Week to Feb 16th

The equity correction of last week was reversed on Monday, with SPX putting on 1.4% (DJIA 1.7%). Friday and Monday were the biggest two-day rise for SPX since January 2016. DAX, FTSE and NKY also rose, the first after a pullback. 10-year US Treasury yields briefly touched a new four-year high of 2.902% but then fell back to post only 2bp up on the day. Currency markets continued to ignore the equity and bond volatility with DXY down 0.3% on the day. Main components EUR and JPY were up, along with AUD, but GBP and CAD were slightly down. Gold was up in line with the DXY fade, and Oil posted its sixth successive red candle.

Our friends at marketseasonals.com tell us that DAX usually rises on a Tuesday. Well not this week it didn’t. After gapping down, the German index faded all day, despite a brief rally when NY desks first opened. After returning from Monday’s holiday, NKY similarly posted a massive 770 point drop during the Asian session, although 61.8% of this had been recovered by the US closing bell. FTSE was also down after GBP was boosted by the UK CPI/RPI/PPI beats at 0930, It was a turnaround Tuesday in Europe and Japan (not China, which rose), but the resilient SPX took no notice of this and gently rose all day to finish 0.3% up (DJIA 0.2%, NDX 0.5%). A complete US/others disconnect today. In forex, the yen continued its rally, adding 0.76%, and EUR and GBP were also up, producing a 0.4% drop in DXY. Yields were down in line, although this link is far from strong at the moment. AUD was flat and only CAD gave a little ground against USD, following a further decline in Oil. Gold continued to rally, up $6 in line with the equity turmoil.

Valentine’s Day saw traders loving equities which rallied hugely on Wednesday. The pre-market CPI beat and Retail Sales miss at 1330 initially cause a huge spike down (500 points exactly on DJIA), but this was then followed by a much larger rally in equities. From the pre-market low to the close, SPX put on 71 handles (2.72%). The huge rally was shared elsewhere with all indices dipping and then advancing sharply, with the VIX ending the day below 20. Everything was up today except the dollar, whose decline was as spectacular as the equity ramp. DXY gave up 0.76%, with all currencies advancing, and Gold had its best day since Brexit, up 1.58%. However, the initial equity spike down was accompanied by a short-lived rally in USD, and it was interesting to see which currencies moved. The strongest movers (down) on the spike were AUD and NZD, risk-on sells, but normally quiet in the US session. The others tended to move together, but tellingly, JPY hardly moved at all and commenced its decline much sooner.

Oil was up 3%, and yields disconnected themselves from the dollar again and made a new high, 7bp up at 2.91%. 

Thursday produced SPX price/action we see very rarely, an ‘echo’ of the previous day, where similar price action occurs but with less volatility. There was no particular trigger, like the CPI figure, as the spike down part lasted an hour from 1500, and can hardly have been caused by the NAHB Housing Market Index print coming in as expected at that time. The pattern was seen, to a degree across the other equity markets, and all finished up, although the increase in FTSE was only marginal due to the strong pound.

On Wednesday, the dollar moved (inversely and )concurrently with equities. Today, the dollar spike was far more muted, and was only really noticeable in AUD and CAD. (Incidentally, the big miss on the Australian jobs report only produced a 28 pip drop, quickly recovered, much less than this spike which faded AUD 44 pips) Nevertheless, by the close, USD was well down (DXY shed 0.8%) against all currencies by the end of the day, hitting a Trump-era low against JPY. Of course other currencies have long passed that point, DXY is 9.61% lower than election day. Gold was only slightly up after the previous days ramp, but still made a three-week high. Bond Yields and Oil dipped sharply and recovered with equities, but both only managed to close flat.

Friday was Opex day, and equities continued to recover following the US Michigan Sentiment beat at 1500. US indices reached the 61.8%  fibonacci retracement point from the Jan 29 high. Other indices were also buoyant, helped by their denominated currencies fading against USD, which came back up from three-year lows, and the VIX touched a post-correction low of 17.7. USD was up across the board, with DXY putting on 0.57% and Gold giving up $5 (0.41%). Oil was also up in line. Yields continued their pattern of moving inversely to USD, easing 3bp on the day.

Please note all figures and percentages given for daily movement on indices cover the entire cash and futures period in that day.

WEEKLY PRICE MOVEMENT

Last week’s equity reversals partly recovered so we had an inside week on all indices except NKY. DXY had another bad week, giving up all the previous week’s gains and then some. All currencies were up against the dollar, so selling USDJPY would have been the best trade, down 2.30%. The best index recovery, and overall best trade was SPX at 4.19% up. Cryptocurrencies had a great recovery week. Bitcoin was up 26% from last week to $10,600 as I write and Ethereum up 18.6% at $963.

AUDUSD 0.7907 (+1.22%)

EURGBP 0.8839 (-0.33%)

EURUSD 1.2409 (+1.31%)

GBPUSD 1.4119 (+1.25%)

NZDUSD 0.7390 (+0.67%)

USDCAD 1.2555 (-0.21%)

USDJPY 106.27 (-2.30%)

DAX     12488 (+2.29%)

FTSE     7292 (+2.36%)

NIFTY   10452 (-0.54%)

NKY     21720 (+2.02%)

SPX    2733.0 (+4.19%)

GOLD  1347.60 (+2.39%)

OIL     61.51 (+4.17%)

NEXT WEEK (all times are GMT)

Monday is President’s Day, the birthday of first president George Washington and US markets are closed. Canada is also closed for Family Day. China is still out for the Golden (New Year) week. There are no economic releases on the calendar except the Japanese trade figures. US index futures trade as normal.

Tuesday sees the RBA monthly minutes, although nothing untoward is expected. There is some data from Europe, as listed below, and Swedish CPI at 0830, but in general another quiet day. However, volatility in the US was rampant right up to Friday’s close, so there is no reason not to expect more. WMT (2.86% of DJIA) reports before the US Open.

Wednesday is much busier, and is of course FOMC Day. These are the minutes from Jan 31, Janet Yellen’s last meeting and before the recent correction in equities. Nevertheless, there may be some less guarded swan song remarks from the outgoing chair. Also from the Fed, we heard Harker (neutral, non-voter) at 1400. In the UK traders will be keenly watching the average earnings, the sticking point for rate rises. Later in the day, BoE Gov Carney, Sep Gov Broadbent, Chief Economist Haldane, and MPC member Tenreyro will all be testifying to the UK Parliament. Another chance for the recent hawkishness we have seen from the BoE. If either of these event disappoints, the rate hike in May will look less assured which would push cable down. In South Africa, new President Ramaphosa makes his first Budget Speech at 1200, after the CPI release there at 0800.

