Canadian interest rate decision, the falling USD and the indexes rally

We had a busy week in terms of news and economic releases. The UK CPI and the European CPI were in line with the expectations. The Bank of Canada raised the interest rates. We saw a better than expected building permits in the US. Maybe the biggest surprise on Friday was the UK Retail Sales that show the third-worst figure in the last 5 years. On the other hand, the speculation of the government shut down drove the USD down. Sadly, now it’s official, as it happened yesterday night.

Interest Rate decision

    Source: TradingView, USD/CAD (FXCM), 15 min

As you can image, the CAD went up with the interest rate decision. The market participants expected a hawkish statement considering that the Canadian economic outlook is expected to keep strong and allow to raise the interest rates in the future. Sadly, the BOC showed its dovish side confirming that some monetary accommodation will be needed.

     Source: TradingView, USD/CAD (FXCM), daily

We can see that the USD recovered in the last 2 trading days after the dovish comments of the Bank of Canada and the uncertainty about NAFTA.

US Dollar Index

    Source: TradingView, US Dollar Index, daily

The USD has been falling during the last 3 months while the bond yields have been raising. If we only consider the FED policy, the dollar should be going up. On the other hand, and in my humble opinion, some policies are not coordinated to meet certain economic targets. In addition, some political issues such as the government shut down are reflected on the USD.

Unstoppable Indexes

DAX

    Source: TradingView, DAX future, daily

The Dax is trading on its all-time highs and seems that it´s not going to stop. The European indexes are not as directional as the American indexes. One of the biggest risks, in my opinion, is an expensive euro because this will slow down the trading with other economic areas.  The ECB will hold a meeting next week that will guide the traders about the future economic policy.

FTSE

     Source: TradingView, FTSE future, daily

The FTSE is another example of great performance. The recovery since the Brexit referendum has been incredible. The uncertainty of the possible split up with Europe hasn´t affected the index. It´s true that after the referendum the British Pound fell a lot and helped some funds to take bigger positions in the stock market.

US indexes

S&P 500

     Source: TradingView, SP500 future, daily

     Source: TradingView, Dow Jones future, daily

The last 2 charts are identical. If an investor opened positions in 2013, now he would have doubled his investment. Some of the biggest investments banks have warned their clients about a possible big sell off to take profits. One of the reasons behind this is that these indexes have never been overbought in their history. In addition, we have seen the largest inflows ever in equity funds.  When everyone is buying after the biggest rally ever, it´s better to take profits while we can. If you don’t believe in this theory, ask the bitcoin investors that bought the cryptocurrency at 19000$.

Opinion

We have seen interesting movements this week. Everyone is monitoring the Central Banks statements. We need to focus on the Bank of Japan and the European Central Bank next week. I would like to see how the ECB deals with a strong Euro. I don’t think that the US government shut down will last long. About the stock markets… well, I said before. These things don’t end well.

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

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Index analysis, DAX, FESX, S&P500 and Nasdaq

Today I´m going to talk about some of the biggest indexes around the world. The year to date performance is really good in all of them. We have seen an improvement in the economic data which always help the stock market and brings confidence to the consumers. If you understand the movement of the stock market, you can guess what’s going on around the world, sadly, you need the experience to do it. Let’s say that I consider the stock market as it was a leading indicator of the economy. Other examples of leading indicators are the bond yields, the interest rate yield curve, new housing starts and money supply. Apart from them, the rest of the economic indicators are based on the last month or the last period of time.

For example, when the market participants expect positive data and the economic indicator is negative, there is a big movement in the market.

Let´s see how the indexes are performing this year:

DAX

    Source: TradingView, Dax Index, daily

The Dax went up during the first six months of the year. After this period, and due to the big fines of the German automotive sector and the uncertainty of the German elections if fell to the 11900 level.  It’s been raising since September without stopping.  As you can see it tested two times the 200EMA but it couldn´t consolidate the downward movement.

   Source: TradingView, Dax Index, daily

This is the German index from July until now. As I said before it went down to the 3rd support (11941.5) where we can see a double support. The technical figure and the buying pressure helped the Dax to look for highs again. At the moment, it´s around 12900 and probably this movement will continue in the short term.

