Risk-off play seen to be in extended mode adding bearish momentum on equity assets:
Weak global economic outlook has diluted the liquidity (and interest rate) support to risk-on assets; it is not a surprise to see loss of liquidity traction against combination of weak growth momentum and deflationary dynamics. While US is seen to be relatively better placed, impact from UK, Euro zone, Japan and China can't be ignored; hence, no surprise to see DJIA index losing steam at 17600-18100 for push-back into 17000-17150. The near term strategy (since mid December 2014) was to play back-and-forth between 17100-17150 (cheap-to-acquire zone) and 18100-18150 (hot-to-hold zone); since then, have seen back-and-forth at 17067 to 18103 to 17136 before weak monthly close at 17164, unwinding the entire move. What next? The undertone is weak (and bearish) for shift of near-term focus at 16700-17600 with bias into lower end. The appetite is seen to be on "sell-on-recovery" mode with minor resistance at 17350-17365 ahead of strategic sell zone at 17500-17625; 1st signal for extended reversal (of 15855 to 18103 rally since mid October 2014) is on failure at immediate support zone of 16975-17125. All taken, positive vibes (and optimism) is not at sight to turn bullish for strategic play; good to stay fleet-footed with the trend, which is weak (and nervous) as Central Banks are short of ammunition to tackle the growth-inflation conflicts.
Risk-off mode and worsening economic conditions add bullish momentum to Gilts:
US 10Y Treasury yield swiftly down from 1.85-1.90% to the set near-term target at 1.50-1.65%; though to the script, the speed is scary! Over medium term, the yield is already down from 3.0-3.15% to 1.50-1.65% despite complete unwind of QE and FED preparedness for shift into rate-hike cycle. The guidance of "patience with caution" by FED (signalling deferral of rate hike shift into Q4/2015 to 2016) and ultra-dovish monetary policy stance of major economies (with generous QE at zero/negative interest rate through 2015-2019) turned catalyst for the move from 2.45-2.60% to 1.50-1.65% in quick time. What next? Can the bullish rhythm extend beyond 1.50-1.65%? Don't know, but would be high-risk chase below 1.50%, and if it does, it would signal doom & gloom for global financial markets. For the week, it is prudent to retain focus at 1.50/1.55-1.75/1.80% for back-and-forth play; break-out either-way is not expected to sustain, hence stay neutral on break-out bias.
Brent in recovery mode while Gold dilutes bullish momentum:
Brent Crude was stuck at 47.50-50.00 (with back-and-forth punch at 47.57 & 49.99) before swift late surge into 53.08 before solid close at 52.95. The long term focus has already been set at 45-55/65 with sight of demand-supply equilibrium at/below $45; strategy, therefore was to buy dips into 45-46.50 in preparation for unwind of $115.71 to 45.19 crash for short term target at $61.75-62.00, with lift of base from 45.00-46.50 to 50.00-51.50. For now, set trading focus at 50.00/51.50-60.50/62.00 for near-term consolidation. Is some relief package to Russia in the making?
Gold got into consolidation mode, post the intra-Janauary 2015 swift rally from 1165 to 1310 (with punch at 1168.25 and 1306.20); intra-week push-back from 1298.76 saw false break below 1255-1260 (low at 1251.86) before gaining steam into 1285 for close at 1282.80. What next? Gold retains investor appetite, as alternate to Gilts and risk-aversion for equities, thus holding on to bullish undertone. For now, set focus at 1240/1255-1310/1325 for back-and-forth play. It is not clear to set directional bias beyond here, at this stage.
USD in bullish consolidation mode:
Post the swift bullish momentum pick-up from mid-Dec'14 support at 87.50-87.65 to over 94.00-94.15, the outlook is for consolidation at 93.50/93.65-95.65/96.00; saw intra-week failure at 95.33 (ahead of previous high at 95.48) for swift push-back into 93.69 for firm close at 94.85. There are no fresh cues to review the said outlook, but would fine-tune the focus at 94.00/94.15-95.85/96.00 awaiting fresh cues. The short term bias is for extended bull-run into 99.00-99.50 with firm strategic support at 93.65 (ahead of 92.85).
EUR/USD is in back-and-forth mode at set focus zone of 1.11-1.1450 (with punch at 1.1098 and 1.1422) before close around mid-point at 1.1286. What next? There has been dilution in interest rate play (against the Euro), thus extending support at 1.11. Having said this, bearish outlook over long term attracts Euro supplies at 1.1385-1.1435 (relief only above 1.1450). For the week, continue to retain focus at 1.1050/1.1100-1.1400/1.1450 in preparation for shift of near-term focus into 1.0750/1.0800-1.1050/1.1100.
GBP/USD is in back-and-forth mode at set focus range of 1.4950/1.5000-1.5200/1.5250 with intra-week punches at 1.4973 to 1.5222 to 1.4988 before close at 1.5066. What next? The undertone is bearish with minor resistance at 1.5150 (ahead of major end-of-correction zone at 1.5225-1.5275) with bias for another knock at 1.4950 for extension into 1.4800-1.4850, which should hold for short term consolidation at 1.48-1.53. For the week, set focus at 1.4800/1.4850-1.5150/1.5225 for back-and-forth play.
USD/JPY stayed rock-solid at zoom-in range of 117/117.50-118.50/119 with back-and-forth punches at 117.25 to 118.65 to 117.25 before weak close at 117.44. The bullish momentum is diluted from interest rate squeeze and weak NIKKEI, thus setting bias into short term support zone of 115.50-116.00. There is not enough momentum to take out 118.50-119.00 and the major resistance at 120.50-121.00. For the week, set focus at 115/115.50-118.50/119 for back-and-forth play and stay neutral on break-out bias.
Have a great week ahead!
Moses Harding
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