December Rate Hike Tantrum? Inter Market Analysis

Summary

·         Euro-area economic confidence rose in October – will this derail the need for more stimulus? We don’t think it will.

·         Deutsche bank to shrink workforce in a revamp / trading revenue rises as write-downs cause loss.

·         China Li see 5 year growth at a minimum of 6.5% and lifted the ban of one child policy to boost growth. Things must be so dire…

·         Watch out today for US GDP numbers with expectation of 1.6% with previous 3.9% also Pending home sales that is forecasted to come in higher than previous.

·         Shell posts biggest loss in at least a decade is a testament on its own – suggesting that there are further troubles ahead.

·         Fed no change in statement but pushed the idea for a December rate hike. Not sure how convicted they are but dollar bull is back in control – it does look like a time bomb and all the gains could easily reverse hard if Federal Reserve do not deliver.

·         Based on the above stance by the Fed, we see a rate hike tantrum which could result in fear in equity market before we undergo a last minute Santa rally.

·         BOJ is next in line and if we do not get any additional QE, a reversal could start.

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

Big change in the FOMC statement as several concerns or conditions that stop a rate hike is no longer in the text. Worry about external conditions was nowhere to be seen. Dollar bulls had a jolly ride higher – as the daily ascending triangle pattern continues to work in harmony. We have 1 more month before the next big Fed meeting with Live conference – so expect another roller coaster ride.

The dollar index is lining up on its usual stance that a rate hike could happen in this statement or at least giving an indication that the Federal Reserve is ready to do so. Yellen promised one hike for 2015 and the consensus says she is to disappoint – thus the dollar index has not priced in a rate hike scenario or has it?”

German Bund

Daily

4 hour

We may have the exhaustion point and a pullback in due course. Everything is lining up for ECB big QE announcement that will not disappoint. The market will usually kick out all weak longs and return to previous high before the announcement. Key support remains at the 200 daily ma if investors are looking to buy the dip.

With the high expectation of additional QE, this is a one way street for the bunds. The 4 hour chart indicates possible bull exhaustion and a pullback will indeed be very healthy for the market place. Without a blow off top confirmation, price discovery can continue higher.”

Eur/Usd

Daily

4 hour

Post FOMC and the bear flag broke lower – creating a RSI divergence on the 4 hour chart. However, that meant nothing for now as sentiment remains sour and the bears are in firm control. We think that the US dollars has rooms to consolidate but as per many central banks announcement – a violent move can happen again into BOJ press conference.

Overall trend remain bearish and traders are staying flat until they hear more about the FOMC statement. Dovish dollar statement could easily send the Euro flying in reversal as it continues to trade in the large bear flag. Otherwise, the opposite is true – stronger dollar can finally be the final straw that took the euro down to lower numbers. Afraid we have no crystal ball to predict the future here.”

German Dax

Daily

4 hour

Dax broke higher as lower time frames suggest an small inverse head and shoulder with a target of 10920 that was reached. There is no questioning that Dax can still target 11100 to 11200 in the next few weeks. Daily price action could play out a wave 4 pattern here before one more spike higher or a complete AB=CD formation.

We have a bull flag formation on the 4 hour and price has broken out of it. Price action this morning was to trap short at 680 levels and despite VW large losses, investors snapped up a quick rally – either a short covering before the FOMC or real buyers are stepping up again here. A pullback from here is still an ideal scenario to reload on longs to go higher.”

Gold

Daily

4 hour

Post FOMC statement gave the dollar big boost and with gold spiking as high as previous resistance zone at 1182. Sellers re appears on the news that the Federal Reserve is considering a rate hike in December. Equities rally and safe haven commodities are sold off.

The yellow metal looks ready for a launch higher. Bull flag in the 4 hour chart and support at 1158 remains solid. Potential projection is to take out 1180 and previous high for 1200 and higher. Medium term outlook, we will look to short any spikes.”

Silver

Daily

4 hour

Similar to gold, the white metal is poised for a break higher here but failure could spell trouble in the weeks ahead. A big spike could well be a decent opportunity to short.

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.”

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