Contributed by: DailyFx
U.S. Session Key Developments
* GDP Grew at Annual Rate of 2 percent
* Reuters/University of Michigan Confidence Report Fails to Meet Expectations
Stocks Flat Despite GDP and Consumer Sentiment Data
U.S. Markets fluctuated between gains and losses throughout much of the day, but ended the session closing slightly higher. The DJIA experienced the best October since 2006, gaining 3 percent throughout the month. The S&P 500 was up 3.7% for October, the best performance since October 2003. The October rally in the markets was sparked by investors’ speculation that the US Federal Reserve will pursue further quantitative easing in order to stimulate the economy. Data released Friday indicated that the economy expanded in the third quarter at a slightly faster pace compared to the previous quarter, but growth remains too weak to cut unemployment any time soon. GDP, the value of all final goods and services produced in an economy, rose at an annual rate of 2 percent after climbing 1.7 percent in the previous quarter. Economists had expected a 2 percent growth. Also, consumer sentiment data from Reuters/University of Michigan showed the consumer mood darkened at the end of October, while the Chicago Business Barometer edged up from September and topped expectations.
DJIA 30 / 11,118.49 / +4.54 / +0.04%
The DJIA held onto a strong gain at the end of the trading session on Friday. Chevron fell 2.9 percent after the oil major’s third quarter earnings and revenue significantly missed analysts’ expectations. Merck dropped 2.2 percent as the company’s earnings excluding items topped estimates, but revenue fell short of forecasts. Microsoft was among the Dow’s best performers, with a 1.7 percent rise. The company’s first quarter profit rose 51 percent, benefiting from strong demand for Windows 7. Microsoft is also the Dow’s best performer this month, up 9.1 percent over the period.
S&P 500 / 1,183.26 / -0.52 / -0.04%
The S&P 500 closed flat at the end of the day. Among stocks in focus, Genworth Financial tumpled 9 percent. The life insurer’s operating earnings unexpectedly fell as stronger international operations could not offset weakness in life and mortgage insurance. S&P Equity Research cut its target price on Genworth’s shares following the report. Monster Worldwide surged 25 percent. The employment website operator reported stronger than expected forecast in its third quarter. The company has experienced growth in revenue, bookings, and deferred revenue since early 2008.
NASDAQ / 2,507.41 / +0.04 / +0.00%
The Nasdaq Composite Index closed in positive territory, as basic materials lead the advance with a 1.36 percent gain. 8 out of the 10 sectors rose at the end of the trading session. Health Care and Oil & Gas were the two sectors that declined, with a 0.34 percent and -1.18 percent fall respectively.
Contributed by: DailyFx
I remain short EURUSD from 1.39 and 1.3950 against the high at 1.4080, as I expect the pair may have made an important reversal. Thus far the position has not really gone very far as price moves sideways and that makes me a bit nervous. But I'll give this time to play out (as long as my stop isn't triggered). A big week of event risk ahead warns of major USD moves, and it's tricky to predict how the USD might react to the packed calendar.
Contributed by: DailyFx
Following up with the short EUR/USD trade from earlier this week, I am looking to maintain the position going into November as the pair continues to carve out a top, and the exchange rate is likely to face increased volatility over the following given the slew of market-moving event risks. I am still looking for a test of the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500, and will maintain the stop at 1.4001, the 10/13 high. For now, I am keeping a close eye on the GBP/USD to see if we will get a close above 1.6000 as the exchange rate rallies to a fresh weekly high of 1.6014, and I may look to buy into the recent strength behind the British Pound as investors expect the Bank of England to maintain its current policy in November.
Contributed by: DailyFx
Europe Session Key Developments
* Investors Still Uncertain About Quantitative Easing
* US GDP Meets Expectations
European Stocks Closed Mixed as Investors Question Potential QE Success
European Markets closed mixed at the end of the trading week as the Stoxx Europe 600 experienced its first October rally in three years. The benchmark gauge added 0.1 percent at the end of the day, but closed down 0.2 percent for the week. However, the index has risen 2.5 percent this month amid speculation of further quantitative easing by the Federal Reserve. Many investors feel that potential QE success has already been priced into the market and that there are still some question marks as to whether it will work. Also, the US economy grew at a 2 percent annual rate in the third quarter as consumer spending climbed the most in almost four years. The increase in GDP was in line with analysts’ expectations. Overall, national benchmark indexes fell in 11 of the 18 western European markets.
