- The severe tumble in risk trends last week wasn’t threatening market stability through the open session of this new week
- DXY has offered little clarity on direction as primary motivation is itself unclear, meanwhile the deficit hit a 6-year high
- Euro and Pound are seeing the quiet before their respective Italian and Brexit storms, be mindful of your trade intent with each
What do the DailyFX Analysts expect from the Dollar, Euro, Equities, Oil and more through the 4Q 2018? Download forecasts for these assets and more with technical and fundamental insight from the DailyFX Trading Guides page.
Risk Trends Steady to Start the Week, the Threats Remain Numerous
Like a life raft encircled by sharks, the risk-leaning benchmarks opened this week with an air of stability while the fundamental threats to the system remain distinctly unresolved. Following last week’s painful collapse in US indices – a move that motivated risk aversion far and wide – Monday’s steadfast conditions were welcomed by harried bulls. The balance was not simply isolated to US equities. European and Asian shares markets registered small movements, the emerging markets offered a measured gap lower without hitting new lows and the Yen-based carry trade eased up on its retreat. Yet, despite the implications such a correlation across diverse markets represents, there is more loaded speculative potential packed into the next move from the S&P 500, Dow and Nasdaq. These indices are still running a considerable premium to nearly every other high-profile ‘risk’ metric even after the deeper rout. The technical picture accurately reflects the circumstances moving forward. All three are hovering just above major trendline support which could readily signal a medium-term reversal in trend if cleared – in concert, the move would get on far more radars. Far more important is the sheer number of possible catalysts that can tip us back into selling pressure – or cue a notable rebound. Anticipation of the US Treasury’s call on Chinese polices keeps trade wars in focus (see the history of a century of trade wars here). Yields are at the mercy of risk trends and US Treasury yields specifically at the command of China. Growth forecasts were downgraded this past week for an otherwise ‘mundane’ threat. Earnings season hits its first ‘FAANG’ update (Netflix) Tuesday after the bell. Then there are the regional threats, which we discus below.
SPX Daily Chart
Dollar Is a Fundamental Stalemate with Too Many Charges to Keep Tabs On
When trading FX, it is difficult to avoid the US Dollar. However, given the state of its fundamental predicament, that may be an effort worth making. Whether we reference the trade-weighted DXY Dollar Index or an equally-weighted measure, there is a distinct lack of bearing on the benchmark. The picture is appropriately reflect via EURUSD, the most liquid currency bar none. There is a multi-year head-and-shoulders pattern that the pair tentative broke in August only to reverse course before conviction could take. What eventually resulted was an inverse variation of the same pattern where the break above 1.1725 again fell apart. Now trading around 1.1600, the Greenback has shown little intent to champion either bullish or bearish interests for the time being. That is not likely due to a lack of meaningful fundamental charge but instead it is more likely a side effect of an overabundance of meaningful themes tugging at the currency. For risk trends, there is not enough intensity to raise the focus on the currency’s safe haven status, but even its carry position has yet to be provoked this week. One fundamental signal that was prodded this past session but still abstract for most is the currency’s position as the unquestioned reserve leader. This United States deficit for 2018 was projected to $779 billion which equates to a 3.9 percent ratio to GDP. That is the largest dip into lending for the government since 2012 and furthers the concern that the country pushing the financing tolerance of the ratings agencies. Until we see one of these key themes take command of the currency’s bearings, it will prove difficult to trace its course.
DXY Daily Chart
Euro and Pound Tension Will Only Build into the Wednesday-Thursday EU Summit
As the Dollar flounders fundamentally, its largest counterparts are honing in on very specific fundamental themes. Yet, where there performance is riding on a single track, the outcome and timing of these uncertainties are problematically open-ended. Form the Euro, we were reminded that the currency’s future is under pressure. Following the growing discord between the Italian government and their EU/Eurozone counterparts this past weeks, the Italian Deputy Prime Minister Salvini remarked that the country doesn’t feel bound by the EU’s deficit rules – making a finer point to previous remarks that the country could increase spending if they don’t meet a generous GDP forecast and their belief that the European Central Bank (ECB) would bail them out should financial conditions grow strained. Prime Minister Conte’s remarks today and the two-day EU Summit Wednesday and Thursday will prove crucial. These particular events will very likely be more market critical than the Eurozone and Italian trade reports or the region’s investor sentiment survey from ZEW. The British Pound will also have a lot invested in the two-day meeting of the European leaders. This is a crucial ‘crunch’ event for the UK and EU to hash out a clear path for the divorce known as ‘Brexit’ (learn about the different possible Brexit outcomes in this special report). If this summit ends without resolution, the Pound is likely to tumble. Just as readily, a positive outcome will trigger a rally. Yet, after the collapse of talks between chief negotiators over the weekend and Prime Minister May’s remarks in Parliament Monday, the Cabinet meeting ahead will more likely set this event for a crash landing.
