Most important moves of the week

Introduction

We have seen interesting moves this week in the financial markets. The most important was the ECB decision to cut the monthly asset purchases but extend them until September 2019. The market considered this decision very supportive and dovish by the ECB. The euro was hit by this decision and the problems in Spain. The UK released a better than expected product that helped the British Pound to hold its value versus other currencies. On the other hand, the energy markets have moved a lot. The Crude Oil Brent closed the week at 60.44, the 2 year high.

Crude Oil Brent

    Source: TradingView, Crude Oil Brent Dec17 future, daily

The Crude Oil Brent has broken key levels and has risen like a rocket in the last two days. I fell on Monday and I questioned my bullish idea as it could keep raising and break the 58.20 level. On Tuesday it closed at 58.33, above the key level formed the week before.  The selling pressure wasn’t strong enough on Wednesday at this contract closed flat at 58.45. The big movement was in Thursday and Friday. After Wednesday support, it tested the 59.54 on Thursday. It continued the bullish trend on Friday. It closed at 60.44, which represents the 2 year high.

US Dollar Index

      Source: TradingView, US Dollar Index futures, daily

As you can see it’s been a tough year for the USD. In June, and due to the interest rate hike by the Fed, seemed that the US Dollar Index could go up. But it didn’t. The weakness in the energy markets and the geopolitical problems didn’t allow the USD to rise. The market expected more hikes in 2017, unfortunately, with the hurricanes, the Fed officials were obliged to delay this decision. We have seen good economic data this week in the US:

Macroeconomic indicator	Reading	Expected
Core durable goods orders (MoM)	0.7%	0.5%
New home sales	667K	557K
GDP	3.0%	2.5%

The Fed is showing confidence and a hawkish approach because they have confirmed that the interest rate hikes will continue in the next year and they will reduce the asset purchases. 

     Likelihood of December Rate Hike, CNBC, https://www.cnbc.com/2017/09/18/traders-are-getting-ready-for-another-fed-hike.html

       December FED rate hike probability, Bloomberg, http://uk.businessinsider.com/markets-almost-certain-fed-hiking-interest-rates-in-december-2016-11?r=US&IR=T

These charts show how the likelihood of a rate hike in December is increasing, and the dollar has done the same movement since September. Is anyone building a big position?

All of these facts were the key to help the USD. Technically the most important thing is that the downtrend was broken 1 month ago. The most important levels for me are 92.63 (as a key support) and 96.585 (as a resistance)

Another interesting fact is that Janet Yellen won´t continue as a Fed president.

Euro

    Source: TradingView, EURUSD Dec17 future, daily

The Euro has fallen this week due to the dovish speech by the ECB this week and the USD strength. This is always the same if you don’t deliver what the market participants expect, the value of your assets decline. As I said in my last article, I understand that the ECB prefers to be cautious with the QE cuts. Having a weak currency in a growing environment can help the inflation to peak. It has broken 2 key levels this week as you can see in the chart. I think it can keep going down and test the 1.1530 level. In part, the last decrease was due to the issues in Spain.

British Pound

    Source: TradingView, GBPUSD Dec17 future, daily

Surprisingly for me, the GBP is holding its value vs the dollar. We have seen a better than expected GBP in the UK. It’s difficult to know what will happen in the Brexit negotiations. There are a lot of doubts and speculation about what will happen. The biggest investment banks confirmed that thousands of employees will be relocated to Europe. 

    Source: TradingView, GBPUSD Dec17 future, daily

We have seen the same down movement than in the EURUSD. We can see a double top that indicates that the GBP will rise vs the Euro. The 0.8733 level is a very important support that has been tested several times.