China’s markets open after Golden (New Year) Week on Thursday.  The day is dominated by the ECB Minutes at 1230. Traders will be looking for further details of QE unwinding. There is little US data, but we have several Fed speakers as listed. Canadian Retail Sales are also important. The data is only released on a MoM basis, there is no YoY figure. Tech heavyweight HPQ reports after the bell.

Friday’s main event is Canadian CPI. Although a hint will have been given in the Retail Sales data, this is the one which moves markets. The miss last month caused an immediate 0.49% fade in the loonie. Central bank speakers today are ECB Coeure (hawkish) at 1830, and Fed Mester (hawkish, voter) at 1830 and Williams (hawkish, voter) at 2040.

CALENDAR (all times are GMT). High volatility items are in bold

Sun Feb 18

2350 JPY Trade Balance/Imports/Exports

Mon Feb 19

1745 GBP BoE Governor Carney speaks

2215 AUD RBA Asst Governor Bullock speaks

Tue Feb 20

0030 AUD RBA Meeting Minutes

0700 EUR Germany Producer Price Index

1000 EUR Eurozone Consumer Confidence

1000 EUR Germany ZEW Sentiment Survey

1000 EUR Eurozone ZEW Sentiment Survey

Wed Feb 21

0430 JPY Japan All Industry Activity Index

0800 EUR Eurozone ECB non-MPC Meeting Minutes

0830 EUR Germany Markit PMIs

0900 EUR Eurozone Markit PMIs

0930 GBP UK Unemployment/Average Earnings

0930 GBP UK PSBR

1415 GBP BoE Carney speaks

1445 USD US Markit PMIs

1900 USD FOMC Minutes

2130 WTI API Stock

2350 JPY FDI

Thu Feb 22

0115 FOMC Kashkari (dove) speaks

0515 Fed Quarles speaks

0900 EUR Germany IFO Expectations/Business Climate

0930 GBP UK GDP

1230 EUR ECB MPC Meeting Minutes

1330 USD Jobless Claims

1330 CAD Retail Sales MoM (est -0.1% prev 0.2%)

1500 USD Fed Dudley speaks

1530 WTI EIA Stock

1710 USD Fed Bostik (voter, neutral) speaks

2330 JPY Japan CPI

Fri Feb 23

0700 EUR Germany GDP

1000 EUR Eurozone CPI (est 1.3% prev 1.3%)

1330 CAD Canada CPI (est 1.5% prev 1.9%)

1515 USD Fed Dudley (voter, neutral) speaks

1800 WTI Baker Hughes Rig Count

1830 USD FOMC Mester speaks

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Week to Feb 2nd

Monday saw a change in sentiment which continued all week. As the US 10-year Treasury yield climbed to its highest level in nearly four years, equities came off across the board, with SPX, DAX, NKY and FTSE all posting simultaneous red candles for the first time in a while. Notably AAPL was down 2% pre-earnings. The Personal Consumption Expenditure miss at 1330 didn’t help.

In currencies, USD followed the bond yields (and Trump’s remarks last week), and turned up with DXY put on 0.3% on the day. Key DXY components EUR, JPY and GBP were down, whereas CAD and AUD were flat. Gold and Oil were down in line with the stronger dollar.

Tuesday was more of the same, with yields up again, Gold and Oil fading, and all indices continuing to fall. SPX had its worst day since August 2017.  Healthcare stocks fell on news that AMZN, BRK and JPM were planning to set up their own company to take healthcare in-house. However, the trend was not the same with USD, which was down against all currencies except AUD. EUR was up 0.2% despite the German inflation (1300, reported later than scheduled) and Eurozone GDP (1000) misses. GBP briefly dipped below $1.40 before recovering to end the day up after bullish comments on UK growth by BoE Governor Carney.

As the month closed, the equity rout was halted (temporarily, see later) on Wednesday despite yields once again posting a near 4 year high. SPX and DAX were flat, and NKY was up (on weaker JPY) but FTSE was down (on stronger GBP). DJIA was helped by a beat from BA, its largest component, which we mentioned last week. This pause may have also been partly to do with month end rebalancing, not any change in momentum, which we know is always stronger on the downside.

The USD picture was mixed. DXY was flat, as was EUR, with the universally expected Fed rate hold at Chair Yellen’s final meeting at 1900 having little effect. As stated JPY was down, along with AUD (following the CPI miss at 0030), and GBP was up along with CAD. Gold and Oil changed direction and rose, the latter shrugging off the EIA stock miss at 1530.

February started on Thursday, and the equity fade continued in all markets (ignoring the US ISM PMI/Prices Paid beat at 1500), with a particularly sharp fall of 1.82% (1.4% cash period) in DAX, after a strong EUR rally, which saw it break above $1.25, together with a rise to 0.71% in German Bund yields, the highest since December 2015. Only NKY managed to remain flat, due to JPY coming off. The US10Y was similarly up 7bp to another high, the best day for yields this year. With the exception of EUR, the currency and commodity picture was the same as Wednesday, AUD and JPY down, GBP and CAD, Gold and Oil up. Oil completed a V-shape for the week to return to roughly where it opened.

We said last week that markets have been paying little attention to NFP, and so it was on Friday. Not only did the headline figure beat at 1330 (200k vs 180k), but so did the all-important Average Hourly Earnings (2.9% vs 2.6%), no doubt linked to the ‘Trump Christmas Bonuses that we mentioned last week. It was the best monthly improvement since the crash recovery in 2009, as shown in this chart from Friday's FT.

AHE is of course the sticking point for rate hikes, so the print should be bullish for USD, and sure enough yields put on another 5bp, to post the best weekly candle since Trump election week, and another 4-year high. DXY also put on 0.63%, and was up against all currencies. It is surprising that the dollar was not up more, perhaps next week. CAD was even further off after a report that Canadian PM Trudeau had said he would “walk away” from a bad NAFTA deal, and the loonie ended the day down 1.25%, its worst day for over a year. A triple whammy for CAD; great US employment figures, falling Oil (down 1.39% on the day), and NAFTA.

However, the big story of the day was the total rout in equities. DJIA fell 669.06 points (2.55%), its worst day in percentage terms since the Brexit vote, and in points terms since the 2008 crash. SPX fell 1.67%, ending the 17-month run without a 3% pullback, DAX fell 2.02%, NKY 1.36%, FTSE 1.32%. SPX and DJIA had their worst week in two years. Of course this is only to be expected given the price/action over the last few weeks and months. Following late Thursday earnings, AAPL and GOOG fell over 4%, but in a rare patch of green in a sea of red, AMZN was up 2.9% after a record profits beat. In the continually curious correlation between Gold and equities, the metal was down 1.32%, more than the dollar.

