Chinese GDP Determine Rate Hike in 2015 – Precious Metal Weekly

Numbers from Chinese GDP will be heavily scrutinised as it carry the next set of clues to 1) a potential rate hike in 2015 2) the current health of the Chinese economy 3) potential damage or slowdown that the market has not price in yet. The aftermath of the data usually send a strong message that the Chinese government will do all it can in terms of monetary stimulus to help the economy. Recent talk of reforms has helped to improve the internal situation in China while the rosy demand for luxury goods has certainly taken a big hit. Revenue miss and revision for 2016 sales from the likes of Burberry or Hugo Boss has affected the industry.

Meanwhile, buy back programmes among companies that are failing to report better numbers are the one and only solution to keep it relevant. Last week, we have Walmart taking a big hit on its stock prices and the banks were not doing so well either. Increasingly, we are seeing large Mergers and Acquisitions that are made to reduce competition in the industry, allowing large corporations to squeeze any last ounce of efficiency, reduce workforce by means of consolidation and improve the bottom line as it tries to steer away from liquidity problem in such dire times.

Nevertheless, equity market remains buoyant with talks among central bankers that additional measures are being discussed and stimulus this and stimulus that is the way forward. Somehow, the solution to all economic worries is through easy money and hope that things will only get better.

Looking back to 2008 financial crisis, easy monetary policy has created many asset bubbles in commodities. We have witnessed the consequences that easy money has caused – yet it has brought unemployment down; reduce the risk of domino effect, avoided catastrophic scale of economic crisis which may potentially cause world war 3. With more debt and easy money, all problems can be solved – at least in the short term. It may be too early but we are fast approaching the end of the year – with the expectation of a Santa rally like no other.

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.

Emerging markets was and still battling with a slowdown in China and on top of that, battle with commodities slump. Chinese equity rout left many questioning if this is the beginning of a hard landing. Saxo Bank Steen Jakobsen sees China in between a hard and easy landing phase as they continue to do stimulus programmes and have the opportunity to make real reform. Nevertheless, the world has to admit that China is slowing down rapidly so be well prepared for severe revisions of where the global economic growth will come from.”

Courtesy of Zerohedge.com:

Now, literally any action at all – especially including no action – by the Federal Reserve has a direct impact on the value of the U.S. dollar, and greatly determines the course of world events, and especially whether or not average people can pay the bills.

According to The Street, it is an all out currency war that will have direct impact on budgets large and small:

The stock market stays high because the Fed is not going to raise short-term interest rates. The Fed is not going to raise short-term interest rates because the U.S. inflation rate remains low. The inflation rate remains low because the value of the U.S. dollar is high. The dollar is strong because world commodity prices have fallen and have “driven up the dollar and held down U.S. import prices.”

According to the Financial Times, the last three items mentioned are interrelated. Furthermore, it now seems as if momentum is picking up within the Federal Reserve to postpone any increases in it policy rate for an extended period of time. That inaction may not be the best decision in terms of the relative strength of currencies.

[…]

According to this argument, the stock market should begin to fall because the Fed is raising interest rates

The key connector here seems to be the relationship between the value of the U.S. dollar and any action that the Federal Reserve might take on raising short-term interest rates.

The Fed is the only thing propping the stock market up – when, or if, it moves, there will be a crash, that will call bad debtors and impoverish entire social security systems. But things aren’t much better if they stay still, either. According to The Street:

[I]f the Fed does not raise its target policy rate, other countries will have to take further action to ease up further on their economic policies. The European Central Bank will extend its quantitative easing. The Bank of England will not raise its policy rates.

The Peoples Bank of China will attempt to achieve further ease so that the renminbi will fall against the U.S. dollar.

In effect, this looks like a currency war, and the world cannot afford a currency war at this time.

The Federal Reserve needs to take these things into consideration in making their policy decisions. They are, after all, the global reserve currency and they cannot avoid the responsibilities that go along with this position.

[…]

If the Federal Reserve does not raise interest rates, the value of the US dollar will fall and this will have an impact on the commodity prices of emerging nations, causing import prices and U.S. inflation to rise.

Dollar Technical Outlook

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.

Often, the dollar index does not trade below the mid Bollinger band for long and a rebound could soon kick in. Daily chart also shows a rising 200 ma that has acted as support but will they come to the rescue again for the 3rd time? We think that next week, dollar could start weak but soon found floor and made a case of a strong rebound. The catalyst will be any good sets of economic data to suggest that a rate hike is looming.”

Weekly

Daily

Gold Technical Outlook

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 change in gold and it is time for the bull to wake up and smell reality.

By studying the weekly chart, a close above 20 WMA is often a 50/50 scenario where gold could propel to the top of the Bollinger band (in this case 1205 levels) and it could well target the 50 WMA at 1180 levels before finding some resistance. We are not sure what the catalyst might be for higher prices unless we see a larger dollar sell off here and we are looking to short if prices do reach the higher target.”

Position Valid Date Price Action Stop Loss Target Results
SHORT 12th – 16th 1176 Order Placed 1186 1136 -10
SHORT 12th – 16th 1163.5 Order Placed 1173.5 1133.5 -10
SHORT 19th – 23rd Open Order Placed 1193 1133

Weekly

Daily

Silver Technical Outlook

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.

In general, global commodities market is reviving in a dead cat bounce scenario and this is a short term rally across all asset in this sector. The short squeeze continues but we envisaged that next week is the start for Silver to break lower.”

Position Valid Date Price Action Stop Loss Target Results
SHORT 5th – 9th 15.55 Order Placed 15.65 14.65 -10
SHORT 12th – 16th 1608 Open 30 points 14.80
SHORT 12th – 16th 16.45 Order Placed 16.75 14.80

Weekly

Daily

Platinum Technical Outlook

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.

Platinum weekly chart shows a perfect RSI divergence that took weeks to materialise. The bounce could lead to higher prices in the short term but once it found resistance then we may continue lower.”

Position Valid Date Price Action Stop Loss Target Results
Short 12th – 16th 1010 Closed 1020 920 -10
Short 19th – 23rd 1020 Order Placed 1040 975
Short 19th -23rd 1005 Order Placed 1040 975

Weekly

Daily

Palladium Technical Outlook

No change in our commentary and the weekly chart shows that 200 ma is acting as strong resistance but any more retest higher will be met with stronger sell order. Rocket Palladium – short busy covering here and no doubt it is a buyer’s market for now. However, we do expect this impulsive buying to end and corrective pullback to ensue.

Position Valid Date Price Action Stop Loss Target Results
SHORT 736 Order Placed 746 600
SHORT Open Order Placed 746 600

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.

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