GLOBAL EQUITIES
The S&P 500 fell about 4% this week, a fairly representative figure for the major indexes. Thursday's better than expected US GDP brought a temporary knee jerk reaction bounce. However, the markets concluded that the GDP result was mostly from unsustainable government stimulus programs rather than genuine private sector growth. Friday's 2.8% drop wiped out that gain and then some, marking the steepest one-day selloff since July 2. It also meant that the index fell 2 per cent in October, marking the first monthly decline since the stock market began to rebound in early March. The S&P currently sits at multi-week support around 1040.
Major Events
The Labor Department's October employment report will likely be the most closely watched report, but data on manufacturing, services and home sales could also move markets. The Federal Reserve will also comment after a two-day meeting on interest rate policy.
Outside of the US, major events include policy statements from the ECB, BoE, and RBA, which is expected to raise the cash target rate by 25 bps again.
OIL & GOLD
Fell along with stocks. Barring any surprises, they are expected to continue to follow sentiment as represented in equities, particularly the S&P 500. See
MAJOR CURRENCIES
A packed news week ahead, much of it impacting employment, the foundation of a US and world recovery.
USD
Key Events Likely to to Favor Risk Aversion, and thus the Safe Haven US Dollar
Summary
Outlook for US Dollar: Bullish As Falling Risk Assets Boosts Safe Haven USD
- Main Events, ISM Mfg index, Non-Mfg index, Fed policy st., ADP NFP, US DoL NFP & Employment Rate, other central bank policy statements also could influence the USD
- US Dollar rallies on S&P 500 losses-more of the same likely if the coming reports disappoint
- Forex Options and Futures point to US Dollar bottom as excessive USD shorting unwinds
- USD volatility likely on ADP NFP, Non Manufacturing PMI, Fed rate decisions and US NFP
Given the eventful week ahead combined with continued questions about whether risk asset markets are overbought, the coming week could be another wild ride across USD pairs. Given our belief that markets are due for a pullback that should spark demand for the safe haven USD as fear rises and dollar shorts unwind, we suspect the dollar is due for further gains in the short term, though only in the short term, because its underlying fundamentals have not improved.
EUR
Risk Aversion, Possible USD Recovery Threatens Euro Uptrend
Summary
Forecast for Euro: Bearish As Sentiment, Trends, Events Favor Safer Currencies Like the USD
- Main Event: ECB Policy St. , Minimum Bid Rate, see also all the USD events above, as EUR moves opposite the USD
- German unemployment unexpectedly lower, but Merkel warns about optimism
- Monthly Flash consumer inflation index reports 5th straight negative print
- EURUSD trend retracing but has yet to reverse, if USD gets stronger EUR should weaken
JPY
Yen Consolidating Following Major Rally?
Summary
Outlook for Japanese Yen: Bullish For Same Reasons As the USD—Rising Risk Aversion Favors Safe Haven Currencies
- Events: Average Cash Earnings y/y, BoJ Gov. speaks & policy st.,
- Retail sales top forecasts for September, up 0.9% from August
- BoJ left rates at 0.10%, and will allow liquidity program to conclude in December
- Does the recent drop in carry trades indicate a broader reversal?
GBP
BoE Decision: QE or Not QE? That is the Question
Summary
GBP Outlook: Neutral
- Events: Mfg PMI, Halifax HPI, Services PMI, Asset Purchase Facility, MPC Rate St., BoE Official Bank Rate, PPI Input
- Risk sentiment will outweigh GBP events, though these may contribute to overall sentiment
- Consumer confidence up to a 21-month high, purchasing plans to 23-month high, but both are still net negative
- GBPUSD a rare pair struggling with a range rather than potential trend reversal
CHF
Swiss Franc Likely to See Major Breakout Versus Euro If Risk Aversion Persists
Summary
Outlook for Swiss Franc: Neutral
- Swiss KOF rises to its highest in 17 months
- Swiss Franc Futures and Options positioning nonetheless points to CHF losses
- SNB intervention may not help if risk asset pullback becomes full trend reversal
CAD
Driving the CAD: Oil First, Risk Appetite Second, Employment Data Third
Summary
Outlook for Canadian Dollar: Bearish Along With Our Outlook for Risk Assets
- GDP Disappoints, Contracts by 0.1% in August
- Crude Prices Continue To Dominate CAD direction
- BoC intervention threats not taken seriously at this time
AUD
Rate Hikes Priced In, AUD Will Trade With Market Optimism
Summary
Outlook for Australian Dollar: Bearish Along With All Risk Assets Until Markets Stabilize
- Australian Lending Unexpectedly Falls, Threatens Recovery
- New Home Sales Decline for First Time Since May, Says HIA
- Inflation Hits Decade Low in Q3, But Rate Hikes Still Expected Given Prior RBA Remarks
- Business Confidence to Highest Level in 15 Years Per NAB
- Producer Prices Drop Most on Record on Currency Gains
- Likely to Continue Following Risk Sentiment Up and Down – Short term is likely flat to down
NZD
Drop Likely as Risk Appetite, Employment, Wage Growth Sputter
Summary
Fundamental Forecast for New Zealand Dollar: Bearish for Same Reasons as for the AUD
- RBNZ Holds Benchmark Interest Rate Steady
- Business Confidence Lower in October
- Trade Deficit Narrows as Imports Tumble
CONCLUSIONS
Seeking risk aversion plays. JPY and USD vs riskier currencies when these breach resistance or support., short oil gold when breach support. See below for specific opportunities with the EURUSD, CRUDE
Trading Opportunities: Near term favors SAFE HAVEN currencies, shorting risk assets. Thus:
be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY.
Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite.
Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts. Always use sell stop orders.
TRADING OPPORTUNITIES
Crude Oil
Broke support at the first Fibonacci retracement level at $77.83 last week, holding on near its 20 day MA. When/if risk appetite returns, next resistance is at last week's high and round price level of $80/bbl. If risk assets like stocks continue to drop, next support level is at the significant 38.2%/61.8% Fibonacci retracement level at $75.51, which is near the multi-month price support of around $74/bbl.
WTI Crude Oil Daily Chart
03 Nov 02
EURUSD
Holding just above strong support level of $4.4720 (50 day MA + 23.6% Fiboncci retracement from its June rally, also lower BB band around 1.4657). Look to play a break above this if there is bullish news to at least 1.4845, the high of the past few days, or if more bad news or drops in global equities, a break below to at least the lower Bollinger Band at around 1.4653, next support at around 1.4600, a convergence of past price support AND just above the 38.2% Fibonacci retracement from the June rally at 1.4565 .
01 Nov 02
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