Discrepancy

  • October lead to be the best in global equity recovery but can it continues from here on?
  • Post FOMC – statement is adamant that a rate hike is in store for December meeting
  • Dollar regained footing as market reversed – previously strong Euro and Yen has kept risk on sentiment on a lid
  • Gold and Silver suffered with expectations of an imminent rate hike

Market roared back to life at an amazing speed as global central banks continue with their dose of monetary stimulant. Even though Bank of Japan hold back to expand their easing programme, there was extra budge set aside to maintain a relatively dovish environment. We have covered quiet in detail last week that despite poor economic data and imbalances, equity remains the place for investors to look into. The era of easy monetary policy does not take a sharp U turn and it will take time to normalise. Side effects from several global corporations on issues such as massive layoff and lower earnings will undermine further the need or ability of the Federal Reserve to justify a rate hike.

The real question now is – will we see a December rate hike? It is going to be a multibillion dollar question and no one has a clear answer to it. What seems clear right now is the possible stress that it could bring for the month of November. We envisage a very likely mini rate hike tantrum as it did in the past. Things could get ugly but it is one of the oldest tricks in the trading book to flush out weak longs before the real Santa rally begins. Watching where the VIX currently is, a mini breakout to the top side cannot be rule out. This is certainly one worth watching while trading in November.

Mindful that the economy will take time to transition from an industrial led economy to a service one – time, policy changes and additional capital are part of the essential tools to achieve this goal. Market expectation of a strong Chinese economy as the main driver in this global economic recovery is something that will be well supported in many months and years to come. Dovish central banks and easy monetary policy is the way forward as there is no other alternative for now.”

This month we kick off with more economic data from China that will shed lights if their economy has finally picked up steam. Manufacturing data will be closely watched even when most in the industry remains sceptical. Talks of relaxing the one child policy are just some of transition that the Chinese economy is going through. There were even talks of lifting large induced investment going to various parts of China that could lift many out of poverty. What we have argued in many of our articles, income equality has certainly not help to bring a healthier economy. With the minority rich get richer, the rest has to make do with the extra cost of living if they are to consider having a second child in China.

On the other side of the pond, the US economy will also have barrage of data and it is Nonfarm payroll week. Evidence of any good data could well incite the confirmation of a December rate hike. We think that November economic data will be the last card that Miss Yellen can play in her quest of to hike or not to hike.

Dollar Technical Outlook

Last week we highlighted the possibility of an inverse head and shoulder on the dollar weekly chart. This is still possible even when the dollar ended the week with a big red doji as buyers and sellers try to establish grounds. Daily chart shows a much clearer picture of what happened as the dollar index once again hit the top of the Bollinger band and reversed. All the FOMC hawkish gains that were made have lost its shine and we cannot rule out a rather weak dollar going into next week. This could well instigate a short squeeze on the Euro shorts – quiet possible also kick start a deeper pullback in the equity market as risk off sentiment may well sets in.

So far so good and some would say rather predictable as the dollar index hinges on the very next line that central banks will say. Yes, the dollar index take all the beatings as central banks are doing what they can to jostle with the other – in the name of currency war which they masked specifically as the normal way forward. It is rather clear that dollar strength has returned and there is no masking for another week of higher dollar but we have FOMC and BOJ to take into account. If the dollar continues to rise, Yellen will be pressed to do something about it. The path of least resistance for now is higher dollar but be prepared if it turns if Yellen turn very dovish!”

Weekly

Daily

Gold Technical Outlook

Key level at 1182 proves to be seller’s paradise and there were bull drums with higher gold prices as we went to FOMC statement. The release of the statement sets the bears free and bulls flee – gold dropped from the high to 1152 levels and ended the week lower. It is now at a crucial support level where there is a slim chance for the bull flag to work. It remains risky to go long here but there is confluence of old support from previous run higher. This also coincides with the 61.8% Fibonacci pullback. If this fails, we look for support at 1116 – 1125 levels which is the last support within the bear flag formation.

