Cliff Wachtel's  Instablog

For full details see: KEY MARKET DRIVERS FEB 7-11: Continued Stimulus Hopes Keeping Markets Aloft

The Big One: Stimulus –Fueled Upward Momentum Continues To Dominate Markets: There was plenty of bad news last week, but this overrode it and kept markets from taking profits after the prior Friday’s steep selloff.

Secondary Market Drivers: Good earnings, not-so-bad monthly US jobs report, encouraging news from Germany and Australia, and a relatively successful Portuguese bond sale

For full details see: KEY MARKET DRIVERS FEB 7-11: Continued Stimulus Hopes Keeping Markets Aloft

The Big One Again: Stimulus –Fueled Upward Momentum Likely To Dominating Markets: A lighter economic calendar suggests less potential for bad news, meaning an easier time for upward momentum to keep on rolling.

For Forex

• Continued risk appetite favors the EUR and other currencies that rise with stocks and other risk assets. However the EUR has some special headwinds.
• Last week, Trichet’s dovish (though correct)dovish remarks reduced expectations for interest rate hikes
• The EURUSD is still overbought in the short term and vulnerable to a correction to around the 1.3300 zone from its prior week close around 1.3580. Rising US bond yields are making the USD more attractive relative to the EUR

Asia: Watch for additional signs of China tightening & trade balance data Aussie jobs, retail sales data,

US: None

Europe: Lots of German data, which alone can carry the rest of Europe no matter how dire the overall picture as Germany is expected to fund or guarantee much of the future bailouts either to states or banks holding restructured or completely repudiated sovereign debt.

UK: BoE rate decision to be watched for hints on how it will balance between the need to fight inflation via raising interest rates and the need to keep rates low in order to avoid crippling the UK’s slow recovery that is already burdened with public austerity spending cuts.

United States: No really first tier events, leaving the USD to flow with non US events as earnings season loses influence

Monday – Dec. Consumer Credit

Tuesday – Jan. NFIB Small Business Consumer Confidence, Feb. IBD/TIPP Economic Optimism

Wednesday – weekly ABC Consumer Confidence – Feb 4 MBA Mortgage Applications, Bernanke testifies at House Budget Committee

Thursday – Weekly Jobless Claims, Dec. Wholesale Inventories, Jan. Monthly Budget Statement

Friday – Jan. Monthly Budget Statement, Dec. Trade Balance, Feb Prelim. U. of Michigan Confidence

Euro-zone: Lots of important German Data, and German data carries extra weight and can turn markets optimistic about the EU even if most members are struggling

Monday – Sentix Investor Confidence, ECB’s Weber speaks in Tallinn, ECB’s Mersch speaks at Luxembourg Event, German Dec. Factory Order

Tuesday – German Dec. Industrial Production

Wednesday – German Dec. Current Account, German Dec. Trade Balance

Thursday– ECB Feb. Monthly Report, European Financial Services Conference in Brussels

Friday – German Jan. Final CPI

United Kingdom: BOE rate decision is the main event because it might yield hints about how the UK plans to balance inflation fighting vs. the needs of a struggling economy for continued low rates. Friday’s inflation data also may affect how likely rate hikes appear to be. Our take, no rate hikes coming any time soon for the same reason the Fed and ECB won’t do them – they risk hurting fragile recoveries.

Monday – Jan. RICS House Price Balance

Wednesday – Dec. Total Trade Balance

Thursday – BOE Rate Decision, Dec. Industrial Production, Dec. Manufacturing Production, Jan NIESR GDP Estimate

Friday – Jan. PPI Input & Output

Japan

Monday – Dec. preliminary coincident and leading index CI

Tuesday – Dec. current account total, Dec. trade balance

Wednesday – Jan. consumer confidence, Jan preliminary machine tool orders

Thursday – Dec. machine orders, Jan. domestic CGPI

Canada

Monday – Dec. building permits

Tuesday – Jan. housing starts

Thursday – Dec. new housing price index

Friday – Dec. international merchandise trade

Australia & New Zealand: Aussie jobs data the next big domestic data to confirm RBA optimism and hawkishness

Tuesday – Australia AiG performance of construction index for Jan., Jan. ANZ job advertisements, Dec. and 4Q retail sales

Wednesday – Jan NZ card spending, Australia’s Westpac Consumer Confidence index

Thursday – Jan employment change, unemployment rate

Friday – NZ Jan food prices, RBA’s Stevens speaks before Parliament

China: Tuesday – Jan. HSBC Services PMI Wednesday – Jan. Trade Balance

Either stick with the uptrend or stand aside. Bears should not attempt shorting risk assets until we have both:

• Further signs of technical weakening
• New fundamentals to drive a sustained move lower

• The daily charts of the S&P 500, EURUSD, EURJPY
• Key commodities: any sustained pullbacks or sudden sharp drops are a major warning
• PIIGS bond yields: the EU crisis is likely to stay quiet as long as these are stable or falling.  Any sudden spike in yields or CDS prices is a huge red flag

The ongoing bias to risk assets and against safety assets ( like the JPY, USD, CHF and their  related AAA sovereign or corporate bonds) means:

• Avoid short positions until there is new evidence of a sustained move down in your preferred trading time frame.
• Anyone planning on holding a position longer than a few days should avoid shorting until we see bearish fundamentals driving markets lower and confirmation of said reversal by bearish technical indicators.
• In particular, for my binary option traders with time horizons of longer than a given day, the higher probability trade is to stick with the upward trend in risk assets.
• If you want to attempt to play the downside, do so with low or no leverage instruments like ETFs and careful use risk management tools like small, incremental positions, and stop losses.

For a full listing of calendar events, their relative importance, previous and forecasted results, see www.forexfactory.com >> calendar tab.

DISCLOSURE & DISCLAIMER: AUTHOR SHORT THE EUR FOR PERSONAL PORTFOLIO. THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER