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GLOBAL OUTLOOK Cheat Sheet 11/05: Asset Covering Ahead of Major Events



GLOBAL OUTLOOK Cheat Sheet 11/05: Asset Covering Ahead of Major Events5 11 2009

GLOBAL OUTLOOK Cheat Sheet 11/05: Asset Covering Ahead of Major Events

- Stocks: Wednesday: Asia up, Europe up, US flat, Thursday morning Asia, Europe down

- FX: Lower/flat equities Thursday, bias to safety currencies [JPY, USD, CHF in order
of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in order
of risk appetite appeal], USD gains against all majors except for JPY,

- Main events today: NZD: RBNZ Gov Bollard Speaks, AUD: Trade Balance, Gov. Stevens speaks, GBP: Mfg Production m/m, Asset Purchase Facility, MPC Rate St., Official Bank Rate, EUR: Minimum Bid Rate, ECB Press Confr. CAD: Building Permits, Ivey PMI, USD: Unemployment Claims w/s

- Big Theme: Falling risk appetite – normal retest or the next leg down back to November or March support? Rising thus far this week. See Conclusions below for trading opportunities as many assets approach or breaching key levels. Light news Tuesday produced small moves except for gold and oil arising from special events (SEE BELOW) News-packed Wednesday. TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, NEWS WEDNESDAY-FRIDAY TO DECIDE

STOCKS

US: While the US employment data didn’t move markets, the latest FOMC policy statement and a weaker dollar helped bolster buying in stocks, but some late selling caused stocks to rollover in the final hour and close near the neutral line. Events today & Fri. days critical. See Full Version for Outlook For Non Farms Payroll Report

Asia: Asian stocks markets dropped Thursday as the U.S. Federal Reserve failed to reassure investors that a lasting recovery in the global economy was taking hold, and investors booked profits on caution ahead of BoE, ECB statements US jobs data.

question on investor confidence given issues about the sustainability of the global recovery once stimulus policies fade

Europe: European shares were lower on Thursday ahead of interest rate decisions by the Bank of England and the European Central Bank, with banks and commodity stocks the biggest losers.

ASIA- UP N225I +0.42% HS +1.76 % SSEC +0.46 FTSTI +1.03% AORD +1.24 %
EUROPE UP FTSE +1.40% DAX +1.70% CAC +2.40%  
US- FLAT S&P +0.10% DJIA +0.31% NASDAQ -0.09%    
THIS MORNING N225I -1.29% HS -0.63 % SSEC +0.85 FTSTI -0.61% AORD -0.62 %
  FTSE -0.95% DAX -1.28% CAC -1.12%  

COMMODITIES: Up Wednesday & Thursday morning despite mixed stocks as India’s central bank’s gold purchase from the IMF

Oil: prices hovering around $80 a barrel Thursday in Asia & Europe. Although crude normally follows equities, yesterday it decoupled from stocks and followed gold higher.

Gold: TOKYO, Nov 5 (Reuters) – Spot gold inched lower on Thursday but remained within striking distance of the $1,100 level after

hitting an all-time high for the second straight session on a weak dollar the previous day. Climbing in midday trade.

CURRENCIES: Bias to safe-haven currencies due to overall downtrend in stocks. FX trade today will move with how stocks react to the major news events mentioned above. With the RBA and the FOMC out of the way, attention now turns to the BoE and ECB. No policy changes anticipated from the ECB.

USD: Dropped against all majors except the JPY, under the combined pressure of rising stocks and commodities as well as a dovish FOMC statement. The dollar also suffered its biggest day loss in about 8 weeks. Thursday’s action likely to be dominated by the EUR on hopes the ECB will be a bit more hawkish.

EUR: - EURUSD initially gyrated for a period before finally heading higher Wednesday, making its biggest one day move in about 2 months, closing at 1.4829, then rising slightly in Thursday morning trade. No change expected from today’s ECB policy statement, given that even the policy Hawks such as Governing Council Member Weber, have emphasized that it is still premature to implement an exit strategy. Asset markets are likely to remain choppy as more investors look to lock in profits heading into year-end, which would benefit the dollar and as such, we maintain our 1m short bias for the EURUSD, and forecast a level around $1.45.

JPY – Losing ground against most of its counterparts. We remain cautious on JPY performance and look for USDJPY to remain choppy around 90 in the near-term.

GBP – Up against the USD, yesterday, currently is pulling back a bit Thursday morning, losing ground against the EUR yesterday and today.Most analysts anticipate more QE- but have markets already priced this in?

AUD: critical monthly Retail Sales data was much worse, -0.2% vs. a forecasted +0.5%. If employment figures are also weak, the RBA might consider deferring or decreasing rate increases until recovery looks more solidified. Retail sales and then the subsequent jobs reports will be major factors in the RBA’s next decision, it’s now less certain that we’ll see one more 25bp hike in December. AUD will likely remain closely linked to risk sentiment for the balance of the year. Stevens’ statement hinted rate increases could be more gradual.

NZD: Closed unchanged Wednesday against the USD. Bollard tries to talk up the AUDNZD.

CAD: Unchanged from Tuesday.

CHF: Following overall risk sentiment, thus the CHF has been in a tight range. SECO Consumer Climate better than expected

CONCLUSIONS: Proceed w/ caution waiting until trend clarifies before entering new positions as S&P 500 sits at near term support. Bias still towards seeking risk aversion plays, but JPY and USD vs. riskier currencies when these breach resistance or support., short oil gold when breach support. See below for specific opportunities with CRUDE, GOLD, EURUSD, NZDUSD, AUDUSD, GBP/USD (big today)

Trading Opportunities: Near term favors SAFE HAVEN currencies, shorting risk assets. Thus: 1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts. Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.

