Weekly Outlook: 2014, October 19 - 26

CAC forecast for the week of October 20, 2014, Technical Analysis

The Parisian index fell significantly during the course of the week, but found enough support at €3800 level to turn things back around and form a big hammer. This hammer of course suggests that there is plenty of buying pressure underneath, and with that we do remain hopeful that the Parisian index will continue to go higher. If we can get a break above the €4100 level, we feel that the market could very easily go to the €4500 level given enough time.

The shape of the hammer is of course perfect, and will certainly attract quite a few out there in the trading community that are looking to get in based upon value. After all, the CAC is one of the more “stable” markets in the European Union, and as a result it makes sense that we may see buyers step into this marketplace the for many of the other stock markets around the European continent.

If we pullback from here, we suspect that there are quite a few of buying orders below, probably well documented at the €4000 level, as well as the €3800 level. With that being the case, we think that pullbacks will continue to be buying opportunities on shorter-term charts as well, and therefore we are willing to buy at lower prices also, not just a break out to the upside.

If the €3800 level is broken to the downside that would of course be a very negative sign for this market, as the sellers would then take control yet again. Because of that, the market would then probably drop down to the €3600 level first, and then possibly even as low as €3000 given enough time. However, we have to assume that the massive hammer that has form for the week suggests that we will more than likely find enough buyers to turn things around again. Because of this, we are much more comfortable buying, but we want to see some type of technical signal to do so first. Until then, we will have to remain patient.

S&P 500 forecast for the week of October 20, 2014, Technical Analysis

The S&P 500 fell hard during the course of the week, but bounce significantly off of the 1820 level. The resulting candle of course is a nice-looking hammer, and that of course is a very positive sign. If we can break above the top of the hammer, we feel that the market should then go to the 2000 level over the course of the next couple of weeks. Either way, the market looks as if it wants to go higher, and therefore we have no interest in selling this market anytime soon.

FTSE forecast for the week of October 20, 2014, Technical Analysis

The FTSE as you can see had a very negative week during most of the trading sessions, but as you can see bounce significantly from just below the 6100 level to form a massive hammer. Because of this, it appears that the market has found a significant amount of support in order to perhaps go higher again. When you look at the charts from the longer-term perspective, we could have possibly just made a little bit of a “double bottom”, as the FTSE could bounce as high as 6900. In order to get the correct technical signal, we would have to break the top of the 6400 level to start buying.

Forex Weekly Outlook October 20-24

The US dollar was on the back foot against most currencies as volatility spiked and big moves provided opportunity and risk. US housing and inflation data, A rate decision in Canada and UK GDP are the lead events on our FX calendar. Here is an outlook on the major events for this week.
Weak US retail sales sent stock markets down and triggered a sell off of the dollar. The best jobless claims in 14 years and some other OK figures could not lift the greenback, especially after FOMC member Bullard suggested to continue QE on lower inflation expectations. Weakness in other regions didn’t really help the greenback. In the euro-zone, German business confidence went negative, the German government cut forecasts and yields spike in peripheral bond markets as if it were 2012. In the UK, inflation is at a 5 year low and not all unemployment figures shine. The crash in oil prices contributed to 5 year high for USD/CAD but this didn’t last too long. The kiwi enjoyed a rise in milk prices. The yen enjoyed the risk off environment. All in all, currencies made big moves.

1. US inflation data: Wednesday, 12:30. U.S. consumer prices declined for the first time in nearly 1-1/2 years in August, dropping 0.2%, following a 0.1% rise in July. Meanwhile, Core prices remained unchanged in August indicating muted inflation pressures. Economists expected CPI to remain unchanged while core CPI to rise 0.2%. If this trend continues the Fed may postpone the intended rate hike. CPI is expected to remain unchanged, while core CPI is predicted to gain 0.2%.
2. Canadian rate decision: Wednesday, 14:00. The Bank of Canada maintained the interest rate at 1% at the last BOC meeting held in September. BOC Governor Stephen Poloz said exports are gaining traction posting the biggest merchandise trade surplus in almost six years, which is a positive sign for the coming months, however business investment remains rather muted. Poloz declined to comment on whether he would raise rates before the U.S. Federal Reserve. Rat s are expected to remain at 1.0%.
3. Glenn Stevens speaks: Wednesday, 9:00. RBA Governor Glenn Stevens is scheduled to speak in Sydney Limits. He may talk about the need to cool down bank lending to the housing market. Investment finance reached double-digit rates, nearly half the flow of new approvals. Stevens talks about the need to intervene by using macro-prudential tools such as limiting the proportion of a property’s value that could be borrowed and extra stress tests on banks. Mr Stevens said the right type of risk-taking is good provided it’s clear who bears it. The economy needs an efficient allocation of savings, liquidity services provided to the community, payment services to be provided and and risk to be priced properly for those who wish to bear it.
4. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits plunged to a 14-year low last week, reaching 264,000 from 287,000 posted in the week before. The four-week moving average of claims, continued to improve falling 4,250 to 283,500, also the lowest level since 2000.The US economy continues to move ahead with growth rate expectations of 3% in the third quarter. A rise of 269,000 is forecasted this week.
5. UK GDP data: Friday 8:30. UK growth data in the second quarter showed the economy has emerged from six years of muted growth and returned to its pre-crisis peak. Gross domestic product (GDP) expanded by 0.8% in the second quarter following the same rise in the first quarter. On an annual basis, growth was 3.1% higher than measured in the same period last year. The upward trend in the UK economy raises expectations for a rate hike but Governor Mark Carney recently suggested it would be tied to improved data on wage growth to prevent damaging consumer spending and domestic growth. UK economy is expected to expand by 0.7% in the third quarter.
6. US New Home Sales: Friday, 14:00. US new-home sales surged in August to the highest level in more than six years, reaching an annualized pace of 504,000 from 412,000 in July. The one-month surge was the biggest since January 1992 indicating the housing recovery is gaining traction. Economists expected a much smaller figure of 432.000. Purchases increased in three of four U.S. regions, led by a 50% expansion in the West. US new-home sales is expected to reach an annual growth rate of 473,000.

