Permanent Turnaround In The Dollar? Inter Market Analysis

Risk On

  • Dead cat bounce overnight across the global equity market – Asian market closed higher and European markets opened strong – market is embracing Risk On sentiment
  • Chinese stocks rose as government plan to reorganize telecom industry with policy changes
  • Fortescue Metals says demand for its Iron ore remains strong
  • Japanese PM Abe asks Blackrock to help Japanese companies to spend – very interesting intervention
  • Retails sales number from Singapore came in better than expected but Indonesia export and import growth certainly shows slow down since trade balance is a lot higher than previous month
  • Unilever sales beat analyst estimates
  • ECB Nowotny says additional sets of instruments are necessary – triggering euro sell off (missing inflation target and core inflation below our target)
  • Any more bad news = dovish central banks = higher equity market

Risk Off

  • Poor Australia employment numbers at -5.1 k against the expected positive number. Unemployment rate came in as expected
  • HSBC cuts pay of hundreds of London employees
  • Burberry slumps on profit outlook after Asian sales drop – more poor earning expected from luxury industry
  • Hedge Funds continue to short on Glencore to slump as falling commodity prices weigh on its finances
  • Poland in deflation but paint a rather positive picture that things will eventually pick up …
  • Despite dollar weakness and stronger risk off trade in higher Euro and Yen – equity market seems to be holding up well
A rebound in equity market as long as China make a positive steps to policy reform or promise of additional stimulus – US and European market could rebound higher if we see pullback in Euro and Yen strength. VIX index has found support but unable to rebound higher for now. However, we remain cautious as we have OPEX for tomorrow and a run up higher before reversal could remain in play.

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 long dollar trade have been an overcrowded one and we are repeating ourselves here that market perception may have shifted on no rate hike in 2015. The 50% Fibonacci retracement from May 2015 low to September 2015 high failed as support.

A breakout was a short lived bear flag formation and weakness could continue from here unless price action managed to find a double bottom type of support or at least a retest of the daily 200 ma. With no incentive for a rate hike, the dollar bull continues to exit in this crowded trade.”

German Bund

Daily

4 hour

Price action broke above the key resistance levels and also broke above the psychological level of 157.00. There is more room for higher prices although we are starting to feel that a pullback is due.

Bunds had the pullback that we mentioned yesterday and buyers showed up again although it has yet able to break past the resistance at 156.70 levels. A break and close above is necessary to see higher prices while we could expect a short term consolidation first.

Eur/Usd

Daily

4 hour

Why fight the trend that says it has room to go higher? Although we much prefer a pullback which was given correctively, the price action suggests that there are more rooms to take out previous resistance.

No respite here as the Euro continue to unwind the short – dollar weakness only add to the break higher but on the 4 hour time frame we may have to assess if it needs a pullback first. The buying is not impulsive and we see how price action is building strong staircase of support. Seasonality of dollar weakness also spurs demand for the Euro trade.”

German Dax

Daily

4 hour

The 100 ma on the 4 hour chart gave good support and price have since rose higher – in fact the 4 hour chart show a break out of the bull flag formation despite a strong Euro and Bunds. A daily close with that green candlestick will certainly put the bears in question.

Dax close below the psychological level of 10000 as per mentioned yesterday and the selling has been rather orderly. There was no impulsive move to the downside though on a technical level, a break below the 4 hour 100 ma may take prices lower to test 9700 levels.”

Gold

Daily

4 hour

With no threat of a rate hike and dollar long running for the exit, the long gold trade has been revived. Current price action has reached an important juncture here and big resistance. Any false break here could easily send the yellow metal lower again.

Gold continues its move higher – breaking past 1 month high and running at its best for the year. The pullback was corrective and talks in the market are for higher prices. We remain sceptical and any news that revives the rate hike talk will certainly throw the bulls a cold hard reality splash. Price action is touting the Fed for delaying rate hike for 2015.”

Silver

Daily

4 hour

Daily chart has a diverging RSI that could well give early signal of a pullback. The steep buying and short covering process has certainly sparked many to forecast astronomical prices as they argued that silver is biding its time here. Price action will tell us the next move from here on.

Perfect alignment with a potential triple top around 16.10 levels after price action retest with an RSI that was diverging heavily thus sellers dominate. Dollar come to short term support could easily push Silver lower as per previous commentary.”

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