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Global Market Outlook 12/18 Cheat Sheet: Best Trades- Greece Debt Woes Boosts USD, Hit EUR, Gold, But Oil Up Again

NB THE BELOW IS AN ABRIDGED VERSION FOR FULL DETAILS, CHART ILLUSTRATIONS, TRADE IDEAS VISIT: http://fxmarketanalysis.wordpress.com

NB: THE BELOW IS AN ABRIDGED VERSION FOR FULL DETAILS SEE THE  GLOBAL MARKET OUTLOOK

SUMMARY

Stocks: Prior Day: Asia, Europe, US down, Today: Asia down, Europe Up. Equities remain cautious with Greece downgrade, yearend profit taking, rising USD

-           FX: bias to safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], USD, continues up vs. all majors Thursday, steady early Friday on rising fear from EZ debt woes

-           Main events: THURS: NZD NBNZ Business Confidence-, GBP Retail Sales m/m, CBI Realized Sales-, CAD: Core CPI, CPI m/m+, USD: Unemployment Claims-, Philly Fed Manufacturing Index+, CB Leading Index m/m+, FRI:JPY: BoJ Press Confr, Policy St., Overnight Call Rate, EUR: German PPI m/m-, Ifo Business Climate+

-     Big Theme: USD Rally continues Thursday, holding on early Friday on Greece debt woes,Philly Fed Mfg data. TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, NUMEROUS GOOD REASONS TO TRADE SEE RECOMMENDED TRADES BELOW

STOCKS

US: Stiff selling on heavy volume came as the greenback spiked against foreign currencies and financials faltered. Stocks now head into Friday with a week-to-date loss of nearly 1%. The dollar made its way to a 1.1% gain against competing currencies after Standard & Poor's downgraded Greece's debt rating. It was the second reduction of its kind this week. Support for the greenback had the Dollar Index up as much as 1.4%, which put it at a new three-month high.

 

Asia: HONG KONG (Reuters) - The euro recovered from early losses on Friday after Pakistan dismissed rumors of a coup while Asian stocks fell as investors fretted about the outlook for corporate earnings. TOKYO (Reuters) - Japan's Nikkei average fell 0.2 percent on Friday, as the announcement of stricter capital rules led Mizuho Financial and other banks to give back some of this week's hefty gains while metal stocks fell as the dollar's strength hit gold prices 

Europe:  LONDON (Reuters) - European equities drifted higher in early trading on Friday, with stronger energy shares on the back of firmer crude oil prices outpacing a weaker financials.

ASIA- DOWN N225I -0.13% HS -1.22% SSEC -2.34% FTSTI +0.14% AORD +0.29 %
EUROPE DOWN FTSE -1.93% DAX -1.00% CAC  -1.16%  
US- DOWN S&P -1.41% DJIA  -1.27 NASDAQ -1.22%    
THIS MORNING N225I -0.21% HS -0.80% SSEC -2.05% FTSTI -0.35% AORD -0.38 %
  FTSE +0.32% DAX +0.31% CAC  +.046%  
                 

Oil:  SINGAPORE (Reuters) - Oil was slightly higher near $73 a barrel on Friday, underpinned by signs of a gradual economic recovery in the United States and the prospect of increased winter demand as a cold snap gripped the U.S. Northeast. 

Gold:    Gold prices down Thursday, stable at Thursday’s closing levels early Friday on continued USD strength from risk aversion on Greece debt downgrade from Moody’s.

 

CURRENCIES: For Thursday and early Friday, continued clear bias to safe havens in order of safety (JPY, USD,CHF) USD higher or steady against all, regaining yesterday’s losses vs. the JPY.  

USD:

The US Dollar rose sharply higher Thursday or held gains against all majors on rising risk aversion from Moody’s downgrade of Greece debt( which further undermined the EUR and helped the USD), rumors of a Pakistan coup, year-end selling profit taking and tax loss selling.

 

EUR: Remains at Wednesday’s multi-month lows Thursday and early Friday, attempting to stabilize around 1.4388, pressured by Greece debt downgrade, indirect help to Greek banks, Pakistan coup rumors spurring flight to safer currencies, year-end profit taking.

JPY: Gained vs. the USD and other riskier currencies Thursday, gave back those gains early Friday. The Bank of Japan voted as expected to keep its overnight call rate target at 0.1 percent on Friday and said it would not tolerate deflation, backing concerns from the government and potentially setting the scene for more easing.

GBP: In a tight range vs. EUR Thursday and in early Friday trade.

AUD: Flat Thursday and early Friday vs. the USD along with other commodity dollars vs. the USD and other safe-havens, Disappointing GDP data and dovish RBA comments also weighed on the AUD. Many believe the strong AUD is hurting exports and that credit tightening may be premature. Likely to move with risk and USD sentiment through Friday.

 

NZD: Flat Thursday and early Friday vs. the USD along with other commodity dollars vs. the USD and other safe-havens Both Westpac Consumer Sentiment and NBNZ Business confidence surveys came in below expectations. Likely to move with risk and USD sentiment through Friday.

CAD: Up vs. the USD Thursday, dropping early Friday, USD/CAD holding well above downtrend line former resistance, testing strong price level resistance at 1.0682

 

CHF: TOKYO (Reuters) - The Swiss franc rose on Thursday vs. the USD and EUR, giving back some of those gains  Friday

CONCLUSIONS: S&P 500 remains 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 suggests flat consolidation range trading into year-end: 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: Down hard again Thursday, as of early Friday little changed from Thursday around 1106, the 50% Fibonacci retracement level broken decisively and thus 1100 looks like the next support level ( 3 kinds of support converging there: price level support, the 61.8% Fib retracement level, and the rising trend line from September) as the USD continues to rise, suggesting gold still has more anti dollar speculation built in. Many believe it will find support around $1000, barring a major panic event or positive surprise.

Trade Suggestion:

Any decisive break below around 1103 suggests a good short entry. Caution with any attempts to go long, given the growing establishment of the USD uptrend and gold downtrend. 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 (01 Dec 18) 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. Failed 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. As noted above, any break below 1103 might be good time to take a new short position given EZ debt concerns, rising fear and USD.

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:  Recovering its July rising trend line support. 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.  Continuing to rise Thursday and Friday despite USD rise and gold retreat, still in the lower end of its multi-month $65-$82 range. 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, because it’s still at the lower end of its trading range noted above. However, do so with tight stops, as 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. ALSO, DECLINING GOLD MEANS DECLINING SUPPORT FROM THE HISTORICAL OIL/GOLD RATIO, WHICH AT THE MOST CONSERVATIVE 15:1 SUGGESTS OIL AS LOW AS $73.53, VERY CLOSE TO ITS CURRENT LEVEL.

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 (02 Dec 18) AVAFX CHART

EURUSD: Continuing to fall on NEW  Greek debt downgrade (this time from Moody’s) after 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:  Trade Suggestion: As suggested recently, strong support around 0.7100, made a good entry point for those playing the long side, IF there is a halt in the USD rally. Similarly, a decisive move below makes good entry for more short positions 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. Note, however, that the pair is approaching the 38.6% Fib retracement at 0.7061, 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 (03 Dec 18) AVAFX CHART

USDCAD

Unchanged since yesterday. 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 of support, we got one Thursday, which is already proving itself as the pair is reversing back up. A time to consider entering long. Watch S&P 500 for overall risk aversion – good for the USD and the EURUSD for a quick gauge of the USD. Still, this pair has come up hard and fast, so keep stop losses tight.

 

USD/CHF DAILY CHART (image 04 dec 18) AVA FX CHART

 

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