Eurostoxx (FESX)

    Source: TradingView, FESX Index, daily

You can think that it´s the same chart as the section before with different scale. The shape is the same. I really like the FESX because there is a lot of liquidity. This index represent the 50 biggest companies in Europe. It respects the technical levels. The main difference with the Dax is that it has exposure to different countries in Europe. The peripherical countries in Europe don´t perform as well as the most conservative ones like Germany, and this fact is reflected on the EuroStoxx index. This is why there are more retracements than in the Dax or S&P500. 

    Source: TradingView, FESX Index, daily

This a stable contract full of liquidity as I said before. The shades highlighted in yellow are really important because they show of the buyers took control of the situation and reversed the downward move.  When the 20EMA crossed the 50EMA, this contract accelerated the move.

S&P500

   Source: TradingView, SP500 Index, daily

What can I say about the S&P500? It’s the best chart I´ve ever seen for a technical analysis book. It respects the trendline I drew on the chart. The moving averages don’t cross between then and this shows the strength of this bullish trend. The broken triangle pattern led the S&P500 to 2480, where it retraced to the trendline and rocketed to the current levels.

    Source: TradingView, SP500 Index, daily

This shows the last 4 months. You can see how technically this contract trades.

Nasdaq

    Source: TradingView, Nasdaq Index, daily

This is almost the same case as the S&P500. I’ve noticed that the buying strength is decreasing. If you see the red lines drawn by me, each rise is not as strong as the previous one. It means that maybe it’s consolidating or maybe the sellers will be back testing the 5900 or even the 5775 levels.

The main reasons for these strong performances are: improvement in the economies, the consumer confidence the change in the economic policy from the central banks When will this move stop? I'm not sure, but this move is supported in part by the central bank stimulus policies. I think the transition of these supportive economic policies will be a challenge and it can affect all the financial markets.The approval of the US tax reform can boost the US markets in the short term. I hope that this post helps you.

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

Dax, unstoppable

We have one of the longest bull market ever. The stock market index is peaking and some of the indexes are breaking historical maximums. Is this related to the improvement in the economy? Well, it’s true that the economies, in general, have improved but it has been a supported move by the central banks. I’d like to know what can happen if the central banks retire the stimulus and the consumption doesn’t improve. Anyway, this is not important at the moment but I like questioning myself at least to be prepared.

This is the YTD change of some of the biggest indexes around the world:

Index	YTD change (%)	Close
S&P 500	13.66%	2544.73
Dow Jones	15.17%	22761.07
Nasdaq	22.23%	6579.73
Eurostoxx	11.35%	7247.63
DAX	13.02%	12976.4
Nikkei	8.25%	20823.51
MSCI Emerging Markets	29.09%	493.84

Own elaboration

As you can see,  buying and holding in the beginning of 2017 would be a great decision. Are the markets raising because everyone is investing in Exchange Traded Funds(ETF)?

Dax

    Source: TradingView, Dax index futures, daily

We can see a strong bullish trend from the beginning of the year until the middle of Jun, where it retraced a little bit. It has been rising almost every day since the beginning of September. It tested two times the 200 EMA (exponential moving average) but it failed to close two times under this indicator. The most important levels are the following:

Support 1	12799.5
Support 2	12278.0
Support 3	11912.5
Support 4	11465.5

   Source: TradingView, Dax index futures vs EURUSD futures, daily

Germany’s economy is based on exports, this is why they get the advantage of a cheap Euro related to other currencies. You can see this relationship above. When the euro became expensive the Dax got stuck for a while. The buyers came to the market after the German election result lifting the Dax in the last weeks.

These are only a couple of insights, some of them are not valid for day trading but I like to have a picture of the fundamentals (as well as the technicals).  I hope it helps. I don’t know when the market is going to stop rising. There are some risk in the current economic cycle such: the rise in the protectionism and populism, a massive build-up of debt, the change of economic policy in central banks (tapering and the way to increase interest rates without affecting too much the borrowers), the high price of assets. 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