Please note all figures and percentages given for daily movement on indices cover the entire cash and futures period in that day.

WEEKLY PRICE MOVEMENT

The week saw a complete reversal in a year-long trend. Indices posted their worst week since Brexit, and DXY posted the first green weekly candle for two months. Only EUR held up, so the best forex trade would have been to buy EURAUD, up 2.54%. Shorting the DAX would have delivered 5.06%. Commodities were, surprisingly, relatively flat.

Unusually, and as a consequence of the USD turn, EUR, GBP, NZD and JPY all posted inside weeks against USD, although not against each other.

Cryptocurrencies had a terrible week, with many saying the bubble has truly burst. Bitcoin was down 32% at one point, below $8,000. At the time of writing it has recovered to $9,500.

AUDUSD 0.7919 (-2.33%)

EURGBP 0.8823 (+0.54%)

EURUSD 1.2455 (+0.21%)

GBPUSD 1.4119 (-0.31%)

NZDUSD 0.7302 (-0.76%)

USDCAD 1.2421 (+0.87%)

USDJPY 110.15 (+1.44%)

DAX     12712 (-5.06%)

FTSE     7390 (-3.27%)

NIFTY   10760 (-2.75%)

NKY     22969 (-3.21%)

SPX    2754.8 (-4.15%)

GOLD  1330.94 (-1.46%)

OIL     65.06 (-1.78%)

NEXT WEEK (all times are GMT)

Over the weekend, German politicians are expected to finally conclude coalition talks, which may help the beleaguered DAX.

Monday sees a raft of Services PMI reports, and like Manufacturing last week, the ISM print is the most important. There is a presentation by ECB President Draghi at 1600, but it is only concerning the ECB Annual Report. EU Brexit negotiator Michel Barnier meets UK Brexit Sec Davis in London for talks, although little news is expected on the day.

Tuesday’s main event is the RBA rate decision, preceded by Australian Retail Sales and Trade Balance. The RBA is on record as saying it is not bound to follow the Fed, and commentators do not expect anything hawkish, given the weak last CPI release. A hold could push the currency further back down from the 0.80 psychological roundpoint. Elsewhere Fed Bullard (dove, non-voting) speaks at 1350 In Kentucky. Although New Zealand markets are closed, the milk auction results will be released sometime around the US open.

After Australia, it is New Zealand’s turn on Wednesday (which is early Thursday local time). The decision is followed an hour later by a press conference. Traders are looking for revised inflation projections following the December CPI miss. There is also a rate decision in India at 0900, 6% hold expected. Fed speakers are Kaplan (neutral, non-voting) at 1100, Outgoing member Dudley (neutral, voting) at 1330, Evans (dove, non-voter) at 1515, and Williams (hawk, voter) at 2220. TSLA earnings are released after the US bell.

Thursday’s main event is the fourth rate decision of the week, with the BoE decision at 1200. An unanimous hold vote is expected. GBP has of course largely recovered to a pre-Brexit level, and any dovishness now must surely cap its recovery. The continuing shutdown farce in the US continues. Today is the next expiry date. How long can Congress kick this ball into the long grass. ECB speakers today are Weidmann (hawk) at 0845, Villeroy (neutral) at 1015, Mersch (hawkish) at 1030, and Praet (dove) at 1045. Earnings season is coming to an end now, the only interesting ones (after the US bell) are TWTR and NVDA, the latter being the manufacturer of the GPU chips that power cryptomining.

Friday’s big event is the Canadian jobs report. It is unlikely to beat last month’s bumper 78.6k, but the estimate (at time of writing, watch for changes) is once again a lowly 10k, which will surely be beaten. We will have to see where CAD is after a week when NAFTA will be in the news. There is no US news at the same time (their NFP was last week), so the effect should be more muted than usual.

Also important is the RBA quarterly statement on Monetary Policy, which includes inflation and GDP forecasts. CB speakers today are Fed George (hawk, non-voter) at 0200 and BoE Cunliffe (dovish) in California, so towards the end of the session. A fifth rate decision for the week, the CBR is expected to cut the RUB rate by 0.25% at 1030, given the sharp fall in Russian inflation.

CALENDAR (all times are GMT). High volatility items are in bold

Mon Feb 05

0145 CNY China Caixin Services PMI

0855 EUR Germany Markit Services PMI

0900 EUR Eurozone Markit Services/Composite PMI

1445 USD US Markit Services/Composite PMI

1500 USD ISM Non-Manuf PMI

Tue Feb 06

0000 AUD Australia HIA New Home Sales

0001 GBP BRC Like-for-like Retail Sales

0030 AUD Australia Retail Sales

0030 AUD Australia Trade Balance

0330 AUD RBA Rate Decision (1.50% hold est)

0900 EUR Germany BuBa Pres Weidmann speaks

1330 USD US Trade Balance

1330 CAD Canada International Merchandise Trade

1350 USD Fed Bullard speaks

1500 CAD Canada Ivey PMI

1500 USD JOLTS Job Openings

2130 WTI API Stock

2145 NZD NZ Unemployment

2230 AUD Australian Construction Index

Wed Feb 07

0500 JPY Japan Coincident/Leading Economic Indices

0800 EUR ECB non-MPC minutes

1530 WTI EIA Stock

2000 NZD RBNZ Rate Decision (1.75% hold est)

2100 NZD RBNZ Press Conference

2145 NZD NZ Employment Change

2350 JPY Japan FDI

2350 JPY Japan Trade Balance

Thu Feb 08

0001 GBP UK RICS Housing Price Balance

0200 CNY China Trade Balance

0500 JPY Economy Watchers Survey

0700 EUR Germany Trade Balance

0845 EUR Germany BuBa Pres Weidmann speaks

0900 AUD RBA Governor Lowe speaks

1200 GBP UK rate decision

1300 USD Fed Harker speaks

1315 CAD Canada Housing Starts

1330 USD US Jobless claims

1400 USD Fed Kashkari speaks

1745 CAD BoC Wilkins speaks

Fri Feb 09

0030 AUD Australia Home Loans

0030 AUD RBA MPC statement

0130 CNY China CPI/PPI

0430 JPY Japan Tertiary Index

0930 GBP UK Manuf/Industrial Production

1300 GBP UK NIESR GDP estimate

1330 CAD Canada NFP/Unemployment/Participation

1800 WTI Baker Hughes Rig Count

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Week to Jan 19th

US Markets were closed on Monday for Martin Luther King’s Birthday, but it didn’t stop SPX futures from gapping up, and then making another all-time high. The mood was not however shared elsewhere as NKY and DAX were flat, and FTSE was slightly down, reacting to GBP adding to Friday’s huge 2-cent gain, touching $1.38 for the first time since Brexit. USD was sharply down again, with DXY closing at a three-year low of $90.45, and all currencies, Gold and Oil were up in line, the latter making another three-year high. US 10-year bond yields spiked up briefly but closed the day flat.