I hope you like it.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

#Trading #fx #euro #gbp #USD #energy markets #brent #macroeconomics #UK #US #Europe #fundamentals, #Bloomberg #FED #interestRate #qe #Assetpurchases #ECB

Crude Oil Brent, similarities between short term trading and the economic cycle phases

Brent futures week review

We have seen interesting movements in Brent this week. As I said in one of my last articles, I see a bullish trend in Brent. It crossed the resistance at 57.21 on Monday after being rejected on Friday the 9th October. Tuesday was a choppy market but it managed to close higher. All the daily highs were rejected from Monday to Wednesday, this was followed by a big fall on Thursday.  Yesterday It fell in the morning but quickly recover and closed at 57.75. You can think about the Friday recovery as a market optimism supported by the output cut policy by the OPEC.  Let’s check the market action on some charts:

    Source: TradingView, Brent Dec17 Future, daily

Here is the chart from the middle of August to yesterday’s close. It failed to rise above the 58.80 level, which I consider really important. I think it was due to profit taking from institutional trading firms. Yesterday upside move confirmed the bullish sentiment. The shadow was really big, which indicates that traders rejected the downside move and they rebalanced their portfolios increasing longs.

     Source: TradingView, Brent Dec17 CFD Oanda, 1 hour

I've used the Brent CFD from OANDA because I don’t have live market data on ICE futures Europe. It´s easier to see how the market rejected and took profits above 58s. The most relevant part of this chart is the price action on the 20th October. The shadows highlighted in yellow show an area where the buying pressure was bigger than the selling one.

Can we compare the financial markets with the economic cycle?

It seems that the economic cycle is reflected in some markets, the best example is the stock market. Some companies are not as affected by the economic cycles as in the past because globalization plays an important role in their PnL, they can struggle in some countries but they can compensate with the profits from other countries or economic areas. Obviously, there is the risk of contagion as we saw in the last financial crisis. Can we see the same phases in trading than in the economic cycle?

      Economic cycle, own elaboration

Let me briefly explain the economic cycle phases:

• Recession: the confidence drops and shows weakness, the inflation peaks, the inventories drop and the production falls.
• Recovery: the stimulative economic policy helps the confidence to rise again, the inflation falls
• Expansion: the confidence increases, the economy grows
• Late cycle: the inflation rises, everyone talks about the economy and investments, the economic policy becomes restrictive

How do the different assets behave in these phases?

• Recession: interest rate futures and bond futures rise (the yields drop), the stock market falls, commodities fall because there are uncertainty and low demand
• Recovery: interest rate futures curve start to change the direction at least in the back of the curve, bonds futures rise but less than before creating resistances, the stock market stars to rise at least in the stocks linked to the economic cycle, commodities go up.
• Expansion: interest rate futures and bond futures fall (the yields rise), the stock market rises, commodities trends up supported by a strong demand.
• Late cycle: short interest rate yields and bond yields rise, stock market tops up, commodities continue the upside move.

Now, I would like to change the following words:

• Recession: Weakness
• Recovery: Accumulation
• Expansion: Strong trend
• Late cycle: top

It seems a simple game but I want to let you understand that it’s all about order flow, I mean supply and demand, buyers vs sellers. Let me start with the accumulation phase. This is the phase in which the price of the asset is cheap but the market participants have doubts about buying the asset. The institutional investors take advantage of their big portfolios and they start buying and building a long position. Once it has gone up a bit, the economy has improved and shows signs to keep improving, the asset will be in the expansion phase. The main characteristic is that everyone tries to get into the asset and a strong trend is made. After this, there is a late cycle or a top. Everybody talks about how good the asset is performing and some people try to get into it. Sadly, it’s not the best decision as the movement is almost finished. The institutional investors usually take profits during the expansion phase.

Light Sweet Crude Oil example

     Source: TradingView, Light Sweet Crude Oil futures, 15 min

The purpose of this chart is showing what I explain above. It fell in the morning, weakness phase. After that, the accumulation phase started. Around 15:00, the buying pressure pushed the price up. This represents the expansion phase. Between 16:00 and 15:00, the market couldn’t break the 51.60 level, this confirmed the late cycle in which the market topped and failed to break highs. I do apologize because it’s not the best example to show the concept explained.

Conclusion

I hope you have enjoyed this article. It’s not as big as I would like. Please let me know if you would like me to explain each concept in more detail and I will try to do it in the future. As you can see, trading is not as simple as buy low and sell high. There are a lot of things you should consider. 

