Less said the better on Global economy and the extent of monetary support to arrest hard landing
The heavyweight economies (Euro zone, UK, Japan and China) are in bad shape with good comfort from the US. The worst impact from combination of growth deceleration and deflation will keep the investor and consumer sentiment low and down. The Central Banks have no other option but to pump huge liquidity into the system (to pull investments) and maintain zero/negative interest rate regime (to push consumption). Given the abundant global liquidity around, FED preparedness for shift to rate-hike cycle (as follow-on post QE unwind) has lost its relevance and bite. It is now clear that major Central Banks (except FED) will stay in ultra-dovish monetary policy stance till end of 2016, while FED might defer its tightening mode beyond mid 2015. All taken, there is significant relief for risk-on equity assets (and Gold) and good appetite for risk-off Gilts and rated corporate bonds. Commodity assets (excluding precious metals) will be under pressure from extended demand compression in the absence of squeeze in supply.
Global equities retain its bullish consolidation mode
DJIA price-stability is firm at inner-ring of 17350-17850 within the set near term strategic range of 17000/17150-18000/18150. The intra-week play at 17346-17840 (before close at 17672) is in validation to the expected outlook. While we retain this trading range of 17150/17350-17850/18000, there are no major triggers at sight to allow overshoot beyond 17000-18150. For the week, the bias is for bullish consolidation at 17500/17600-18000/18100 with strategy to play end-to-end. It is good risk-reward for strategic play between set outer corridors, post the back-and-forth chase from 17067 to 18103 to 17243 (between 16th December 2014 and 16th January 2015). As of now, see 17000-17150 as cheap-to-acquire zone and 18000-18150 as hot-to-hold valuation given the mixed cues between risk-off (from growth-inflation conflicts) and risk-on (from liquidity-interest rate dynamics) factors in play.
US Gilts boxed between risk-off reward and rate-hike risk
Despite FED rate-hike fears, US 10Y Treasury yield is down from recent high of 2.40-2.65% to 1.70-1.95% on safest-haven appetite flow from developed economies to de-risk against run-away strong USD. These dynamics will stay valid through 2015-2016 with the outlook that FED may either delay rate-hike to end 2015 or into 2016 or rate-hike impact may not be significant (for non-US investors) on adjustment to USD strength. All taken, US 10Y has firm support at 1.90-2.0%, not ruling out further extended gains into 1.50-1.65% in the short/medium term. For now, the bias is for consolidation play at 1.65/1.70-1.85/1.90%; overshoot either-way is not expected to sustain.
Brent Crude recovery to stay restricted while Gold retain its bullish consolidation mode
Post the crash in Brent Crude from 115.71 to 45.19 (from 20th June 2014 to 16th January 2015), the recovery is shallow at 50.40-50.65 for consolidation at 47.50-50.00. What next? The outlook is not bullish for months (or years) ahead when demand-push factors are not visible to absorb excess supply in the system. The only comfort is from sight of demand-supply equilibrium at 40-45, which extends support at $45. It is possible that speculative offers will emerge above $50 for extended push into 40-45 in the near/short term. For now, it is good to retain focus at 45/45.50-50/50.50 for back-and-forth play; overshoot to stay within short term big-picture at $40-55.
Gold recovery from strategic support/short-squeeze zone of 1120-1135 has hit 1310-1320 intermediate target ahead of 1345-1360, seen as strategic resistance zone for long-exit. The risk-on appetite is now even between equity and precious metals, chasing the liberal dose of liquidity support and zero interest return on risk-off assets. What next? The base has already been lifted up from 1120-1135 to 1260-1270 with near-term target at 1345-1360, not ruling out overshoot into 1385-1400. For the week, retain focus at 1270/1285-1345/1360 with bias into higher end; strategic chase from $1120-1135 is to be held tight with trail stop at 1255 for take-profit target in 2 lots at 1345-1350 and 1390-1395.
USD in break-neck bullish momentum
DXY bullish momentum was clearly visible from frequent shift of base (since October 2014) from 84.50 to 92.00 for target beyond 94.00-94.15; acceleration to the momentum is now established post ECB liberal dose of stimulus and ultra-dovish monetary policy outlook till 2016. The unwind of multi-year crash from 121.02 to 70.70 (between July 2001 to March 2008) is in progress with 50% recovery of 95.85 is at striking distance. The intra-week rally from set base of 92.00-92.15 is swift from 92.15 to 95.48 with bullish weekly close at 95.00. For now, near-term base is lifted up at 93.50-93.65 for 95.85 enroute to 101.50-102.00. The USD party gonna be extended one!
EUR/USD is the worst hit from December 2014 high of 1.2569 (set strategic sell zone of 1.25-1.26 for chase into 1.1375-1.1450); thanks to ECB, the extension has gone beyond 1.1375 with low at 1.1113 before short-squeeze triggered consolidation at 1.1100-1.1250. Needless to say, undertone is weak while below 1.1350-1.1450 with immediate target at 1.0750-1.0800 and for more towards parity. Prudent to be with the chase and temporary relief only above 1.1475, seen as low probability occurrence.
GBP/USD too dragged down from set resistance zone of 1.5550-1.5600 (revised down at 1.5200-1.5250) with target at 1.50; have seen move from 1.5584 to 1.4948 before weak weekly close at 1.4987 (in quick time this month). The undertone is weak for 1.4900-1.4915 enroute to 1.4810-1.4835 with relief only above 1.5100 to arrest further extension into 1.4300.
USD/JPY stayed calm at 117-119 amidst storm around with intra-week play at 116.91-118.87 before close at 117.52, thus validating the consolidation outlook at inner-ring set near-term big-picture at 115/116.50-118.50/120. What next? Post the Dec'14 back-and-forth moves from 121.84 to 115.56 to 120.82, outlook was for stability at 115/116-119/120 with emergence of exporters $ offers and equity linked downside pressure. Despite this push-back pressure, the strategic support at 115-116 is solid in traction with USD bullish momentum for next attempt to take out 121.84 enroute to 124-125. For now, let us retain focus at 115/116-120/121 for back-and-forth play.
Have a great week ahead, Cheers!
Moses Harding
No comments:
Post a Comment