Tuesday was a rare down day in the US markets. After an initial further intraday high, mainly pre-session, which saw the DJIA push through 26,000 for the first time, before falling 1.45% (SPX fell 1.40%) during the cash period. It is possible that this was on government shutdown concerns, although with SPX and DJIA so overbought, it is difficult to say. DAX and FTSE fell in line, as did NKY although a strong performance in the Asian session meant the Japanese index ended the day flat.

For once DXY was slightly up (as were bond yields), due to slight gains against CAD and EUR, and small losses against GBP and JPY. AUD was flat. Gold spiked briefly as equities fell, but ended the day down as did Oil.

The stock rally continued on Wednesday, erasing Tuesday’s losses and SPX and DJIA made new record closing highs and new roundpoints of 2,800 and 26,000 respectively. It was less than two weeks ago that the DJIA passed 25,000, making this the fastest 1,000 points in history. NKY followed suit almost exactly (the index is back to tracking USDJPY this week), but DAX and FTSE were flat on the day.

As we mentioned last week, SPX closed the longest ever run without a 5% correction both in time (397 days) and distance (41.15$), notably with both records being completed on the same day.

Following the 3bp rise of the US 2-year note to a nine-year high (and a matching 3bp rise in the 10-year note which we track), the dollar had its best day since Oct 26th, with DXY putting on 48c (0.53%), with EUR, JPY and Gold sharply down, despite the Eurozone CPI beat at 1000. The only exception was GBP which continued to rally in the absence of any bad Brexit news, touching $1.39 briefly before falling back to end the day only slightly up, as was AUD. At 1500, The BoC raised rates to 1.25% as expected, but this was clearly priced in. The price action was unusual. There was an instantaneous 40 pip (0.33%) spike up, then followed by a huge 169 pip (1.37%) move down, all in a minute. The market then retraced all but 10 pips of that move over three hours, and then slowly moved back to where it started to end the day flat. Oil was up recovering some of Tuesday’s losses.

Despite the China GDP beat at 0200, Thursday was another down day for equities in this see-saw week, as the shutdown grew closer, with only DAX up, reacting to the previous day’s downturn in EUR. Bond yields up were 4bp, the highest since March, and Gold was down, but this didn’t help DXY, which posted another red candle, down against all major currencies. Oil was also down on the day, retreating further from Monday’s high.

The theme of the week continued on Friday, SPX changed direction again and closed at another all-time high, completely disregarding the government shutdown. FTSE also had its first green day of the week, as GBP retreated from $1.39, and Oil turned back up. DAX had its best day since Oct 26th (the same day as Wednesday’s previous dollar record), putting on just over 1% to make a two-month high. Only NKY was down on the day as JPY recovered.

It was another good day for bond yields and USD. Yields posted another three year high, closing at 2.664%. DXY was up again, although still posting its fifth down week in a row.  CAD fell particularly sharply, giving up 95 pips (0.77%) finally picking up on the Oil slide, and from comments from the Russian Oil Minister that the price was unlikely to exceed $60 medium-term. EUR, GBP and AUD (along with Gold) were down. Oil duly slid as well. Only JPY managed gains against the dollar.

WEEKLY PRICE MOVEMENT

These are the prices movements for the week on the instruments we cover, with USD pulling back for a sixth week. As last week, the only currency to recede against the dollar was CAD, so the best forex trade would have been to buy GBPCAD, up 1.06%. The top index and overall performer was DAX.

As of Saturday morning, Bitcoin was down 7.4%, at $12,650, after a very bad week where it fell 33% at one point to just above $9,000. 

AUDUSD 0.7984 (+0.88%)

EURGBP 0.8815 (-0.74%)

EURUSD 1.2214 (+0.09%)

GBPUSD 1.3849 (+0.89%)

NZDUSD 0.7274 (+0.29%)

USDCAD 1.2496 (+0.33%)

USDJPY 110.81 (-0.17%)

DAX     13464 (+1.65%)

FTSE     7737 (+0.23%)

NIFTY   10894 (+1.99%)

NKY     23842 (+0.06%)

SPX    2810.3 (+0.77%)

GOLD  1331.67 (-0.49%)

OIL     63.47 (-1.44%)

NEXT WEEK (all times are GMT)

The US Government Shutdown has happened this weekend, and will undoubtedly be a factor in the markets next week, although the impact should not be serious, as shown in our fractal. On Sunday, Germany’s SPD will vote on whether to enter formal coalition talks with Angela Merkel’s CDU/CSU, and the next round of NAFTA talks starts early. We are also now seriously into the Q4/17 earning calendar.

Monday is light on data, and we expect most talk to be around the shutdown and NAFTA. Netflix report earnings after the bell.

Tuesday sees the BoJ rate decision. A hold is expected, but traders will be looking for further hawkish comments following the recent tightening decision. The Davos conference starts in Switzerland, and Canadian PM Trudeau speaks at 1030. There are no significant US news releases.

Wednesday has a raft of PMIs, with Markit reporting Manufacturing and Services on the same day for Germany and the US. Also of interest are UK average earnings, the failure of which to grow has been a drag on interest rates. A miss here could push the overbought pound down quite sharply. South African inflation is released at 0800.

Thursday has a raft of speakers in Davos: Christine Lagarde, head of the IMF; US TreasSec Mnuchin, UK PM Theresa May, and an interesting appearance from US economist Robert Shiller (he of the Cyclically Adjusted PE Ratio) in a session called “The Crypto Asset Bubble”. Elsewhere in Europe it’s a big day with the ECB Rate Decision at 1245 but more importantly the press conference at 1330, where traders will be watching Presidential Draghi for remarks about whether QE will definitely end in September 2018, and even if he reconciles the fact that the ECB thought EUR was high at 1.20 last September, but hasn’t commented on the fact that it stands around 1.22 now. Canadian Retail Sales are reported at 1330. The estimate is very low, and a beat could show a renewed bout of volatility. The Brazil market is closed.

