The Confused Rally – Inter Market Analysis

Risk On

  • Fed minutes remain confusing but slightly to the dovish scenario until a rate hike is announced
  • Noble group jumps 14% after seen overhauling its metal business
  • Asian stocks higher – Rupiah and Ringgit in a counter rally for the best performing currency
  • Dollar weakness in the short term is a welcome boost but will this last?

Risk Off

  • Lagarde – Expect Chinese economic transformation to be bumpy
  • Disselbloem said Fed delay to normalisation increases difficulty
  • Background noise from the Fed minutes that we have the pre-conditions for a rate hike in 2015 is still on the table
  • Talk of M&A is very much a way to consolidate and cost cutting efficiency rather than business expansion
  • UK trade deficit hits £ 11.1 billion in August – higher than forecasted
  • UK government cutting stakes in Lloyds and preparing another sales in RBS shares
  • Alcoa earning comes in worse than expected
  • Glencore cut Zinc out of its portfolio – axed jobs
  • Saudi Government led cost cutting across the nation
A confusingly dovish yet hawkish (some called balance) Fed report has left traders asking the question later. Instead, we saw panic buying on the equity front as dollar tumbles and bets on a rate hike in October is pretty much squashed. Talk of additional stimulus remains to front run this rise in prices but we remain on the side that Fed minutes did point out that pre conditions are met for a rate hike this year. Yes, inflation numbers across the global economy has somewhat stagnated but we cannot assume that it will not start to kick in on the 4th quarter after so many negative news.

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

With a dovish Fed minutes, dollar bull head for the exit. The real question now is – will the dollar index find support as per previous sell-off given the lack of “conditions” for a lift off despite some Fed members jawboning action of “we now have all the pre conditions for a rate hike in 2015”. The daily 200 ma will be a good test and failure there will see another set of support from the rising triangle.

German Bund

Daily

4 hour

Bunds are trying very hard to stay above the daily 200 ma and if we have a strong bounce here, we may have a W recovery to retest previous high. We also added another scenario that an AB=CD formation could play out but only if price break below the daily 200 ma. One thing for sure, the short term selling seems to have abated so an early warning signs for sellers.

Eur/Usd

Daily

4 hour

After much deliberation and retest of the breakout, we have the thrust higher on the back of dollar weakness. The run higher look to have play out and we could see pullback here (otherwise it could invalidate the bear flag formation). Given that the dollar is soon into support, we will look out for a blow off top to instigate selling euro.

German Dax

Daily

4 hour

Trading above the psychological level of 10000 has helped build a case that Dax can break higher to retest previous sell zone of 10200 – 10250 levels. We will not rule out test higher but are worried it is in danger of overextended as panic buying ensues despite sets of poor economic data. Despite a stronger Euro, DAX remain steadfast for higher prices but we sense a pullback is due.

Gold

Daily

4 hour

The pullback is limited to 1138 and we now have another thrust higher as per mentioned previously. One of the concerns is the lower time frame is signalling a RSI with a bearish divergence. Yes, price broke above 1156 and on a 1 month high but the real question now is if we get a follow up buying. Otherwise, we could start to short on any spikes.

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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