FTSE 100 / 5,675.16 / -2.73 / -0.02%
The FTSE 100 declined at the end of the trading session on Friday. The benchmark index fluctuated between gains and losses for much of the day as investors speculated whether the US Federal Reserve will next week announce sufficient measures to keep the recovery on track. Scottish & Southern Electricity Plc climbed 3 percent as the company announced it will increase natural gas prices. British Airways fell 3.1 percent even as the company reported earnings that topped analysts’ estimates.
CAC 40 / 3,833.50 / -1.34 / -0.03%
The French benchmark gauge fluctuated between gains and losses throughout the day. BNP Paribas SA ended two days of gains, losing 1 percent as banking stocks were among the worst performers in Europe today. Greece’s Piraeus Bank SA sank 6.4 percent after the company announced plans to raise 800 million Euros in a sale of new shares to boost its capital. Bollore advanced for a second day, rising 1.6 percent as the company posted a 27 percent increase in third quarter sales. Eutelsat Communications sank 4 percent after it reported the loss of a satellite because of “an anomaly” detected on the propulsion subsystem.
DAX / 6,601.37/ +6.09 / +0.09%
The German index experienced the biggest monthly gain since March, as investors attempted to gauge the impact of further stimulus by the Federal Reserve. Metro, Germany’s largest retailer, tumbled 1.5 percent as HSBC Holdings Plc cut its recommendation on the stock to “neutral” from “overweight.” Porsche preferred shares fell 1 percent after the carmaker had its rating reduced to “neutral” from “buy” at UBS AG. MorphoSys slumped 2.3 percent. The biotechnology company reported a decline in third quarter net income to 1.4 million Euros, from 2.6 million Euros in the year earlier. Bilfinger Berger SE slid 3.2 percent as the company appointed former Hesse state premier Roland Koch as CEO.
IBEX 35 / 10,812.90 / +59.40 / +0.55%
The Madrid benchmark index experienced the largest gain among the 5 major benchmark indexes. Banco Popular Esponol SA climbed 1.6 percent after the Spanish lender announced third quarter profit fell. Ferrovial SA gained 3.3 percent as the manager of airports and highways posted a nin-month profit of 315 million Euros. Gamesa Corporacion Tecnologica SA rose for a seond day, gaining 2.2 percent. Gestevision Telecinco SA rose for a second day as Iberdrola SA further increased its stake in the company.
S&P/MIB / 22,048.43/ -39.29 / -0.18%
The Italian index declined for the fourth straight day this week. Amplifon SpA managed to climb 0.5 percent as the Cheuvreux trimmed its price estimate on the world’s largest hearing-aid distributor to 4.7 Euros from 4.8 Euros. It reiterated an “outperform” rating. Intesa Sanpaolo SpA dropped 2.3 percent ast he company is a likely candidate to buy the assets of Polbank, the Polish unit of Greece’s EFG Eurobank. Credit Suisse Group AG trimmed its estimates on Italian banks before quarterly resorts, causing further decline in the banking sector of the Italian economy.
Contributed by: DailyFx
If you knew of two traders and Trader 1 consistently won 40% of their trades while Trader 2 consistently won 80% of their trades...who would be more profitable?
In reality, you cannot tell which trader is more profitable or even if either trader was indeed profitable. If Trader 1 consistently won 200 pips on each win and limited their loss to 100 pips on each losing trade, after a series of 10 trades they would be up about 200 pips. If Trader 2 won 25 pips on each win but lost 100 pips on each loss, they would be a breakeven trader after a series of 10 trades.
