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.”

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