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12/17 Best FX Trades As USD, Oil Rise, Gold, Risk FX Fall


NB THE BELOW IS A VERY ABRIDGED VERSION, FOR FULL DETAILS SEE THE FULL VERSION OF THE 12/17 DAILY GLOBAL MARKETS OUTLOOK AT:

http://fxmarketanalysis.wordpress.com

 S&P 500, in tight range continuing its consolidation around 1100. It's been in a horizontal trading range of 1090-1112 since early Nov. later Liquidity and low rates support stocks and other risk assets as cash seeks a parking spot, but questions on valuations and still poor fundamentals weigh against stocks, and have many believing the rally is in trouble and that a bearish double or triple top is forming. Dubai again reminds markets of real risk of sovereign debt default from Greece, Spain, and now Austrian banks. However, recent good jobs and spending figures in the US, along with continued China growth, suggests valuations may not be so overdone, upping the chance that the S&P may be able to avoid a major pullback for now. See Trading Opportunities section below. Traders should consider going with the current trend but be ready for pullbacks. See below for specific opportunities with the S&P 500, CRUDE, GOLD, EURUSD, NZDUSD, and, & GBPUSD, USDCAD, USDCHF

Trading Opportunities:  S&P 500 consolidating but still well within its up-trending channel, though as yet this remains more of a stabilizing than robust move back upwards. Always use sell stop orders. See recommended trades below

Specific Trades: Unchanged since prior report Thursday. Next move likely on US retail figures at 1:30 GMT. Flight to safety has stopped for now, slight reversal back to risk assets, thus a good time for traders awaiting resumption of long positions in risk assets and higher yielding currencies to consider opening positions. Note however, that sovereign debt remains very much a concern, with Dubai in possible default as of Dec. 14th

S&P 500 & Risk Assets In General: Essentially unchanged from yesterday. Horizontal range trading between 1080-1112. Down slightly, continuing consolidation around 1100 despite Dubai bailout, improving US jobs, spending, though markets cautious ahead of Fed meeting Per the S&P 500, likely continuing higher for now as we get Dubai bailout and confirmation of improving US recovery. Implication: Despite struggles and concerns ahead, uptrend line clearly intact, suggesting we retain our ambivalent long bias until the trend tells us otherwise, though the trend is flattening out.

The overall bullish picture of risk assets as per the S&P 500: The S&P 500 back near 12 mo highs of 1112 after great consumer data Friday, and has also regained the middle of its rising channel, suggesting more upside coming for risk assets if it can hold above 1100. It's been in a horizontal trading range of 1090-1112 since early November. We need to see if it can make a sustained break above 1100, Dubai bailout news, along with good jobs and spending data may do the trick. Liquidity and low rates support stocks and other risk assets as cash seeks a parking spot, but questions on valuations and still poor fundamentals weigh against stocks, and have many believing the rally is in trouble and that a bearish double or triple top is forming. Dubai again reminds markets of real risk of sovereign debt default from Greece and others. However, recent good jobs and spending figures in the US, along with continued China growth, suggests valuations may not be so overdone, upping the chance that the S&P may be able to avoid a major pullback for now.

 

Because the S&P 500 is so representative of overall risk sentiment, and thus the "One Chart to Rule Them All", this indecisive picture suggest traders should make long or short moves when the S&P hits support levels at around the1091 (23.6% Fib retracement +20 day MA + some price support from mid-October + rising trend line) and at 1080 (38.2% Fib retracement + rising channel line + lower Bollinger Band + 50 day MA) or a decisive break over 1100. Given the fear reflected in the S&P, traders should be very cautious opening long positions in ANY risk assets at this time, and employ tight trailing stops or monitor positions closely on existing open long risk asset positions. They should also have some short positions planned, complete with initial and confirming indicators, and planned entry/ exit points.

 

S&P 500 Daily Chart as of Dec 1 08:47 GMT (02 Dec 15) AVAFX CHART

GOLD: As of early Thursday little changed from Wednesday around 1126, virtually unchanged from Tuesday, continuing to struggle around the 50% Fibonacci retracement level for the past week Dropped Friday as USD strength overrode the positive impact of growing risk appetite and inflation risk, suggesting gold still has more anti dollar speculation. Many believe it will find support around $1000, barring a major panic event or positive surprise. Recovering its rising trend line in early Monday trade.

Trade Suggestion: It may be a good time to go long given that it is at very strong support in the near term around $1125, at which level there is support from the lower Bollinger Band, rising trend line, and 50% Fibonacci retracement for the past week, still in strong uptrend, though many believe it could test far lower to $1000 or lower if the USD continues to rally. Could drop to test $1110 or lower if Fed statement is unexpectedly hawkish, or move toward $1140 if surprisingly dovish.

At this point, gold is moving opposite the dollar, so watch the EURUSD and S&P 500 for indications of gold's near term moves. Also watch the S&P 500 and other major stock indexes to see if risk appetite gets a lift from the Dubai bailout. If so, that suggests upward movement for gold.

 

Gold Daily Chart (03 Dec 15) AVAFX CHART

Updated Gold Forecast

Gold's meteoric rise meant it had no time to build up any nearby support levels, which made it ripe for shorting should anything interfere with the forces pushing it up. Very positive US jobs, spending, and now Fed Policy statement, along with continued sovereign debt problems in Dubai and the EZ, which have hurt the EUR and thus helped the NZD, have sent gold reeling down as is anti-dollar status made it a victim of the current USD rally, which many expect to continue for at least a few more weeks. Trying to establish support around $1125, the 50% Fib retracement. Likely to continue moving opposite and sustained strength in the USD, though it has held up well over the past days despite further USD rally

The Long Term Bullish Gold Argument: Makes sense as long as the USD Doesn't Make a Sustained Move Higher. Depends how much new data comes in supporting US jobs, spending, and inflation growth. May well test further support, but as long as markets believe that big central banks and funds are buyers, gold will find support, many believe around $1000. Given the doubts most have about central banks’ abilities to reign in money supply as the recovery develops, many believe gold still has plenty of room to run higher over the coming years, despite its already multi-year rally. The debate remains heated, though most still seem to like it over the long term given the huge expansion of money supply and widespread belief in coming inflation.