But many new traders are misled by win percentage. Winning most of your trades is exciting, but not if it does not lead to consistent profits. So keep this in mind when you hear about a strategy that wins 90% of the time. That does sound appealing, but the key is profitability. One does not always lead to the other. If your goal is to be consistently profitable, win percentage is not as important how much you win when you are right compared to how much you lose when your are wrong.
Contributed by: DailyFx
Next week will be critical for the EURUSD as the pair stands at the crossroads as of late. Indeed, price action is capped by 1.40, and after the break below the rising channel, which remained intact for approximately a month, my bias remains to the downside. Taking a look at the weekly chart, the EURUSD looks poised to close above the 200-day moving average for the third street week, and if price action holds above this level next week, this could spell trouble for the greenback in November. Not to overlook, the pair has stalled at the 50-day SMA on the monthly chart. All in all, downside risks remain so long as price action does not close above 1.40. The FOMC rate decision and the Nonfarm payrolls release from the world’s largest economy next week may serve to be the catalyst needed for the buck. At the same time, I am still short the EURGBP and my position is currently in the money. Going forward I will look to target 0.8650 as technical indicators continue to point to further losses in the pair; stop at 0.8830. GBP traders will shift their focus to the U.K. interest rate decision and asset purchase target.
Going forward, I will look to enter a long GBPUSD position on a break and close above 1.600. The BoE rate decision is on tap and may serve as the next push for British pound as the pair bounced off key support at 1.5600. Meanwhile, a long USDCHF position is on the horizon as the price action has worked its way into an ascending channel, and now looks poised to test parity next week. With reference to the AUDCAD, I closed out my position slightly out of the money as the pair will close below the 20-day moving average. Taking a short position at today's close, with a target of 0.9860 may suffice. Good luck trading!!!
Contributed by: DailyFx
The GBPUSD remains range bound. The specter of the recent double top with RSI divergence brings to the forefront the potential for a test of 15294 in the coming weeks. Trading above 16110 would shift focus to the trendline (triangle line?), which is at 16340 next week.
Contributed By: DailyFx
Crude continues to find support near the 200 day SMA and potential remains for strength in a small 5th wave to 8570 in order to complete the entire corrective advance from 7150. However, the channel support that has held for over a week is giving way today. Coming under 7975 would suggest that the larger decline is underway.
Contributed By: DailyFx
* Dollar Correction Dampens the Opportunity of a True Bullish Reversal on Friday’s 3Q GDP
* Japanese Yen Won’t Remain Resilient to Stimulus, Deflation, Chocked Growth Forever
* British Pound Climbs Despite Drop in Sales Activity and Posen’s Incessantly Dovish Musings
* Euro Climb Finds Support through Climb in Optimism, Looking Ahead to Inflation and Jobs
* Australian Dollar Slips Against Most Crosses Despite IMF’s Suggestion for more RBA Hikes
* Canadian Dollar Range Bound Ahead of August GDP Report
Dollar Correction Dampens the Opportunity of a True Bullish Reversal on Friday’s 3Q GDPAvoiding the actual performance of the dollar through Thursday’s session; if we were to evaluate the progress of the currency’s typical fundamental catalysts, the conclusion would be rather mundane. For the greatest potential energy at this point, risk appetite trends were steady. Looking to the S&P 500, the index ended the session little changed and just above the floor of its now-blatant two-month rising trend channel. And, if we were looking for a stimulus influence, it would be fair to suggest that speculative assets would have been nudged by a meaningful development. Even the macroeconomic docket was eerily quiet in the lead up to heavy event risk scheduled for the final 24 hours of trading. Yet, despite all of this, the trade-weighted Dollar Index would put in for its second largest daily decline in five weeks. Across the majors, this would pull EURUSD back from the edge of three-week lows, drive GBPUSD deeper into its congestion pattern, curb USDJPY’s nascent reversal effort and prevent AUDUSD from confirming the development of a new bear trend. Looking at this from a purely speculative point of view, such a move could be construed as defensive positioning – easing the possibility of a major breakout and trend development (perhaps dollar favorable) ahead of the more critical Federal Open Market Committee (FOMC) rate decision scheduled next Tuesday.