Dow Jones 30 forecast for the week of October 20, 2014, Technical Analysis

The Dow Jones 30 as you can see initially fell during the course of the week, but found enough support just below the 16,000 level to form a nice-looking hammer. The hammer suggests that we are going to go higher, and on a break of the top of that hammer at the 16,600 level, we believe that the Dow Jones then heads to the 17,300 level again. This is a bullish market, and that is not changed even though we have recently tested support very seriously and violently.

US Dollar Index forecast for the week of October 20, 2014, Technical Analysis

For the second week in a row, the market in the US Dollar Index Futures contract fell, but found support at the 85 handle this time. Because of this, we have formed a hammer, and it looks like the buyers could come back in. However, we are bent concerned at this point in time because the market has moved so high so quickly. That being the case, we may see a bit of sideward action. If we do fall from here though we anticipate that the 84 handle should be supportive as well. If you are patient enough, you may get a long-term buying opportunity but we do not anticipate the same kind of momentum to the upside that we have had recently.

That being said, the US dollar remains by far the most favored currency out there in the Forex markets, and we do not see that changing. Remember, a majority of the factors in the US Dollar Index contract comes down to the EUR/USD pair. With the Euro struggling in general, it’s hard to imagine that this market will meltdown anytime soon. Because of that, we are very bullish of the US Dollar Index, but recognize that there will be pullbacks from time to time in that we have certainly been overbought for some time.

That being said, we are looking for reasons to go long of this market from a technical basis. We believe that the market recently broke out of a reasonably large consolidation area, and allows and affords this market to go as high as 90 given enough time. With that, if you are patient you should continue to realize profits in this market to the upside, and we certainly have no plans whatsoever of selling. In fact, we don’t even have a scenario at the moment where we can imagine doing so. With that, we are very bullish but recognize that patience will be needed with anything at this point in time, simply because we are made such a massive move in such a short time.

Gold forecast for the week of October 20, 2014, Technical Analysis

The gold markets rose during the course of the week, but found the $1250 level to be resistive enough to keep the market down. The resulting candle is a bit of a shooting star, and we feel that the sellers will come back into the marketplace to push the market lower. Ultimately, we believe that the market will test the $1200 level yet, but short-term traders will probably be the one to benefit the most from this set up in the gold market. Ultimately though, if we break down below the $1200 level on a weekly candle, we feel that the market goes down to the $1000 level.

USD/JPY forecast for the week of October 20, 2014, Technical Analysis

The USD/JPY pair fell significantly during the course of the previous week, but found the 105 level to be supportive enough to turn the market back around and form a massive hammer. This hammer of course as you can see is a very positive turn of events, as the 105 level was in fact a significant point of breakout. The 105 level previously was very resistive, and the fact that we have now come back to test that area and form a hammer tells us that the market is going to go higher given enough time. This is will we believe anyway, and it appears now that we will test the 110 level given enough time as well.

On a break of the top of that hammer, we would be a buyer, just as we would buy pullbacks and show signs of support on shorter-term charts as well. Quite frankly, the reaction that we’ve seen at the 105 level tells us that the market should continue to go and find buyers in that general area as it is obviously an area of great interest by the bullish traders out there.

Once we do get above the 110 level, the market should then head to the 115 level given enough time, but we believe that the market will continue to offer buying opportunities as we pullback, and we will essentially “buy on the dips” all the way through the rest of the year, quite frankly farther than that we believe. In fact, we believe that this is the beginning of a multi-year uptrend that should continue to offer plenty of profitable opportunities as we had seen for several years before the financial meltdown.

The candle shaped is just about perfect, so we really do like the idea of buying at this point. We believe that one 10 will of course offer resistance again, but ultimately this pair will break out to the upside and should continue to go much higher. We find it very difficult to imagine breaking down below the 105 level, and we believe that there are plenty buyers below that area to keep that from being realized.

USD/CAD forecast for the week of October 20, 2014, Technical Analysis

The USD/CAD pair rose during the course of the week, but found enough resistance at the 1.14 level to turn things back around and form a shooting star. However, the previous two weeks formed hammers, so we feel that the market is essentially going to consolidate in this general vicinity. We do not anticipate any type of selling to occur, so therefore we are going to step on the sidelines in order to avoid a lot of the potential volatility and grinding type of action that we are going to see.

NZD/USD forecast for the week of October 20, 2014, Technical Analysis

The NZD/USD pair went back and forth during the course of the week, testing the 0.80 level. That level offered resistance as we had anticipated, but we ended up forming a slightly positive candle for the week. If we can get above the 0.80 level, the market could go much higher. On the other hand, we appear to see in of significant resistance there that the market very well could fall from here, which is what we actually believe will happen longer term anyway. The central bank in New Zealand is trying to work the value of the Kiwi dollar down, and we do believe that ultimately this market will accomplish what the central bankers wish.