We have gold opened at 1177.9 and that is where we started the week with a short position. Two attempts were made to push it higher at 1181 and 1179 but found sellers. It is clear for now that the 50% fib resistance for 2015 high low is the main resistance for now and sellers keep pressing short for now. Hedge Funds been long for the last few weeks and profit taking at this stage is ideal but with all the whirlwinds in the currency market and a strong dollar, gold seems to stand strong. Support for next week comes at important 1158 and 1142 levels – a break below 1158 may incite more selling but also rooms for a potential bear trap. The real battle comes in if we get a good reaction of support at 1142 levels. A fake break is sufficient for the trap to work otherwise, expect a complete move to the lower end of this bear flag.”

Position Valid Date Price Action Stop Loss Target Results
SHORT 19th – 23rd 1177.9 Closed 1193 (moved to b/e now) 1133 (moved to 1153) 0
LONG 26th – 30th 1142 Live 1136 1220

Weekly

Daily

Silver Technical Outlook

Silver took out 16.23 for a while but did not close above it. It has similar fate as the yellow metal, euphoria that lead to sudden bluntness of brutal selling. In hindsight, it look like a very easy trade but we have warned for weeks that the rally remain unsustainable and that it is only a matter of time before it all breaks apart. We now have a bearish weekly candle and a close below 15.60 which we highlighted. The weekly and daily RSI has more rooms to head lower so we cannot rule out a complete run lower to the bottom of the bear flag. We will look to open a small short position at the open and add if Silver test a retrace higher.

As long as 16.23 is not taken out, silver could head lower. Current price action and structure suggest that buyers are holding on and there is no real conviction to drive the white metal lower for now. However, the landscape is fast changing to favour the down side and risk reward has certainly pointed in that direction. A spike higher here could send prices a lot higher with target such as 16.25, 16.45 and 16.75. A clean break and close below 15.60 may give sellers room to roam.”

Position Valid Date Price Action Stop Loss Target Results
SHORT 12th – 16th 1608 Closed Moved to b/e 14.80 0
SHORT OPEN Order Placed 16.40 15.00
SHOT 15.80 Order Placed 16.40 15.00

Weekly

Daily

Platinum Technical Outlook

Platinum followed the footstep in gold and silver but the pullback higher was another opportunity to add on short. The selloff has just begun and with our short positions at 1020 and 1005 respectively, we have now moved the stops to breakeven and let it run.

Well short covering season run out of steam and the reversal should hold true given that the dollar strength starts to kick in again. Seasonality also shows that end of October and going into mid-November has not been a positive month. We envisage a pullback here before a potential Inverse Head and Shoulder move higher.”

Position Valid Date Price Action Stop Loss Target Results
Short 19th – 23rd 1020 Live 1040

Moved to B/E

975 changed to 930
Short 19th -23rd 1005 Live 1040 moved to B/E 975

Weekly

Daily

Palladium Technical Outlook

Daily chart shows a potential bull flag formation and should price action fail, then we can see deeper pullback. Meanwhile, we will hold to the one short position and moved stops lower to minimise risk. Palladium price action can be erratic and fundamentals reasoning could move market.

Position Valid Date Price Action Stop Loss Target Results
SHORT 695 Open 746 moved to B/E 600

Weekly

This article is written according to the author’s views and by no means indicates investment purpose. Opinions expressed at Sharps Pixley Ltd are those of the individual authors and do not necessarily represent the opinion of Sharps Pixley Ltd or its management, shareholders, affiliates and subsidiaries. Sharps Pixley Ltd has not verified the accuracy of any claim or statement made by any independent writer and is reserved as their own and Sharps Pixley Ltd is not accountable for their input. Any opinions, research, analysis, prices or other information contained on this website, by Sharps Pixley Ltd, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. Sharps Pixley Ltd will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The data contained on this website is not necessarily real-time or accurate.

House Of Cards – Inter Market Analysis

Summary

·         US China South China Sea just another show in the making or we might see something bigger?

·         Turkey general election – could it sway the public or cause more destabilization?

·         Spanish economy (the poster boy) slows in 3rd quarter – Draghi needs to step up here?

·         ECB officials been out all week – playing down the need for more QE at this stage

·         USD selling as Chinese Yuan strengthen most since 2005 (onshore trading)

·         Banks see slow gain as Europe’s new bank CEOS expect grim years – how bad can it be? More job cutting and frozen dividend? Cost cutting programmes underway?

·         RBS investment bank loss almost doubles

·         Shell leads $19 billion of gas and oil write downs – does this not sound similar like CDS back in 2008 due to overvaluation?