For those fundamental traders that can’t bear an explanation that relies on the market psychology; there were a few concerns that would generate significant concern for the greenback’s health. The most prominent of these matters was the carryover influence of the New York Fed’s poll of its Primary Dealers (those required to deal with open market operations and Treasury auctions) whereby they asked the banks what the expected size and time frame for a second round of stimulus would be. This is highly unusual; and their motivations can only be guessed at. Naturally, asking this group their expectations reflects an effort to establish the market’s expectations for the results. This is likely being done to determine what would constitute a surprise outcome to the markets next Wednesday. A shock could very well risk a major volatility event; which, if officials are concerned of, would indirectly suggest they believe risk appetite is flimsy. Another logical deduction from this poll is that the central bank is almost certain to offer a second wave of stimulus and perhaps attempt to meet expectations. The other lesser, dollar catalyst for the day was the suggestion by the IMF that the dollar was ‘on the strong side’ given its fundamental backdrop. That being said, their assessment loses credibility when they say the euro, pound and yen are generally ‘inline’ given their respective health.
Looking ahead to the final 24 hours of trading this week, the dollar has a big fundamental catalyst ahead of it. The advanced reading of third quarter GDP is inherently an important indicator; because it represents one of the broadest readings of health available. What makes this even more noteworthy is the fact that it comes just ahead of a second round of quantitative easing. In this capacity, officials and investors will benchmark the size and time frame for additional stimulus by this particular barometer of strength. Alternatively, with the outlook for what has dubbed ‘QE2’ already priced in, there may be a bigger impact on risk appetite trends (equities). That could trigger a significant move.
Japanese Yen Won’t Remain Resilient to Stimulus, Deflation, Chocked Growth Forever
An economy that has a heavy dependence on one particular sector, has battled deflation on and off for decades, faces deeply engrained credit troubles and is now pursuing an ever-increasing stimulus policy should reasonably maintain a weak currency. However, these are the conditions that the Japanese economy and yen face; and yet, the currency is just off record and multi-year highs against its primary counterparts. This is another example of speculative interests diverging from fundamental reality. This is certainly not uncommon; but the eventual corrections can be violent (just look at the dollar’s moves over the past three years). In the meantime, the BoJ’s rate decision Thursday morning was notable for details on the five trillion yen stimulus program the government approved with planned purchases of JGBs, lower grade corporate bonds, ETFs and REITs. More remarkable in this particular meeting was the revelation that the BoJ moved up its next decision three weeks to November 5th.
British Pound Climbs Despite Drop in Sales Activity and Posen’s Incessantly Dovish Musings
There was a smattering of scheduled event risk for the British pound; but it would ultimately carry little weight for price action. Housing prices reportedly grew at the slowest pace in a year according to Nationwide and the CBI’s sales report for October broke its expansionary pace for the first time since May. At it again, the BoE’s Posen remarked that he was afraid that QE was not enough and spending cuts would hurt growth.
Euro Climb Finds Support through Climb in Optimism, Looking Ahead to Inflation and Jobs
If we want to identify the source of the euro’s strength Thursday; we need look no further than EURUSD. When the dollar is weak, the natural liquidity link between these two currency leveraged buying of the shared currency. For fundamentals, the German jobs figures were already accounted for while the three year high in Eurozone confidence was notable. Tomorrow, we have inflation and employment to take in.
Australian Dollar Slips Against Most Crosses Despite IMF’s Suggestion for more RBA Hikes
Given the despair Aussie dollar bulls fell into after the modest deceleration of the 3Q CPI data early Wednesday morning; it seems pretty obvious that where the larger risk is in future moves. That said, there is plenty of support for a steady bullish and hawkish trend for the currency going forward. New to this column Thursday was the IMF’s suggestion to the RBA that hikes would be necessary is growth held steady.
