Bad News = Equity Higher – Inter Market Analysis

Risk On

  • HSBC cuts treasury yield forecast – said the Fed won’t be as aggressive in raising interest rates (dovish)
  • Rolls Royce push Asian Manufacturing plans – expansion with a future plan of cost cutting
  • Largest producer of industrial bags said 3rd quarter earnings rose by 27% / UK home sales rose at fastest pace (more hot money from China or taking advantage of low fixed mortgage rate before rate hike?)
  • Poor to negative data from Germany and Deutche bank – more stimulus needed
  • BOE may not be able to rate hike with a set of poor data from Eurozone counterpart (dovish)
  • Bank of Korea is maintaining appropriate accommodative monetary policy

Risk Off

  • Financial media continue to circle around the domino effect of VW scandals and future damage
  • Asian shares open mixed after several days of gains – China play catch up but did not put in an impressive run despite more stimulus
  • German exports slump most since 2009 recession – the China effect is playing catch up – safety in Bunds saw bid today – Euro broke and tested 1.13 adding risk off sentiment
  • Bank of France cuts Q3 GDP to 0.2% / German institutes cut GDP to 1.8% from 2.1%
Equity market in consolidation mode at current high despite series of negative risk off news – support for higher prices came in time (almost as if there is strong interest to keep the current momentum going). We envisaged a delayed effect for equity market to play catch up to the negative news – pullback is healthy for higher 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 hours

Dollar fallout continues given the lack of support in recent economic data that could support the reason for a mere 0.25% rate hike. Yes, it sounds pathetic but the overall trend remains in a lower high and higher low formation of a a rising wedge (daily). Only a clear break from the triangle will determine the next directional move. We see short term support as the 4 hour chart show a small RSI divergence.

German Bund

Daily

4 hour

As it approach close to the daily 200 ma, bunds find buyers – with the 4 hour chart confirming a break below the Bollinger band as the signal for profit taking by the less convicted short sellers. Talk of additional bond buying programme from the ECB may have spooked traders to bail early. However, we think that this could be a temporary bounce of AB=CD which could lead to further weakness.

Bunds price action is fast approaching the daily 200 ma which confluence with 20 dma as potential support zone. A break below will target the 50 dma – weaknesses on the Bunds haver instigated more risk on trade – and we cannot rule out further weakness here.”

Eur/Usd

Daily

4 hour

This could be a potential fake breakout from the triangle pattern – unless we see a big thrust higher, the Euro is still susceptible to a sell off.

Note on the daily chart price action has produced a lower high and higher low – converging in a symmetrical triangle – potentially could see a breakout. Meanwhile, the 4 hour chart is also showing a potential bear flag formation with an AB=CD. Fed meeting minutes could give some short term directional play.”

German Dax

Daily

4 hour

No change in view here for one more push higher.

Daily chart is very bullish and there is room for higher prices as we break through the psychological price level of 10000 – initially targeting 10200 as long as the Euro dollar trade does not break higher and assuming the Bunds weakness continues. Again, we think a pullback will be healthy.”

Gold

Daily

4 hour

Gold on course for a pullback as buyers were unable to break above 1155 – sellers re-entered and this pullback could take us to test for the daily 20 ma support. As long as the pullback is corrective, we cannot rule out another move higher.

Silver

Daily

4 hour

No change in our commentary as we see pullback for now – targeting the daily 20 ma.

Daily chart, silver looks overextended although it still has a bullish momentum as it trade above the 20 ma and 50 ma crossing. However, we are leaning to short term pullback to retest support zones before another strike higher. Right now, we are waiting for daily chart to confirm a short trade for this pullback since it hit the daily 200 ma and often this is a big resistance.”

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