GOLD: Continuing to hold near multi-year highs independent of movements in equities, purely on speculation that other central banks and other large buyers may do the same. It is difficult to predict the extent or duration of such a sentiment driven move into new territory. However, if news over the remainder of the week is strongly bearish for equities, it is difficult to see how oil and gold could continue to rise. Inflation would not be seen as a threat, thus undermining further gold advances. Crude inventories remain high, so there is no immediate problem with supplies that might drive oil higher, especially if the recovery picture does not improve. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher.

Crude Oil: Up slightly Wednesday near $79.50, unchanged in early Thursday trade. Still following the speculative rush into gold following India’s central bank bullion purchase despite stocks struggling. Next resistance is at $82. The combined price support around $77 has held over the past week. If the series of key news items over the next 3 days does not cause any surprises, then we might expect crude to trade within this $77-82 range. Positive surprises could cause crude to challenge the $82 level, and disappointments, especially in those related to unemployment, could pressure it towards $77 and below. If the FOMC surprises with a more dovish than expected statement, that would weaken the USD and thus help crude, whereas a more bullish FOMC wording could push the USD up and pressure oil. Watch the S&P and gold to see how news is affecting the markets and crude.

image001

WTI Crude Oil Daily Chart

02 Nov 04

EURUSD: Broke decisively above the key $1.4700 support level (50 day MA + 23.6% Fibonacci retracement from its June rally, also lower BB band around 1.4657) on dovish Fed comments Look to play this break above this upside break to at least 1.4845, the high of the past few days, or if more bad news or drops in global equities, a break below to at least the lower Bollinger Band at around 1.4653, next support at around 1.4600, a convergence of past price support AND just above the 38.2% Fibonacci retracement from the June rally at 1.4565 . If gold and oil continue to move up on speculative pressure independent of equities, that could pressure the USD and drive this pair higher. Similarly, if gold and oil drop back the USD should strengthen and pressure the pair lower, though much depends on what equities are doing at the time. Note that like other risk assets it’s pulling back Thursday morning, not unexpected as traders turn cautious ahead of ECB, BoE statements today and US employment data Friday

image0021

EURUSD DAILY CHART

02 Nov 03

NZDUSD: THE TRADE FOR THE NEXT 2 DAYS

Update: Virtually unchanged for the past 4 days around 0.7180, dropping slightly into Thursday

Background: Arguably one of the most overbought pairs because it moved up with the AUDUSD even though New Zealand’s economic fundamentals and recovery story was not nearly as compelling as Australia’s. Thus when the current pullback began, it was very vulnerable and came in hard and broke strong support near the $0.7250, where both its 50 day MA AND 23.6% Fibonacci retracement converged. Currently sitting on multiday support around 0.7160, it is currently falling (despite positive Labor Cost index q/q data this morning) and testing this level as Asian stocks pull back, apparently unimpressed by Wall Street’s last minute rally on below average volume.

Recommendation: No real support until $0.7077, at which level both a minor price support level from September and the 38.2% Fibonacci retracement converge to reinforce each other. No major NZD or USD news Tuesday, so this will move with overall market sentiment, which is currently down in Asia. However Wednesday is packed with top events in both the US and NZ (see Summary-Key Events at the top) to virtually guarantee volatility.

To play the further drop, entry near current levels as shown on the chart below while sufficient profit potential remains before the $0.7077.

To play the upside, wait until stocks start climbing on some substantially positive news that could sustain a multi-day bounce, and the pair breaks above $0.7160. Wednesday’s packed calendar should provide clarification of the trend until Friday’s US NFP comes out.

As noted above, if gold and oil continue to move up independently of moves in equities, that could pressure the USD and drive this pair higher. Similarly, if gold and oil drop back the USD should strengthen and pressure the pair lower, though much depends on what equities are doing at the time.

NB: See a daily chart of the AUDUSD, and note the similarity. Those seeking to trade this pair could apply the above mentioned indicators and comments.

image0031

NZDUSD Daily Chart

03 Nov 04

GBPUSD: Made its big move up in Mid October because the BoE hinted at QE ending sooner than expected. If in fact Thursday’s statement reveals further QE, especially if it’s the full 50 bln that many anticipate, that might cause the pair to drop to at least the 1.6300 support level it held after the terrible Q3 GDP figures. If the US employment figures disappoint on Friday, the general retreat in risk assets could send the pair back toward the deeper support level at 1.5800 that it held before the BoE jawboned the pair higher on pure talk.

image004

GBP/USD Daily Chart.

BoE announcement of additional QE, along with disappointing US employment data on Friday could send it back to its mid October levels around 1.500 as part of a general retreat in risk assets, and flight-to-safety driven USD demand. Any upside surprise in either event could well send the pair higher.

02 Nov 05

OTHER HEADLINES

Fed Likely to keep key interest rate at record low

Oil falls to near $79 despite US crude supply drop- AP

Disney says China approved Shanghai theme park- AP

GM board decides to keep European Opel unit- AP

Auto sales show industry beginning to stabilize- AP

Rising commodities, deal making lift stocks- AP

Sprint laying off part of wholesale division- AP

Oil prices rise as Fed meets on interest rates- AP

Factory orders rise 0.9 percent in September- AP

(Seekingalpha.com)

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Today’s FOMC Meeting: Extended Life Support for Markets?

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.