Friday opens with President Trump’s special address at 0700 in Davos, although no surprises are expected, and it is thought the theme will just be more ‘America First’ rhetoric. The main data highlight is US GDP/PCE, but Canadian CPI, issued at the same time produces another USDCAD volatility point. The first round of the Czech elections is held. Markets are closed in Australia (Australia Day) and India (Republic Day).

CALENDAR (all times are GMT). High volatility items are in bold

Mon Jan 22

1330 USD Chicago Fed National Activity Index

Tue Jan 23

0400 JPY BoJ Rate Decision (est hold -0.1%)

0930 GPB UK PSBR

1000 EUR Eurozone ZEW Sentiment

1000 EUR Germany ZEW Sentiment/Current Situation

1500 EUR Eurozone Consumer Confidence

2135 WTI API Stock

2350 JPY Japan Trade Balance/Imports/Exports

Wed Jan 24

0000 EUR Eurogroup Meeting

0500 JPY Japan Economic/Coincident Indices

0855 EUR Germany Markit Manuf/Services/Composite PMIs

0900 EUR Eurozone Markit Services/Composite PMIs

0930 GBP UK Unemployment/Average Earnings

1400 USD US Housing Price Index

1445 USD US Markit Manuf/Services/Composite PMIs

1530 WTI EIA Stock

2145 NZD NZ CPI

2350 JPY Japan FDI

Thu Jan 25

0700 EUR Germany Gfk Consumer Confidence

0900 EUR Germany IFO Business Climate/Expectations

1245 EUR ECB Rate Decision (est hold 0.0%)

1330 EUR ECB Press Conference

1330 USD Jobless Claims

1330 CAD Canada Retail Sales MoM (est -0.1% prev 1.5%)

1500 USD New Home Sales

2330 JPY Japan CPI

2350 JPY BoJ MPC Minutes

Fri Jan 26

0930 GBP UK GDP

1330 USD US GDP (est 3.0% prev 3.2%)

1330 USD US Durable Goods

1330 CAD Canada CPI
1800 WTI Baker Hughes Rig Count

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Week to Jan 12th

This week we had the usual all-time highs, but for the first time for a long time, the story of the week was fixed income.

There seems no end (a figure of speech, not a prediction!) to the equities rally, as on Monday, SPX made another all-time intraday and closing high, and the Euro Stoxx 600 finished just under 400, a price not seen since August 2015, and DAX was up. NKY futures (Japan was closed again) made a new high for this century. Only FTSE failed to join the party, closing slightly down after some GBP appreciation, the only currency to gain against the dollar. EUR was down 0.6%, pulling back from the psychological 1.20 roundpoint, despite beats on the Eurozone sentiment indicators and Retail Sales at 1000. Other currencies were broadly flat, as was Gold. Oil advanced slightly, with, as you can see, no inter market effect. US 10-year Bond yields continued their advance from last week.

The big story on Tuesday was not scheduled and from an unexpected corner. The BoJ made a surprise announcement that they were scaling back their monthly bond purchases (QE), which immediately advanced JPY by 0.57%, and by 0.71% during the next 24 hours. NKY fell in line. DAX put in a flat day as EUR continued to fall, and FTSE and GBP had a Turnaround Tuesday, the index recovering Monday’s losses, just as the currency gave up its gains.

The BoJ move sparked speculation amongst traders that if conservative Japan was suddenly tapering, then the US might accelerate their tightening programmes and rate hikes. US Bond yields were therefore sharply up by 7bp to a 10-month high. The German Bund and the UK 10-year gilt yields rose 3bp and 4bp respectively, and EURJPY and GBPJPY fell 0.7% and 0.6% respectively, which is more than the USDJPY decline of 0.4%, so the net effect was that USD was up against all currencies except JPY itself. Gold was down in line with the USD position. Oil advanced sharply by 1.5 cents (2.54%) to post a marubozu candlestick. As the strong API stock beat came at 2130, after the pit closes, one can only assume that traders were anticipating it, or possibly it was a consequence of the  bullish Japanese outlook. (Japan imports 85% of its energy resources, and is the largest importer in the world after China).

None of this affected equities other than NKY. SPX, DJIA, NDX and FTSE all made all time highs, and DAX was up again touching a two-month high.

You wait ages for a surprise central bank reduced bond buying announcement from Asia, then two come along at once. At 1030 on Wednesday, the rumor on the wires was that Chinese officials were recommending slowing or halting the buying of US Treasuries. The effect was instant. Yields put 4bp immediately (that’s a 0.41% drop in the bond, the kind of move you get at FOMC or NFP on USD), and DXY dropped 0.52%. Gold shot up as well. Without any official confirmation, the bond price fully recovered, but DXY ended down.

This was also do to with rhe fallout from Tuesday’s BoJ announcement. Unlike GBP, JPY did not fade the China spike but carried on rising all day. A great demonstration of the difference between Japan and China. One is tapering their own bonds, the other is tapering USD bonds.

The next surprise of the day was a report from Reuters suggesting that Canada was increasingly convinced that President Trump will withdraw from NAFTA. The release, at 19:07 caused an immediate 95 pip drop in CAD, which largely held into the next day. 

The overall effect for the day was that USD was down against all currencies except GBP. Oil had a very flat day, only moving 2 cents, despite the EIA beat at 1530 (which was less than the API beat the day before).

Also we saw the equity advance take a rest, perhaps on the vote of no confidence from China. SPX was flat, NKY was sharply down in line with USDJPY, DAX was similarly sharply down, as EUR stayed up. In a reverse of Monday, FTSE was up as GBP was down on the day.

The equity rally resumed in earnest on Thursday, and SPX, DJIA and IXIC (COMPQ, the Nasdaq All-Share, not the Tech 100), and FTSE all touched all-time highs again. DAX fell because of a sharp rise in EUR after the ECB minutes suggested that QE will end in September without any taper, an outcome we highlighted last week.

EUR put on 83 pips (0.70%) on the ECB statement, JPY continued up from Tuesday’s BoJ announcement, but in any event, all the other currencies were up, helped by beats on Australia Retail Sales at 0030, Japan Leading Economic Index at 0500, and Eurozone Industrial Production, and a miss on US PPI and Initial Jobless Claims at 1330.

China announced that Wednesday’s rumor was ‘fake news’, but this did nothing to help DXY (still falling) or yields (flat on the day). Gold was also up. Oil had a brief rally to $64.77, a three year high, before fading to end the day flat. 