Crude Oil:  Jumped Wednesday on bigger than expected US inventory drawdown, despite rising a USD that has hampered crude prices after climbing slowly for the past 3 sessions. Since August this has been strong support, though we have less confidence in it given the renewed USD strength. Wait to take new long positions until the USD rally slows and /or we get firming demand figures.

Trade Idea: If crude can rise despite a strongly rising USD, then support may have been established, suggesting new longs can be entered in the very near term. However, many expect more USD rally, especially if sovereign debt troubles in the EZ bolster the USD as both safe-haven and anti-EUR play and continuing US economic improvements bolster the USD on rising rate expectations. A sustained USD rise is likely to further pressure oil, unless US growth and oil inventory data can overcome USD strength. Near term we suspect the USD will win out, making oil a more likely short over the coming weeks. Longer term may be another story.

NB: Crude has been among the weaker risk assets over the past month despite the USD's weakness. A crude peaked week before stocks did, and has been behaving relatively weaker than stocks. For example, yesterday's action showed that stocks were still able to retain some of their gains when momentum reversed, but crude could not, and closed lower. Not surprising, since crude tends to exaggerate the S&P 500's trends for better and for worse. Range bound for the near term, will likely follow stocks higher to its upper range near $82 if stocks can rally, but poor fundamentals and an extended rally for both oil and the S&P 500 that it tracks suggest more downside risk at this time. USD strength has clearly exacerbated this trend, as has the stalling out of the S&P 500 and other risk assets at current resistance levels.

Certainly seems unwise to consider new longs until oil stabilizes, likely around the $73-$60 range, if not lower. An additional outcome of the Dubai crisis may be increased production as the UAE may need to produce more oil in order if it decides to fund a bailout or related assistance to stabilize the Dubai situation.  Watch the S&P 500 to lead oil.

Watch the EUR/USD chart for USD movements, and the S&P 500 chart for overall risk sentiment.

 

WTI Crude Oil Daily Chart (01 Dec 17) AVAFX CHART

EURUSD: Continuing to fall on hawkish Fed comments about stimulus exit, .As the prime counterpart of the USD, is crashing through support levels as recent Fed moves towards stimulus exit, improved US economic fundamentals strengthen the USD and thus weaken the EUR, combined with EZ sovereign debt worries which further fundamentally weakening the EUR. 

June uptrend line shattered, need to go back to April to find a place to start another uptrend line once the pair stabilizes.

Watch the S&P for overall risk appetite, and the EURUSD for a quick gauge of the USD to judge if oil is ready to stabilize.

 

EURUSD DAILY CHART (02 Dec 17) AVAFX CHART

SEE THE LATEST WEEKLY OUTLOOK FOR FULL ANALYSIS OF THE EUR AND USD, AND WHY WE SEE MORE EURUSD DOWNSIDE AS THE MORE LIKELY POSSIBILITY.

NZDUSD: As suggested recently, strong support around 0.7100, made a good entry point for those playing the long side, with the halt in the USD rally. Now Retreating back into its declining channel, as hawkish Fed comments and credit woes and concerns about a today pressure the EUR and bolster the USD. Dovish RBA comments Wednesday didn’t help, as the NZD tends to rise or fall with the economically stronger AUD.

Trade suggestions: The NZD is struggling at the 0.4265 (23.6% Fib retracement) as the above news has pressured. With the declining trend channel reasserting itself, this pair would make a good short as a USD long play should the Fed statement fuel the USD rally. Note, however, that the pair is approaching the 38.6% Fib retracement at 0.7074, which has held repeatedly since October. Of course, there was no clear downtrend then. Likely to move with overall risk sentiment and the USD, so…

Watch the S&P 500 and EURUSD to gauge risk appetite and USD strength. Much will depend on further news on US economic fundamentals and Euro zone sovereign debt issues.

 

NZDUSD Daily Chart (04 Dec 17) AVA FX CHART

USDCAD

Officially and decisively broken out of its descending trend line resistance and has a rising channel as hawkish Fed comments push the dollar higher Wednesday and Thursday, despite rising oil prices. Officially starting an uptrend, likely to follow the USD for now more than stocks or oil. That’s unusual, but that’s what’s happening, perhaps as USD momentum is taking over for now.

Trading Idea: If more good USD news, no strong resistance until the 1.0850 level. For Thursday watch Canadian CPI and US Philly Fed figures. All will be overridden by Euro zone debt news if anything breaks

As we've noted before, the CAD is perhaps the most vulnerable of the commodity dollars to a USD rise because it lacks the yield appeal of the NZD and AUD.

USDCAD DAILY CHART (image:05 Dec. 17) AVAFX CHART

USD/CHF

Virtually unchanged from the chart below. Moving up with every bit of good USD news or bad EUR news. Fed statement Wednesday night was very good for the USD

Trade Idea: We are skeptical about getting into trends this strong before a test, but we noted yesterday that if the Fed statement was good, and it was, this one has shown it could move, and has plenty of upside until the next resistance at the 1.0650 level with its 76.4% Fib retracement. Another good way to play the USD long or short depending on the Fed statement today.

 

USD/CHF DAILY CHART (image 06 dec 17)

 

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