·         Global equities paving way for best monthly gain since 2009 – Santa rally is here already?

·         BOJ Kuroda no change but have additional ammo if needed – lower projection in growth and inflation numbers – oil dependant

·         Asian equities pare back gains with end of week and month end book squaring

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

The daily dollar chart may have indicated bull exhaustion and pullback is in the cards. We could play out a mini zig zag consolidation mode or a severe run lower though we think it will be in a controlled manner. As indicated in the chart, there are several possibilities that the dollar index could play out in the next few weeks before more central banks speeches and intervention.

Big change in the FOMC statement as several concerns or conditions that stop a rate hike is no longer in the text. Worry about external conditions was nowhere to be seen. Dollar bulls had a jolly ride higher – as the daily ascending triangle pattern continues to work in harmony. We have 1 more month before the next big Fed meeting with Live conference – so expect another roller coaster ride.”

German Bund

Daily

4 hour

We have a Thursday sell off and current price action is retracing to at least 50% or 61.8% fib before it self another directional play. Our biased is for lower numbers into the weekend with decent support off the lower Bollinger band of the 4 hour chart as well as the 100 ma.

We may have the exhaustion point and a pullback in due course. Everything is lining up for ECB big QE announcement that will not disappoint. The market will usually kick out all weak longs and return to previous high before the announcement. Key support remains at the 200 daily ma if investors are looking to buy the dip.”

Eur/Usd

Daily

4 hour

Euro is now trading within a nice downtrend channel and may have found support but we cannot rule out a break lower. The momentum for lower prices is there and sellers been rife to make sure that parity is achievable soon. Mind you, the short trade may have gone heavy here and one sided so a snapback could splash some reality that market does not go in one straight line but zig zag (maybe the new normal is different).

Post FOMC and the bear flag broke lower – creating a RSI divergence on the 4 hour chart. However, that meant nothing for now as sentiment remains sour and the bears are in firm control. We think that the US dollars has rooms to consolidate but as per many central banks announcement – a violent move can happen again into BOJ press conference.”

German Dax

Daily

4 hour

No change here unless we break below 10680 to invalidate the move higher for a small pullback. The current thesis is that we could see a weak euro – this will fit in with higher dax before a more severe sell off. The high at 10920 stands out as it is close to psychological level of 11000 but higher target of 11200 is still valid.

Dax broke higher as lower time frames suggest an small inverse head and shoulder with a target of 10920 that was reached. There is no questioning that Dax can still target 11100 to 11200 in the next few weeks. Daily price action could play out a wave 4 pattern here before one more spike higher or a complete AB=CD formation. “

Gold

Daily

4 hour

Gold has returned to its 50% fib on the overall move higher and decent support can be seen at 1140 – 1150 levels. Taking another look on gold, there is a slim possibility that price action maintain within the bull flag channel but as we mentioned, this is slim. A bounce back could spark interest again.

Post FOMC statement gave the dollar big boost and with gold spiking as high as previous resistance zone at 1182. Sellers re appears on the news that the Federal Reserve is considering a rate hike in December. Equities rally and safe haven commodities are sold off.”

Silver

Daily

4 hour

We have the big spike mentioned and sellers are back once again. The once buoyant look has been tarnished while the weekly chart indicates that deeper pullback is on the cards. Rallies continue to be selling opportunity until proven wrong.

Given the recent price action, we are re-assessing that the structure remain solid for a retest higher. Price action is consolidating very well at the higher end of the price range but our medium term thesis remains to short on the next spike. Buyers are holding strong for higher prices and if the FOMC is dovish, we could well have this pattern to play out.”

December Rate Hike Tantrum? Inter Market Analysis

Summary

·         Euro-area economic confidence rose in October – will this derail the need for more stimulus? We don’t think it will.

·         Deutsche bank to shrink workforce in a revamp / trading revenue rises as write-downs cause loss.

·         China Li see 5 year growth at a minimum of 6.5% and lifted the ban of one child policy to boost growth. Things must be so dire…

·         Watch out today for US GDP numbers with expectation of 1.6% with previous 3.9% also Pending home sales that is forecasted to come in higher than previous.

·         Shell posts biggest loss in at least a decade is a testament on its own – suggesting that there are further troubles ahead.