Friday’s important news was US Retail Sales and inflation, both at 1330. But they both came in as estimated, with only the ‘ex food and energy’ CPI making a the smallest (0.1%) of beats. So it wasn’t important. But anyway, it didn’t matter. Once again SPX, DJIA, IXIC and FTSE all made record intraday and closing highs, and posted near-perfect marubozu candles (the open is the low, the close is the high). We must remember that FTSE is to some extent an oil proxy, so some of these gains come from the strong rally in oil, whether or not GBP moves. Despite the EUR ramp, DAX managed to stay flat, which was a good result in the circumstances.

DXY had its worst day since June 27th, and fell 0.96% to finish at 90.90, the lowest for three years. EUR breached $1.22 to hit a three year high as Angela Merkel announced a coalition deal, GBP hit a post-Brexit high amid hopes for a ‘soft’ version. However, this was only part of it as AUD was up 0.29%  after dipping on China’s miss on non-CNY imports (the only miss in a raft of beats), and CAD was up 0.51%, in line with Oil, and despite NAFTA concerns and an increased Rig Count (bearish for Oil) at 1800. The weak dollar helped Gold shoot up $16 to a four-month high, continuing the curious dual rally of stocks and Gold.

Next Monday is Martin Luther King’s birthday, a holiday in the US. US Futures, and all other markets are open as normal.

WEEKLY PRICE MOVEMENT

These are the prices movements for the week on the instruments we cover, with USD pulling back for a fifth week. The only currency to recede against the dollar was CAD, so the best forex trade would have been to sell CADJPY, down 2.18%. The top index was SPX, and overall, once again Oil, up 4.73%

Bitcoin gave up last week’s gains, and was down 12.78% to finish roughly where it was at Christmas.

AUDUSD 0.7914 (+0.70%)

EURGBP 0.8881 (+0.20%)

EURUSD 1.2203 (+1.46%)

GBPUSD 1.3727 (+1.20%)

NZDUSD 0.7253 (+1.19%)

USDCAD 1.2455 (+0.35%)

USDJPY 111.00 (-1.79%)

DAX     13245 (-0.68%)

FTSE     7719 (+0.78%)

NIFTY   10681 (+1.16%)

NKY     23827 (+0.10%)

SPX    2788.9 (+1.70%)

GOLD  1338.23 (+1.36%)

OIL     64.40 (+4.73%)

NEXT WEEK (all times are GMT)

Monday is Martin Luther King Day, a holiday in the US, although European and Asian markets are open. BoJ Governor Kuroda speaks. Interest in Japan is heightened now they are engaged in a program of tightening. New BoE member Tenreyro (neutral) speaks in London at 1815.

Tuesday sees UK inflation, and also the Brexit (EU Withdrawal) bill returns for Report Stage in the UK House of Commons. The CPI estimate of 3.2% would be a new five-and-a-half year record. We also get a rare speech from the Swiss National Bank.

Wednesday is the main event, the BoC Rate Decision. A 25bp hike is expected, so expect CAD to move sharply whether we get it or not. The markets have started to price this in following the excellent jobs reports, but NAFTA looms on the horizon. Elsewhere we have Eurozone CPI, not normally a market mover, as the individual countries have already reported, and some speeches:ECB Nowotny (hawkish) at 0855, BoE Saunders (hawkish) at 1145, FOMC Evans (dovish, non-voter at 2000, Mester (hawkish, voter) at 2130.

If SPX does not fall below 2705 at the Wednesday close (which is unlikely), it will, at 395 trading days, make the longest run without a 3% drop in history, the most recent and previous record being the 394 day run from Dec 21, 1994 to Jul 12, 1996. The market rose 40.6% in that period. SPX needs to hit 2800 (only 11 handles away) to beat the gain record as well.

The main news on Thursday comes in the Asian session with Chinese Retail Sales, and the Australian version of NFP. After a standout print last month of 61.6k, this month’s estimate of 24.9k is moderate, but is still equivalent to 333k in US terms, a figure not seen in the US for years. (The US has 13.4 times the population of Australia). Canada has recently surprised with conservative estimates and then strong beats, and it is interested to see if Australia is going the same way.

President Trump will on the stump supporting Republican Rick Saccone in the Mar 13 Pennsylvania election. Trump won this district by over 20% in the election. Bundesbank President Weidmann opens the IMF/Bundesbank joint event on German economic policy, and ECB Coeure speaks there at 1430. Finally, there is the new Canadian ADP report, although as this follows the official jobs report last week rather than preceding it, the effect is very little. The Central Bank of Turkey make a rate decision at 1100.

The short week finishes quietly on Friday on the economic release front. However it is once again the US government shutdown deadline. This has been deferred twice. The sticking point is the immigration (DACA and the ‘wall’). However, the Democrats will not want to take the blame, given the proximity of mid-term elections. Watch this space!

CALENDAR (all times are GMT). High volatility items are in bold

Mon Jan 15

0200 CNY China FDI

1000 EUR Eurozone Trade Balance

2145 NZD Retail Sales

2200 NZIER Business Confidence

Tue Jan 16

0930 GBP UK CPI/PPI

1400 NZD GDT Milk Auction (time approx)

1700 CHF SNB Chairman Jordan speaks

2350 JPY Japan Machinery Orders

Wed Jan 17

0030 AUD Australia Homes Loans/Investment Lending

1000 EUR Eurozone CPI

1415 USD US Industrial Production/Capacity Utilisation

1500 CAD BoC Rate Decision (est 1.25% prev 1.00%)
1500 USD US NAHB Housing Market Index

1615 CAD BoC Press Conference

1900 USD Fed Beige Book

2130 USD FOMC Mester speaks

2130 WTI API Stock

2330 AUD Australian Westpac Consumer Confidence

2350 JPY Japan FDI

Thu Jan 18

0000 AUD Australian HIA New Home Sales

0001 GBP UK RICS Housing Price Balance

0030 AUD Australia Employment/Unemployment

0200 CNY China Retail Sales/Ind Production

0200 CNY China GDP

0815 EUR Germany BuBa Pres Weidmann speaks

1330 USD US Building Permits/Housing Starts

1330 USD US Jobless Claims

1330 USD US Philly Fed Manuf Survey

1330 CAD ADP Payrolls

2130 NZD Business NZ PMI

Fri Jan 19

0700 EUR Germany PPI

0930 GBP UK Retail Sales

1800 WTI Baker Hughes Rig Count

This report is published every week as an email by MatrixTrade.com - you can sign up to receive it here.