Canadian Dollar Range Bound Ahead of August GDP Report
There was relatively little in the way of scheduled event risk for loonie traders to work with Friday; but the fundamentally inclined took note of Finance Minister Flaherty’s suggestion that the nation is moving towards a balanced budget in the medium-term – a significant deal nowadays. In the final 24 hours, all Canadian dollar traders will be watching US GDP; but it will be important to also take note of Canadian GDP for August.
Contributed By: DailyFx
Recent data out of Asia has been less than impressive, with a slew of Japanese economic releases coming in on the whole much weaker. The key takeaways have been disastrous industrial production figures, softer inflation readings, and a weaker household spending. The market reaction has been rather interesting however, with the Yen rallying over the past several hours and looking to once again close in on its record highs against the US Dollar from 1995, which stands at 79.75 Usd/Jpy. Also out in Asian trade has been a worse than expected New Zealand trade balance and a slightly improved UK GfK consumer confidence reading (albeit still very much in the negative and only fractionally better than the previous print and expectations).
It is certainly hard to assign a logical and fundamental spin on the price action in the Yen, with the market seemingly responding to the much weaker Japanese economic data through the purchase of more Yen on what might be described as flight to safety buying. But this type of logic doesn’t hold well with us, as the Yen is hardly a safe-haven currency in our opinion, and has more recently broken away from this correlation, instead trading more in reaction to broad based US Dollar sentiment. But so far in Friday trade, the USD is hardly offered, and in fact has started to come back a bit against most major currencies. So what gives?
In our opinion, at this point, the price action in the Yen is now isolated from all other market influences and correlations, and is really only now driven by one overriding theme. While all other major currencies have managed to take out some key levels in recent weeks against the buck (Franc to record highs, Aussie to post-float record highs by parity, etc.), the Yen still has not taken out its key level which comes in by 79.75 in Usd/Jpy, the record level from 1995. To us, market participants are fixated on taking out this level, and until the barrier is broken, we expect to continue to see the Yen well bid. Overall, our bias is actually quite Yen bearish, but markets have a real knack for needing to test and take out critical levels once they are in sight, irrespective of any other fundamental forces or influences.
Over the past several weeks, currencies have been directly correlated to USD sentiment. If the USD Dollar goes down, than it goes down across the board, and if the US Dollar goes up, then it goes up across the board. However, the Yen has been ignoring this theme of late in what we can only classify as isolated flow related demand in an effort to finally take out the critical 79.75 level. The Yen is effectively the last man standing, the final holdout currency that has not been able to break its own critical levels of late. As such, we continue to expect to see more downside pressures in Usd/Jpy over the coming sessions until the 79.75 level is finally taken out. But once the level is broken, we will be aggressively looking for an opportunity to fade the move as there no longer will be as much need to drive Yen strength, and many Yen longs will surely be looking to book profits on an overdone currency at record highs with arguably no convincing fundamental lure and plenty of reasons to be fearful of a central bank that will be looking to pull the trigger and intervene.
We do not think the Bank of Japan is done by any means, and we also think that the central bank is very much in tune with market levels and knows that at this point, intervening ahead of 79.75 would most probably be an exercise in futility (efforts in recent weeks have already failed). However, once the level is finally taken out, timing for an intervention in our opinion would be more than perfect, and could spark a major reversal in the currency. This aligns well with our overall view for a stronger US Dollar, and we also see risks for additional broad based USD strength over the coming weeks. The buck is currently in the process of attempting to mount a comeback, and should the Greenback manage another push, it could very well open the floodgates and really help to fuel massive Yen liquidation and fresh Yen selling all at the same time.
Looking ahead, German retail sales(0.5% expected) are due at 6:00GMT, followed by UK M4 money supply, mortgage approvals (46k expected), net consumer credit (0.0B expected) and net lending sec. on dwellings (1.0B expected) at 8:30GMT. Eurozone CPI estimates (1.8% expected) and the unemployment rate (10.1% expected) are then out at 9:00GMT, with the KOF Swiss leading indicator (2.16 expected) capping things of for the European session at 9:30GMT. US equity futures and commodities prices are tracking moderately lower into the European open.