·         Fed no change in statement but pushed the idea for a December rate hike. Not sure how convicted they are but dollar bull is back in control – it does look like a time bomb and all the gains could easily reverse hard if Federal Reserve do not deliver.

·         Based on the above stance by the Fed, we see a rate hike tantrum which could result in fear in equity market before we undergo a last minute Santa rally.

·         BOJ is next in line and if we do not get any additional QE, a reversal could start.

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

Big change in the FOMC statement as several concerns or conditions that stop a rate hike is no longer in the text. Worry about external conditions was nowhere to be seen. Dollar bulls had a jolly ride higher – as the daily ascending triangle pattern continues to work in harmony. We have 1 more month before the next big Fed meeting with Live conference – so expect another roller coaster ride.

The dollar index is lining up on its usual stance that a rate hike could happen in this statement or at least giving an indication that the Federal Reserve is ready to do so. Yellen promised one hike for 2015 and the consensus says she is to disappoint – thus the dollar index has not priced in a rate hike scenario or has it?”

German Bund

Daily

4 hour

We may have the exhaustion point and a pullback in due course. Everything is lining up for ECB big QE announcement that will not disappoint. The market will usually kick out all weak longs and return to previous high before the announcement. Key support remains at the 200 daily ma if investors are looking to buy the dip.

With the high expectation of additional QE, this is a one way street for the bunds. The 4 hour chart indicates possible bull exhaustion and a pullback will indeed be very healthy for the market place. Without a blow off top confirmation, price discovery can continue higher.”

Eur/Usd

Daily

4 hour

Post FOMC and the bear flag broke lower – creating a RSI divergence on the 4 hour chart. However, that meant nothing for now as sentiment remains sour and the bears are in firm control. We think that the US dollars has rooms to consolidate but as per many central banks announcement – a violent move can happen again into BOJ press conference.

Overall trend remain bearish and traders are staying flat until they hear more about the FOMC statement. Dovish dollar statement could easily send the Euro flying in reversal as it continues to trade in the large bear flag. Otherwise, the opposite is true – stronger dollar can finally be the final straw that took the euro down to lower numbers. Afraid we have no crystal ball to predict the future here.”

German Dax

Daily

4 hour

Dax broke higher as lower time frames suggest an small inverse head and shoulder with a target of 10920 that was reached. There is no questioning that Dax can still target 11100 to 11200 in the next few weeks. Daily price action could play out a wave 4 pattern here before one more spike higher or a complete AB=CD formation.

We have a bull flag formation on the 4 hour and price has broken out of it. Price action this morning was to trap short at 680 levels and despite VW large losses, investors snapped up a quick rally – either a short covering before the FOMC or real buyers are stepping up again here. A pullback from here is still an ideal scenario to reload on longs to go higher.”

Gold

Daily

4 hour

Post FOMC statement gave the dollar big boost and with gold spiking as high as previous resistance zone at 1182. Sellers re appears on the news that the Federal Reserve is considering a rate hike in December. Equities rally and safe haven commodities are sold off.

The yellow metal looks ready for a launch higher. Bull flag in the 4 hour chart and support at 1158 remains solid. Potential projection is to take out 1180 and previous high for 1200 and higher. Medium term outlook, we will look to short any spikes.”

Silver

Daily

4 hour

Similar to gold, the white metal is poised for a break higher here but failure could spell trouble in the weeks ahead. A big spike could well be a decent opportunity to short.

Given the recent price action, we are re-assessing that the structure remain solid for a retest higher. Price action is consolidating very well at the higher end of the price range but our medium term thesis remains to short on the next spike. Buyers are holding strong for higher prices and if the FOMC is dovish, we could well have this pattern to play out.”

The Courage to Hike? Inter Market Analysis

NO MARKET UPDATE AS PER USUAL. JUST CHARTS AND THOUGHT PROCESS.

4 hour

The dollar index is lining up on its usual stance that a rate hike could happen in this statement or at least giving an indication that the Federal Reserve is ready to do so. Yellen promised one hike for 2015 and the consensus says she is to disappoint – thus the dollar index has not priced in a rate hike scenario or has it?

The rallies that wait for no man – it is either you are in from the lower end of the channel or die chasing it. A rather straightforward trade but the risk here remains clear – that Miss Yellen could remain dovish. However, we are aware that ECB and PBOC have been extra dovish which could set the tone for Miss Yellen to jawbone the dollar to the way she see fit.”