Week to Dec 15th

Monday saw the opening of Bitcoin Futures on the CBOE, with an initial volume surge, although overall volume was very small compared to mainstream markets. Here is a chart of the first week of the January future, which traded at a premium to the cash instrument quoted on cryptocurrency exchanges.

XBT Futures First Week

Back in the real world, SPX and DJIA continued their advance to new closing all-time highs again, although the picture was not universal. NKY was flat, and DAX slipped. FTSE made gains but this was largely a reflection of weak GBP, down 0.4% on continued Brexit negotiation fears. Oil and energy stocks were up sharply, on news that the North Sea’s main oil pipeline had developed a crack, and would be closed “for weeks” to facilitate repair. NZD was up over 1% on the market’s approval of the appointment of new RBNZ Governor Adrian Orr. The other currencies were generally flat, with USD giving up less than 1%. Gold declined again, its biggest five-day drop in over six months to a five-month low of $1,242. US Treasury 10-year bond yields were up slightly.

Tuesday was a turnaround day for DAX as it often is, and the index recovered Monday’s losses. FTSE continued to rise, again helped by a falling pound, which spiked briefly on the UK CPI beat, before resuming its downward trend. NKY repeated Monday’s pattern, a dip in the Asian session, recovery in futures during the European and American day, to end up roughly flat. However although SPX made another intraday all-time high, it receded to end the day slightly down, as oil gave up the previous day’s gains. The day was strong for USD, with DXY hitting its highest level for a month. Yields were up in line, and Gold hit a new low for the week of $1236.39. The only currency to advance was AUD, which is not part of DXY.

Wednesday produced the long-awaited Fed rate hike of 25 basis points, and a continuation of current policy. As we predicted last week (as about 10% of traders were expecting 50bp), the dollar fell sharply against all currencies, yields were down and Gold was sharply up. The greenback had been falling all day, not helped by a miss on the ‘ex food/energy’ CPI print at 1330, but the pace accelerated after the Fed announcement. Oil also fell, despite the EIA Stock beat at 1530. Indices. Despite all this, SPX managed to eke out yet another intraday high of 2671.88 before closing roughly flat. Other indices were down, no doubt partly because of their respective currency strengths.

Concern about the pace of the tax bill resurfaced on Thursday when Marco Rubio said he would not vote for the bill unless some changes to child tax credits were made. SPX gave up all its gains for the week so far (an inverted-V). The other indices followed suit. DAX had a brief rally mirroring the fall in EUR after the ECB press conference at 1330, however this did not last, and it fell in the US session to finish down. In general USD had a good day, and was up against all currencies except AUD and CAD, the latter seeing a 150 pip surge after hawkish comments from BoC Governor Poloz after his speech at 1725. In line with the USD performance, Gold fell slightly, but yields did not respond and were flat on the day. Notably, the GBP rate hold had little effect on the market, whereas EUR which had rallied sharply on Wednesday gave up over half those gains. Oil touched a bottom for the week, but ended the day up.

Friday saw Senator Rubio change his mind and agree on his  tax bill vote, and SPX and DJIA made closing all-time highs again. DAX, NKY and FTSE were also up substantially as their denominated currencies weakened against USD. GBP and CAD were sharply down to Tuesday’s level, forming inverted-V shapes for the week. Surprisingly, given the dollar strength, Gold and bond prices (inverse to yields) were slightly up. Oil had its flattest day of the week, ending only slightly up.

WEEKLY PRICE MOVEMENT

These are the prices movements for the week on the instruments we cover, with a generally retreating USD picture. However, for the second week in a row, CAD was the worst performer, and so he best forex and overall trade would have been to buy NZDCAD, up 2.4%. Despite the SPX ATH, the strongest index was, for once, FTSE up 1.17%. Only EURGBP had an inside week.

AUDUSD 0.7640 (+1.76%)

EURGBP 0.8814 (+0.26%)

EURUSD 1.1746 (-0.20%)

GBPUSD 1.3317 (-0.48%)

NZDUSD 0.6988 (+2.24%)

USDCAD 1.2867 (+0.16%)

USDJPY 112.58 (-0.80%)

DAX     13142 (-0.15%)

FTSE     7493 (+1.17%)

NIFTY   10333 (+0.66%)

NKY     22553 (-1.43%)

SPX    2678.6 (+1.06%)

GOLD  1255.01 (+0.52%)

OIL     57.36 (+0.03%)

NEXT WEEK (all times are GMT)

The weekend seems the South African ANC congress, with the party’s announcement of their new president. Expect movement when the markets open. The ZAR is already at a three-month high on expectations that Cyril Ramaphosa will beat the incumbent Jacob Zuma. The week is expected to be light, given the approaching holidays, with the tax bill being centre stage.

Monday opens the final week before the Christmas holiday. It is possible there may be a Senate vote on the tax bill, although it is more likely to be on Tuesday. The only significant data release is Eurozone inflation. In India, results are expected for the Gujarat provincial election, Prime Minister Modi’s state. It is expected to be a pointer to his chances of re-election in 2019.

Tuesday sees the Australian RBA monthly minutes in the Asian session, although little reaction is expected. The Senate vote on the tax bill is expected, and if they have voted Monday, then it would be the House vote. ECB Hansson speaks at 0900GMT on the outlook for Eurozone, and we have the forward looking US Housing Starts.

Wednesday is the final day if the EU Withdrawal Bill Committee Stage, although there is no vote yet, and the aim is for the tax bill to be with Trump for signature. BoE Governor Carney speaks to the UK Treasury Select Committee on the November Financial Stability report, but no volatility is expected there. The Swedish Riksbank rate decision is at 0730. A hold and extension of QE is expected. SEK is 4.2% of DXY.

Thursday’s Asian session has the BoJ rate decision, although this rarely causes the same volatility as other major currencies. In Europe there is a Catalonian regional election. A pro-independence result is likely, although no particular new activity regarding secession is expected. The CZK interest rate decision is at 1200. The major data releases of the week come at 1330, US GDP and the QoQ Personal Consumption Expenditure, an inflation proxy. This is probably the strongest trigger (other than the tax bill) for USD this week. Also important is Canadian inflation and Retail Sales, also at 1330. We know that CAD likes to make strong sudden moves.

Friday is a half-day for markets in the UK, Canada and New Zealand in early observance of Christmas Eve. Markets will be winding down, so volume is expected to be light. However, funds may well be rebalancing, and traders may be closing positions for the holiday period. Canadian GDP is reported, and If there had been a sudden move on Thursday, a print in the opposite direction could reverse that move. It is also the next US government shutdown deadline, although commentators are not factoring this in, expecting there to be yet another extension.