GBP Index Daily Chart
New Zealand Dollar Jumps after CPI Beat, Reminds of the Virtues of Discounted Majors
As convoluted as the backdrop seems for the likes of the Dollar, Euro and Pound; there are still options for the studious FX traders. The Canadian Dollar was given a serious charge this past session when the third quarter business sale survey from the Bank of Canada (BoC) showed an significant improvement. The general sentiment figure and lending survey were decidedly less encouraging, but these were reading taken before the breakthrough on the stalled NAFTA negotiations. Now the focus for the Loonie will more likely fall to BoC intent, so the next major update comes from Friday’s inflation update. Meanwhile, the New Zealand Dollar was prompted to a rally of its own with the release of the third quarter CPI (consumer price index) update. The 1.9 percent clip is still a ways from the upper threshold on the Reserve Bank of New Zealand’s (RBNZ) tolerance band for price pressures, but it nevertheless makes the next move decidedly more hawkish rather than dovish. Given the deep discount on the Kiwi these past months and the lack of response from the currency to last week’s risk flush, there is naturally more response to the positive news. I would expect the same for the Australian Dollar moving forward, but there the key event risk comes with the local employment report and third quarter business sentiment survey which will hit the wires at the same time. We discuss all of this and more in today’s Trading Video.
AUD/NZD Daily Chart
If you want to download my Manic-Crisis calendar, you can find the updated file here.
Written by John Kicklighter, Chief Currency Strategist for DailyFX.com
Crude Oil Weekly Technical Outlook– WTI Plunges to Fresh Yearly Lows
In this series we scale-back and take a look at the broader technical picture to gain a bit more perspective on where we are in trend. Oil prices have continued to plummet with crude attempting its sixth consecutive weekly decline into a critical support confluence at the yearly lows. Here are the key targets & invalidation levels that matter on the Crude Oil (WTI) weekly chart. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.
New to Oil Trading? Get started with this Free How to Trade Crude Oil Beginners Guide
Crude Oil Weekly Price Chart (WTI)
Notes: In last month’s Crude Oil Weekly Technical Perspective we highlighted a critical support confluence at the lower bounds of a multi-year formation in price around 67.83. A break lower in late-October has fueled a decline of more than 23% from the yearly highs with price now targeting the next major support hurdle at 57.45–58.10 – a region defined by the 38.2% retracement of the 2016 advance, the 2018 opening-range low and the lower parallel of the descending pitchfork extending off the yearly highs.
The focus is on this critical range with the immediate short-bias at risk near-term while above 57.45. Initial resistance stands at the yearly open at 60.06 backed by the median-line / August low at 64.40 (near-term bearish invalidation). A break / close lower from here risks accelerated losses in crude prices with such a scenario targeting the 55-handle backed by the 200-week moving average around ~52.25.
For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy
Bottom line:Crude Oil is approaching the first major support confluence at 57.45–58.10. We’re looking for a reaction here with a break / close below targeting subsequent objectives towards the 200-day moving average. From a trading standpoint, a good spot to reduce short exposure / lower protective stop – be on the lookout for a possible near-term exhaustion low. That said, this is a make-or-break level for crude at downtrend support; watch the weekly close for guidance. I’ll publish an updated Crude Oil Scalp Report once we get further clarity on near-term price action.
Even the most seasoned traders need a reminder every now and then- Avoid these Mistakes in your trading
Crude Oil Trader Sentiment
- A summary of IG Client Sentiment shows traders are net-long Crude Oil – the ratio stands at +5.21 (83.9% of traders are long) – bearish reading
- Traders have remained net-long since October 11th; price has moved 20.2% lower since then
- Long positions are3.5% higher than yesterday and 18.1% higher from last week
- Short positions are 14.0% higher than yesterday and 19.6% higher from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Crude Oilprices may continue to fall. Yet traders are less net-long than yesterday & compared with last week and the recent changes in sentiment warn that the current Crude Oil price trend may soon reverse higher despite the fact traders remain net-long.