German Bund

Daily

4 hour

With the high expectation of additional QE, this is a a one way street for the bunds. The 4 hour chart indicates possible bull exhaustion and a pullback will indeed be very healthy for the market place. Without a blow off top confirmation, price discovery can continue higher.

The daily chart that says do not fight central banks and no short sellers please. Price action has remained elevated after ECB clear intention that December meeting will determine additional stimulus announcement. It remains unclear how much more but it is enough to send the bunds higher.”

Eur/Usd

Daily

4 hour

Overall trend remain bearish and traders are staying flat until they hear more about the FOMC statement. Dovish dollar statement could easily send the Euro flying in reversal as it continues to trade in the large bear flag. Otherwise, the opposite is true – stronger dollar can finally be the final straw that took the euro down to lower numbers. Afraid we have no crystal ball to predict the future here.

Minor support is holding the Euro above the psychological level of 1.100 and current price action is undergoing consolidation phase. This period also emphasise that sellers are in control right now and further weakness cannot be rule out. As we head to FOMC, only a severe dollar weakness can really reverse the current trend.”

German Dax

Daily

4 hour

We have a bull flag formation on the 4 hour and price has broken out of it. Price action this morning was to trap short at 680 levels and despite VW large losses, investors snapped up a quick rally – either a short covering before the FOMC or real buyers are stepping up again here. A pullback from here is still an ideal scenario to reload on longs to go higher.

Dax hit 50% Fib retracement and has made a double top – with a pullback in the short term as the very likely scenario. There are many unfilled gaps below that needs to be addressed and as long as we maintain within the rising channel (4 hour chart), the ideal price action is to see a pullback to 38.2% move of the breakout level which sits at 10485 levels.”

Gold

Daily

4 hour

The yellow metal looks ready for a launch higher. Bull flag in the 4 hour chart and support at 1158 remains solid. Potential projection is to take out 1180 and previous high for 1200 and higher. Medium term outlook, we will look to short any spikes.

The bulls overstayed and despite talks of additional QE from the ECB and rate cuts from PBOC, gold failed to take out 1180 which is now key resistance that could open up rooms for prices to test higher. Only a close and break above 1180 can convince the bulls to take out 1191 and 1200 levels. A break below 1138 may spell trouble as price action could play out the lower range of the bear flag.”

Silver

Daily

4 hour

Similar to gold, the white metal is poised for a break higher here but failure could spell trouble in the weeks ahead. A big spike could well be a decent opportunity to short.

Given the recent price action, we are re-assessing that the structure remain solid for a retest higher. Price action is consolidating very well at the higher end of the price range but our medium term thesis remains to short on the next spike. Buyers are holding strong for higher prices and if the FOMC is dovish, we could well have this pattern to play out.”

Dax Diary 27th October (1st journal entry)

Yesterday price action shows that sellers was rife at 810 – 820 levels which has stops slightly above. The key range from yesterday was 860 high and the low at 760. Given that price action broke out of the range, the initial bias was bearish but lack confirmation. It was the clear rejection from 810- 820 levels that act as a bearish confirmation which protect the sellers who was above at 860 levels.

Dax started the day with a gap down sell off and it broke out of the range it traded yesterday.

Given the gap down, the first ideal trade is to take a long positions given that this could be a fake breakout and aim to cover the gap which goes as high as 800 – 810 levels. I missed taking this trade which is another potential simply because I was not sure where to place an ideal stop as prices was taken as low as 733.

1st trade of the day was to place sell at 790 levels with stops at 830 and also another short higher at 820 with the same stop. My mistake here is not to wait for a better entry as I could wait and see the reaction at 800 – 820 levels before going short with a better stop.

Price filled the gap and did not break higher as sellers were rife – showing that yesterday sell zone remain intact. However, a break above will have me flip long for a squeeze higher which sits at 860 or new high.

Price was heading lower and my initial target was to raise stop to break even as it approach 760 levels (again this price level was key) and took some off the table, this allow the rest to run on break even. This continue and I have a target of the retest at 733. However, price reacted positively again at 740 where I took another chunk out. With stops at breakeven, the best thing is to let it run and wait for reaction at 50% fib retracement (from the high 810 to low at 740) and price hit that and reverse again. .