Next weekend, our report will be somewhat shortened, given the holiday period. MatrixTrade is open for business on all days that the market is open.

CALENDAR (all times are GMT). High volatility items are in bold

Sun Dec 17

2350 JPY Japan Trade Balance/Imports/Exports

Mon Dec 18

0115 AUD Australian Mid-Year Fiscal and Economic Outlook

1000 EUR Eurozone CPI

1500 USD NAHB Housing Market Index

2100 NZD Westpac Consumer Survey

Tue Dec 19

0030 AUD RBA Meeting Minutes & Bulletin

0430 JPY Japan All Industry Activity Index

0800 EUR Germany IFO Expectations

1000 EUR Labour Cost

1330 USD Housing Starts/Building Permits

2145 NZD NZ Trade Balance/Imports/Exports

Wed Dec 20

0700 EUR Eurozone PPI

1315 GBP BoE Carney speaks

1530 WTI EIA Stock

2145 NZD NZ GDP

2350 JPY Japan FDI

Thu Dec 21

0001 GBP UK Gfk Consumer Confidence

0200 JPY BoJ Rate Decision (-0.1% hold expected)

0630 JPY BoJ Press Conference

0930 GBP UK PSBR

1230 USD Philly Fed Manuf Survey

1330 USD US GDP (est 3.3%, prev 3.3%)

1330 USD US PCE QoQ (inflation proxy) (est 1.4%, prev 1.4%) 

1330 USD Chicago Fed National Activity Index

1330 USD Initial/Continuing Jobless Claims

1330 CAD Canada CPI

1400 USD US Housing Price Index

Fri Dec 22

0000 USD US Government Shutdown Limit

0700 EUR Germany Gfk Consumer Confidence Survey

0930 GBP UK GDP

1330 USD US PCE YoY & MoM

1330 CAD Canada GDP

1330 USD US Durable Goods Orders

1500 USD US New Home Sales

1800 WTI Baker Hughes Oil Rig Count

This report is published every week as an email by MatrixTrade.com - you can sign up to receive it here.

USD is rising post-Trump, or is it?

On the weekend after the Trump victory, we have seen a huge increase in equity prices, with the DJIA reaching an all time high. This was to be expected with an across-the-board Republican victory, not only winning the White House but both houses of Congress. However, what was not expected from a protectionist was a rise in the value of the dollar.

The initial panic spike sold the indices and the dollar. If we take Brexit as a comparison, the indices quickly recovered but the currency (GBP in that case) didn't. So what happened in America?

Well, the resolution of uncertainty was likely to favour USD, whoever won, mainly because risk is reduced. But Trump’s infrastructure development plans, to create jobs, and his tax cuts, are perceived as inflationary, hence why USD is rising contrary to the view of many pre-election pundits. Trump’s five minute off the cuff acceptance speech seemingly transformed him from huckster to statesman in an instant, making his plans realistic, especially given the all Republican government.

It is obvious why this is good for equities, and better for the DJIA than the SPX, better for the SPX than the NDX and so on. Building schools, hospitals and roads, and increasing insurance profits by abolishing Obamacare is great for the giants in the DJIA (including the banks that fund them), but doesn’t help the tech industry at all. Trump wants to tighten immigration and cut taxes. Silicon Valley pays little tax anyway, due to the 'cyberspace' location of it's business, but more tellingly 37% of it's workers are non-citizen immigrants.

It is less obvious that Trump is good for USD. So we have to ask - is USD actually rising? Or is it just that other currencies are falling.

Remember US protectionism is per se bad for other countries. If Trump raises tariffs, then to maintain competitiveness, foreign currencies have to fall. We already know about Trump’s whipping-boy MXN, but EUR is suffering a similar fate, as TTIP, nearly completed, is now likely to be cancelled.

Japan of course is a huge exporter to the US, so naturally JPY fell, rumoured to be assisted by a BoJ dollar purchase.

AUD initially showed little effect, and the drop in the AUDUSD pair is probably more to do with the sharp fall in gold, itself being driven by risk-on in equities rather than USD itself. Even gold expressed in EUR is down nearly 3% from it’s pre-election low, and 4.6% from it’s pre-election November high.

A chart you don't often see - Gold in Euros

By contrast, the one country the Brexit-loving President-elect has moved from the back to the front of the queue is the UK. This indicates an economic oxymoron;  a union of isolationists. GBPUSD has soared 2% , EURGBP has given up 5% this week. The British Europhile tourist paradoxically has Trump to thank.

The final test should be on another isolationist currency, with little skin in the game, the obvious candidate being the Swissie. USDCHF has finished the week only slightly up, and 100 pips below it’s October high.

This DXY chart, for the last 30 days, shows that USD across the board appreciation is far from clear. Of course most of DXY's weight is EUR and JPY.

One can imagine Trump finds resonance in Gore Vidal's quote "It is not enough that I succeed, everyone else must fail". Don't forget Vidal's most famous quote is "Never pass up a chance to have sex or appear on television".

I'll leave you with this YouTube clip

Gold - finding a bottom

Another post from my Essex FTA course which is coming to an end now. If you are thinking of taking this course, these blog posts should give you an idea of the work involved.

Sadly, my gold trade did not hit the target of $1105 mentioned in my post of November 16th, but after reaching $1088, promptly reverse and hit my stop. I should have re-set my stop to break-even to avoid a loss, but I didn't.

I have stayed out for the last week, expecting a reversal, but instead saw the metal break long-term support of $1080, reverse at $1064, and now find $1080 as resistance.

A re-examination of the chart shows a clear descending triangle, which is 5th out of 23 in success in Bulkowksi, 2005:711-729[1] as shown below.

Now is maybe not the best time to enter, as the pattern allows for a possible $5 bounce before resuming it's downward trend. But on the other hand, the trend is very strong. I have therefore placed a trade at market

Size           : 5 units

Entry         : $1068

Stop Loss  : $1076 (above the descending line)

Target       : $1032

The target is difficult, as the instrument is at 7-year lows and so we are into uncharted (no pun intended) territory. I have taken the March 2008 top of $1032 as support, the last time it did something major, shall we say a $500 round trip.

Gold 2006-2010. Source tradingview.com

I have added a line for the current price, and the case for this level of support is instantly made, visually.

The price/action in February 2010, and the round point show a possible pause in decline at $1050, and this would be a good point to take, say, half the position off and move the stop loss to break even.

David Atherton

References

[1] Bulkowksi, T., Encyclopaedia of Chart Patterns, 2005, Wiley