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved

Headlines of the week, British pound, Brent and Economic calendar for the next week

United States

The most important economic releases this week were the US Core CPI (MoM and YoY) and the US retail sales. As you know both were lower than the market expected and the treasury yields and the USD closed lower yesterday. The US inflation data offset the higher gasoline prices.  Robert Kaplan, Dallas Federal Reserve Bank President said that that the Fed should periodically review its inflation target and other frameworks. I think this is interesting but I don´t know how they can apply it. The economic policy takes time to affect the real economy.

UK

In the meantime, crossing the Atlantic, Mark Carney said on Friday that he expects that the BoE will raise interest rates but he declined to comment when. The biggest headline was that there are rumors that Britain is to be offered a two-year Brexit transition deal. The British Pound jumped as soon as this news was published in the media.

Europe

There is a controversy between  Jens Weidmann (Bundesbank president) and the European Central Bank. He said that there is no need for the ECB to continue providing monetary stimulus through bond purchases.  Mario Draghi doesn´t see enough inflation progress. According to Reuters, the ECB is likely to reduce support but continue to buy the asset purchases.

China

Apparently, China´s economy has shown signs of stabilizing and growing more strongly. If it continues in the second half of the year, the commodities will rise.

GBPUSD Dec 17 Futures

    Source: TradingView, GBPUSD Dec17 futures, daily

As I comment before, the last move has been driven by the possibility of the two year transition period between Europe and UK. We can see the bounce back on Thursday when it was published on the news. Apart from that, it's the second time it closes above the 1.3285 resistance I signaled in one of my old posts. 

Brent Dec17 Futures

    Source: TradingView, Brent Dec17 futures, daily

The Brent rose yesterday and tested the resistance at 57.21. I think it can keep rising the next week due to the demand increase. 

Economic Calendar

Own elaboration                                                                           

It´s going to be a busy week for the UK traders as they have CPI, Average Earnings + Bonus, Claimant Count Change and Retail Sales. In the US, we should look forward to seeing Industrial Production, Building Permits and Existing Home Sales. Tuesday is the most important day of the week if you trade European products.

Sum up

This is a little review about the most relevant things of the week. For now, the markets are moving as I expected and shared in other posts. Let's see what happens next week.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverages involved

Brent and WTI Futures, ytd behaviour

The energy markets are moving a lot this year. One of the best examples is the Brent future. The price was steady during the first three months. After that, the volatility rose and we saw big swings. The increase in US oil drilling, the low demand and the failed effort by the OPEC were the main reasons that made the Brent and crude oil fell to the lows of the year.

We have seen the energy markets rising during the last five month. The main reason why the Brent and WTI are rising is the increasing demand while the OPEC is trying to extend the output cuts policy. Considering these reasons, I expect that the bullish trend will continue at least in the short term. 

Brent Dec17 futures

   Source: TradingView, Brent Dec 17 futures, daily

This is the chart that shows the Brent futures behaviour during 2017.

Let’s check the last 5 months:

    Source: TradingView, Brent Dec17 futures, daily

As you can see the Brent has been rising since the middle of Jun.  The area between 50.50 and 53.03 was really important to allow the Brent trade higher. I consider that 55.51 is a good support and I expect that it will go up and consolidate the move above the first resistance (57.21).

The most significant levels for me are:

Resistance 2	59.17
Resistance 1	57.21
Support 1	55.51
Support 2	53.03
Support 3	50.50

WTI Crude Oil Dec17 Futures

    Source: TradingView, WTI Crude Oil Dec17 futures, daily

This chart is similar to the one above with the Brent. Depending on the inventories today it can look for highs around 52.41. It shows strength as it´s above the moving averages represented in the chart

Resistance 1	52.41
Support 1	50.55
Support 2	48.85

This is only a brief analysis of the Brent and WTI crude oil futures. I think it’s good to have an idea. I can´t provide a forecast for the future because a lot of things are involved. The popularity of electric cars is increasing. The environmental policies become more strict every year. We have seen a lot of sanctions in the automotive sector this year. The OPEC is promoting an output cut policy that it´s driven the oil prices higher. I hope it helps.

Have a good trading!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverages involved