This was a strong confirmation to add on short but I failed to do so (see green arrow). Dax headed to my profit taking zone and I got flat at 728 levels. My trade plan was to look for a long around 700 levels and price did not disappoint. After hitting a low of 717 it reacted positively to a high of 757 (with 765 defended). As usual, sellers appear again there – which signal that yesterday support is now resistance. Price action sold off to retest the low at 707 which I missed going long with a tight stops. The second test should offer a decent area to long as it is a retest or to reload and try 765 again (this acted as a magnet).

As price broke above 765 briefly, it was a difficult time to make decision as the initial reaction off 707 was playing out as I have envisaged but it is unwise to chase for higher prices. I also failed to re short with a tight stops of 15 points and it was a quick sell off to a new low of the day breaking below 700. Once again, dip buyers try to shore up prices taking it right back above 700 urgently. Given that 765 is rejected twice and also a new low of the day, the only thing here is to re short dax on any pullback. We did just that at 720 levels for a quick scalp and got out at 705 levels.

Lessons learnt today is to respect and wait for price reaction at important support and resistance that was set yesterday. Understanding their reaction and reacting quickly will help to get better entry and also for better conviction of where price is moving. We have layers of fresh buyers at 685 levels and only a break below will get us excited for lower numbers. The magnet of 765 is still there but we also see 735 as another resistance which act as a potential short area. (again overnight prices before US close hit the high at 735 before falling low as of the time of writing).

Tomorrow trade plan is to wait and look for reaction at 735 and 765 level as potential short opportunities with target at 655 levels. Dax have bands of support all the way down to 585 levels.

Fed Lady Sings – Inter Market Analysis

Risk On

  • Hong Kong Shares clawed back, erasing morning losses
  • Risk events such as FOMC and BOJ – dollar strengthen in general ahead of the news

Risk Off

  • Is the VIX about to break out higher? US navy ship at South China Sea a political risk?
  • Asia shares closed lower despite last week rate cut – stimulus wearing off? Or just end of month profit taking ahead of FOMC and BOJ
  • BOJ officials continue to talk no additional easing but meeting on Friday could well be different
  • European shares drop as BASF and Novartis drop / BP taken fresh hit from slump in oil and gas prices – set out plans for further 1 bn cut to 2015 spending
  • UK preliminary GDP 0.5% vs 0.6% – expanded less than forecast
  • China Top graft buster turns sights on Financial Industry (uh oh)!
  • Oil prices extend losses as glut worries persist
Additional stimulus talks have certainly propelled equity higher but the market merely takes in what was said by Mr Draghi without a confirmation at this stage. It is all talk and many more months to come before it happen. Over the last few weeks, equity market has recovered astoundingly despite wave of negative news – suggesting that longs are in the know for higher equity prices. A pullback at current price is healthy and should take out weak longs before the implementation of more QE.

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

The rallies that wait for no man – it is either you are in from the lower end of the channel or die chasing it. A rather straightforward trade but the risk here remains clear – that Miss Yellen could remain dovish. However, we are aware that ECB and PBOC have been extra dovish which could set the tone for Miss Yellen to jawbone the dollar to the way she see fit.

Dollar buyer’s return or this is just a mere short covering process as money rotate out of the euro dollar trade? As mentioned yesterday, the talk of more QE from the ECB should spark buying interest but this morning price action already showing signs of a pullback. This pullback is key as to the development of the next move.”

German Bund

Daily

4 hour

The daily chart that says do not fight central banks and no short sellers please. Price action has remained elevated after ECB clear intention that December meeting will determine additional stimulus announcement. It remains unclear how much more but it is enough to send the bunds higher.

Decision by the ECB of potentially more QE has set off the rally but we are seeing a slight divergence on the 4 hour chart and will wait for a confirmation for a pullback. It remains early days but the pullback will be a rather sizeable one before another run higher. The daily 200 ma will get retested again.”

Eur/Usd

Daily

4 hour

Minor support is holding the Euro above the psychological level of 1.100 and current price action is undergoing consolidation phase. This period also emphasise that sellers are in control right now and further weakness cannot be rule out. As we head to FOMC, only a severe dollar weakness can really reverse the current trend.

