Market Indices Record Seven Weeks Of Gains
Following a seventh straight week of stock market gains, the odds of a pullback this week have increased. Most markets are now sitting in firmly overbought territory and the odds must now be for a t least some short term consolidation..
These strong moves have also been echoed with a ‘risk on’ tone in Foreign exchange markets with the Euro and Yen in particular, advancing strongly since the start of the year.
Conversely the rise of one assets normally sees a fall in another and the British Pound and Gold have been driven lower over this period. The oversold readings on these assets strongly adds to the case that temporary reversal in current trends may be on the cards.
News out at the start of the week will focus on the Eurozone, with President Draghi speaking and the German ZEW Economic Sentiment potentially capable of causing a pause in further gains. Further Euro Zone news later in the week could also stall the recent rally; in particular the Spanish 10 year bond auction may prove a particular cause for concern.
On the other side of the Atlantic traders will be looking for continued signs of a recovery later in the week from the Philadelphia Manufacturing Index figures and an improvement in Existing Home Sales for signs of an improving property market.
Key News This Week
- Monday – EUR – President Draghi speaks, AUD - Monetary policy minutes
- Tuesday - EUR - German ZEW Economic Sentiment
- Wednesday – GBP - Claimant Count Change, MPC minutes, USD - PPI/ FOMC minutes
- Thursday – EUR- German Manu PMI, Spanish 10Y Bond auction, USD, Unemployment claims, Philly Fed Manu Index, Existing Home Sales
- Friday – EUR - German Ifo Business Climate, CAD - Core Retail Sales, CPI m/m
In Focus - USD/JPY PUT
The USD/JPY offers good trading potential at present.
The fundamental outlook remains bullish given recent policy from the BOJ with a break and close above 94.00 providing a good opportunity to go higher.
However shorter term the gains look overdone and a short term corrective pullback is expected. Against 94.00 - PUT with support at 93.45.
Also note the gap on the four hour chart from 93.45 to 93.66 (gaps are normally filled).
Currency Majors
EUR/USD - The pair has pulled back as far as 1.3300. Given recent gains and support from a rising trend line which has been in place since the end of Oct’ 2012, view this pullback as corrective.
USD/JPY - In focus
USD/CHF - Over the last two weeks the pair has closed either side of a key falling support line and has also bounced from 2012 lows. With the picture unclear it is best to stand aside for now.
GPB/USD - Since the beginning of the year that pair has fallen some 900 pips from high to low. Look for near term rallies this week with support from 1.5450 before further falls.
Major Indices
DOW - Moving into higher territory a near term pullback seems likely. Nearest support comes in at 13860. On a break of 14000 continue to look higher.
NASDAQ - Having bounced from the 3185 level expect continued gains. If sentiment remains then look for a break of 3200 should signal additional near term gains.
FTSE - Pushing higher above 6300 last week this level should serve as good support to further gains. Looking higher while the Index remains above this level.
Commodities
Oil – Look for further gains on oil with a break of resistance at 96.17 signalling the potential for further short term gains. Below this level 93.80/ 93.10 should be viewed as support.
Gold – Having broker the 61.8% Fib level, expect further falls towards the lower trend line channel, currently around 1585 where there is strong support.
Stocks
Key earnings reports for the week kicks off with Dell on Tuesday. This may provide a good trading opportunity. Look for the expected poor figures to come in much better or worse than analysts’ current expectations of net income of $2.99 billion for the year.
Other stocks of note reporting this week include and Hewlett Packard and Walmart (Thursday).