See how shifts in Crude Oil retail positioning are impacting trend- Learn more about sentiment!
Previous Weekly Technical Charts
— Written by Michael Boutros, Technical Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at email@example.com
EURGBP Price Breaks Lower, Further Falls Possible
EURGBP price, news and analysis:
- EURGBP has dropped to its lowest level since April and further losses seem plausible.
- The April 17 low at 0.8620 is a reasonable first target.
EURGBP price under pressure
EURGBP has fallen steeply over the past three sessions, closing a gap on the daily chart and dropping to its lowest level for seven months. With a downward trend now firmly established, losses could extend further – with the April 17 low at 0.8620 a possible first target.
EURGBP Price Chart, Daily Timeframe (January 30 – November 13, 2018)
If that level is broken, there is little support for the pair before a long-term trendline just under 0.85 and then the Spring 2017 lows of 0.8384 touched on May 10 and 0.8313 reached on April 18. Meanwhile, there is resistance at 0.8798 from the 20-day moving average, at 0.8828 from the 50-day dma and 0.8889 from the 100-day dma, as well as from a trendline that checks in at 0.8906.
This technical weakness is backed by fundamental factors, with the Euro under pressure from the row between Italy and the European Union over the Italian Budget while the Pound is benefiting from rising hopes of a Brexit deal between the EU and the UK.
Note too that retail traders remain net-long the pair and a contrarian view of crowd sentiment also suggests that further losses are possible.
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— Written by Martin Essex, Analyst and Editor
Bearish Streak Persists as Trump Jawboning Negates OPEC U-Turn
Oil Price Analysis and News
- Record Crude Oil Losing Streak
- OPEC U-Turn
- Trump Jawboning
- Brent Crude Futures Moves Deeper into Contango
For a more in-depth analysis on Oil Prices, check out the Q4 Forecast for Oil
Record Crude Oil Losing Streak
Yesterday saw oil prices drop for the 11th consecutive session, marking a record run of losses for crude oil, which looks set to continue with Brent slipping some 2% this morning. Consequently, Brent crude has fallen over $18/bbl (-21%) since the October peak, while WTI crude is eying its lowest close of the year.
Ahead of US sanctions on Iran, investor angst over potential supply shocks had risen, which in turn saw oil prices reach 4yr highs. Much to the displeasure of President Trump, the President had increased his calls for the likes of OPEC to boost production to stem further price rises. In response to this, Saudi Arabia had complied to this, with the OPEC kingpin, alongside Russia both agreeing to boost production ahead of the imposition of Iranian sanctions, while US oil production also surged to record levels.
However, at the beginning of November, the US had announced that they would provide waivers to 8 nations, allowing them to continue buying Iranian oil at a reduced rate. As such, this had reduced the potential impact that Iranian sanctions would have on oil market supply, prompting a sell- off in prices as investors priced out risks of higher oil prices.
Consequently, this has led to a U-TURN from OPEC, who at the most recent JMMC meeting and OPEC monthly report expect supply growth to outstrip demand growth, implying that the bearish sentiment is set to continue in their short-term outlook. This in turn, has seen Saudi Arabia now pledge to reduce exports by 500kbpd and call on OPEC to reduce production by 1mbpd.
Initial optimism from potential oil cuts from 2019, quickly receded after further jawboning from President Trump, stating that he “hopes, Saudi Arabia and OPEC will not be cutting production. Oil prices should be much lower based on supply”. While it is unlikely that OPEC will listen to Trump’s jawboning given that the cartel is warning of a supply glut, it is likely that Trump will continue to enforce the view that oil need to be lower.
Brent Crude Futures Moves Deeper into Contango
Structurally oil prices are looking increasingly bearish as the Brent curve moves deeper into contango (Spot price lower than forward price) with the front month spread now -$0.28. In turn, this raises risks of lower oil prices for longer as contango markets typically signal a negative roll yield, prompting speculators to exit bullish bets.
Source: Refinitiv, Managed Money Positioning of ICE Brent crude futures.
HOW TO TRADE OIL MARKETS
OIL PRICE CHART: Daily Time-Frame (Mar-Nov 2018)
Brent crude oil prices remains on the backfoot to test lower levels. However, with the RSI moving back into oversold territory, this may provide a slight reprieve, which will allow for bears to reload shorts and test April lows situated at $66.60
— Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.firstname.lastname@example.org
Follow Justin on Twitter @JMcQueenFX
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