“Support found at the larger rising channel which potentially is a bear flag formation. Can this support hold? Given the clear indication of more QE, the likelihood is we head lower and play out the bear flag. With a dovish ECB, the Euro fell but what happens if the FOMC is also dovish?”

German Dax

Daily

4 hour

Dax hit 50% Fib retracement and has made a double top – with a pullback in the short term as the very likely scenario. There are many unfilled gaps below that needs to be addressed and as long as we maintain within the rising channel (4 hour chart), the ideal price action is to see a pullback to 38.2% move of the breakout level which sits at 10485 levels.

We broke higher as per mentioned, with an inverse head and shoulder formation in play. A pullback to retest the breakout level is the next play here and any dips are buying opportunity for a reconnect to 200 dma which stands at 11075 levels.”

Gold

Daily

4 hour

The bulls overstayed and despite talks of additional QE from the ECB and rate cuts from PBOC, gold failed to take out 1180 which is now key resistance that could open up rooms for prices to test higher. Only a close and break above 1180 can convince the bulls to take out 1191 and 1200 levels. A break below 1138 may spell trouble as price action could play out the lower range of the bear flag.

Either the bulls overstay their welcome or we could get a decent bounce before the end of the week. We seek the latter and will look to build short positions on any spike.”

Silver

Daily

4 hour

Given the recent price action, we are re-assessing that the structure remain solid for a retest higher. Price action is consolidating very well at the higher end of the price range but our medium term thesis remains to short on the next spike. Buyers are holding strong for higher prices and if the FOMC is dovish, we could well have this pattern to play out.

We bounced off the 4 hour 100 ma and structure is still looking strong for a retest higher. We marked an area of interest where sellers could try to add on short but should this get taken out with no rejection then we could see higher silver. We remain adamant for a deeper pullback.”

QE Drug Lords in Action

  • The path of least resistance for now is higher dollar but be prepared if it turns if Yellen turn very dovish!
  • Gold has support at 1158 and 1142 levels – a break below 1158 may incite more selling but also rooms for a potential bear trap.

Distribution of money flow from central governments is meant to be distributed equally to the society. In an “ideal” scenario is to then have trickle-down effect to kick in – further distributing additional income and benefits – from government to banks to the whole monetary system. To date, we have mentioned the benefits that additional stimulus (QE and rate cuts) have brought to the table. It is by far the most effective solution, simply by expanding money supply and hope the ideal scenario kick in.

Communist run government – China, which run in a capitalist mind set looks to have succumbed (or put it mildly) embraced the other side. Money talks and whatever they have come to now must not unravel but continue on – there is no turning back. Mindful that the economy will take time to transition from an industrial led economy to a service one – time, policy changes and additional capital are part of the essential tools to achieve this goal. Market expectation of a strong Chinese economy as the main driver in this global economic recovery is something that will be well supported in many months and years to come. Dovish central banks and easy monetary policy is the way forward as there is no other alternative for now.

This has set the foundation for a rosy quarter 4 and provides a buffer into quarter 1 of 2016. Stronger economic data is to be expected from here on while the Fed can either take this opportunity to normalise or simply join in the party.

The irony of easy monetary policy was the creation of oversupply and inflated good numbers which has been used to shore up what looks like a great economic recovery. Many economists and politicians knew about this and they have use whatever publicity to mask that this is true and we should all believe it. It is not so funny if we were to put it in way that we are all living in a financial time bomb that is about to set off (a matter of when not if!). With the courage to act, Ben Bernanke has created a legacy of no inflation via easy money and throw everything at the economy – leaving Janet Yellen and the rest of the Fed members rather “naked” on other options. Only time will tell if Miss Yellen will also leave an awe inspiring legacy of never hiking until she passed the chair to another member.”

In conclusion, the world central banks are basically fighting hard to inflate the economy simply because deflation is so much worse. However, what they fail to realise is that additional stimulus is not the only solution here and on the contrary. It is a double edge sword, as additional money supply increase complacency that current issues can and will continue to be swept under the carpet. Today’s problem can be solve tomorrow, let us oil the machine with whatever we have so it can keep chugging away as it is too expensive or painful in the short term. Why bother with the long term consequences when there is an easy option? Fighting fire with fire – yes we have debt problem but we will fight it with debt!

