· US China South China Sea just another show in the making or we might see something bigger?
· Turkey general election – could it sway the public or cause more destabilization?
· Spanish economy (the poster boy) slows in 3rd quarter – Draghi needs to step up here?
· ECB officials been out all week – playing down the need for more QE at this stage
· USD selling as Chinese Yuan strengthen most since 2005 (onshore trading)
· Banks see slow gain as Europe’s new bank CEOS expect grim years – how bad can it be? More job cutting and frozen dividend? Cost cutting programmes underway?
· RBS investment bank loss almost doubles
· Shell leads $19 billion of gas and oil write downs – does this not sound similar like CDS back in 2008 due to overvaluation?
· Global equities paving way for best monthly gain since 2009 – Santa rally is here already?
· BOJ Kuroda no change but have additional ammo if needed – lower projection in growth and inflation numbers – oil dependant
· Asian equities pare back gains with end of week and month end book squaring
Extra Stimulus has yet to kick in but wary of the build up to Santa rally
Multi Time Frame Analysis
The daily dollar chart may have indicated bull exhaustion and pullback is in the cards. We could play out a mini zig zag consolidation mode or a severe run lower though we think it will be in a controlled manner. As indicated in the chart, there are several possibilities that the dollar index could play out in the next few weeks before more central banks speeches and intervention.
“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.”
We have a Thursday sell off and current price action is retracing to at least 50% or 61.8% fib before it self another directional play. Our biased is for lower numbers into the weekend with decent support off the lower Bollinger band of the 4 hour chart as well as the 100 ma.
“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.”
Euro is now trading within a nice downtrend channel and may have found support but we cannot rule out a break lower. The momentum for lower prices is there and sellers been rife to make sure that parity is achievable soon. Mind you, the short trade may have gone heavy here and one sided so a snapback could splash some reality that market does not go in one straight line but zig zag (maybe the new normal is different).
“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.”
No change here unless we break below 10680 to invalidate the move higher for a small pullback. The current thesis is that we could see a weak euro – this will fit in with higher dax before a more severe sell off. The high at 10920 stands out as it is close to psychological level of 11000 but higher target of 11200 is still valid.
“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. “
Gold has returned to its 50% fib on the overall move higher and decent support can be seen at 1140 – 1150 levels. Taking another look on gold, there is a slim possibility that price action maintain within the bull flag channel but as we mentioned, this is slim. A bounce back could spark interest again.
“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.”
We have the big spike mentioned and sellers are back once again. The once buoyant look has been tarnished while the weekly chart indicates that deeper pullback is on the cards. Rallies continue to be selling opportunity until proven wrong.
“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.”