Dollar Technical Outlook

So far so good and some would say rather predictable as the dollar index hinges on the very next line that central banks will say. Yes, the dollar index take all the beatings as central banks are doing what they can to jostle with the other – in the name of currency war which they masked specifically as the normal way forward. It is rather clear that dollar strength has returned and there is no masking for another week of higher dollar but we have FOMC and BOJ to take into account. If the dollar continues to rise, Yellen will be pressed to do something about it. The path of least resistance for now is higher dollar but be prepared if it turns if Yellen turn very dovish!

The much needed support came in just in time as a doji candle is form right to the tick of the long term rising trend line. As long as price action stays within the rising triangle formation, we can only assume a rebound is in place for the next few weeks. We have mentioned a couple of times that as we draw closer to FOMC meeting, the dollar should get ideal support and buyers may return – thus the reverse rotation is at play here. Weekly chart shows how the Bollinger band and price action is fast converging for an imminent breakout.”

Weekly

Daily

Gold Technical Outlook

We have gold opened at 1177.9 and that is where we started the week with a short position. Two attempts were made to push it higher at 1181 and 1179 but found sellers. It is clear for now that the 50% fib resistance for 2015 high low is the main resistance for now and sellers keep pressing short for now. Hedge Funds been long for the last few weeks and profit taking at this stage is ideal but with all the whirlwinds in the currency market and a strong dollar, gold seems to stand strong. Support for next week comes at important 1158 and 1142 levels – a break below 1158 may incite more selling but also rooms for a potential bear trap. The real battle comes in if we get a good reaction of support at 1142 levels. A fake break is sufficient for the trap to work otherwise, expect a complete move to the lower end of this bear flag.

We went short far too early and learnt the hard lesson of being stopped out. Price action rose to retest 2015 50% fib levels and broke above 1191 before it found sellers. This key level should hold and considering the recent development, a pullback to retest support at 20 WMA could be in play for the next few weeks. Weekly chart also suggest that unless we break clear above 1205, price action could pull back to the lower end of the bear flag formation. One thing for sure, the overall trend has not changed in gold and it is time for the bull to wake up and smell reality.”

Position Valid Date Price Action Stop Loss Target Results
SHORT 19th – 23rd 1177.9 Live 1193 (moved to b/e now) 1133 (moved to 1153)
LONG 26th – 30th 1142 Order Placed 1136 1220

Weekly

Daily

Silver Technical Outlook

As long as 16.23 is not taken out, silver could head lower. Current price action and structure suggest that buyers are holding on and there is no real conviction to drive the white metal lower for now. However, the landscape is fast changing to favour the down side and risk reward has certainly pointed in that direction. A spike higher here could send prices a lot higher with target such as 16.25, 16.45 and 16.75. A clean break and close below 15.60 may give sellers room to roam.

Question to ask – the current rally in silver prices is sustainable? Clearly not since it benefits from the dollar weakness but as a semi safe haven and industrial metal, it is hard to envisage that the rally can be maintained. Weakness in Chinese GDP could easily send silver prices lower next week.”

Position Valid Date Price Action Stop Loss Target Results
SHORT 12th – 16th 1608 Open Moved to b/e 14.80

Weekly

Daily

Platinum Technical Outlook

Well short covering season run out of steam and the reversal should hold true given that the dollar strength starts to kick in again. Seasonality also shows that end of October and going into mid-November has not been a positive month. We envisage a pullback here before a potential Inverse Head and Shoulder move higher.

Impressive run higher with hordes of short covering all the way up to the psychological level of 1000 and we maintain the view that a pullback is due to retest previous low. Daily chart could indicate that a double top is in place soon at 1035 levels and a pullback could lead to an inverse head and shoulder pattern in the next few weeks. Platinum will be the metal to watch in the next few weeks as it has the potential for a breakout higher.”

Position Valid Date Price Action Stop Loss Target Results
Short 19th – 23rd 1020 Live 1040 975
Short 19th -23rd 1005 Live 1040 975

Weekly

Daily

Palladium Technical Outlook

Daily chart shows a potential bull flag formation and should price action fail, then we can see deeper pullback. Meanwhile, we will hold to the one short position and moved stops lower to minimise risk. Palladium price action can be erratic and fundamentals reasoning could move market.

Position Valid Date Price Action Stop Loss Target Results
SHORT 695 Open 746 moved to 729 600

Weekly

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