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Market View

Weekly Digest - Focus this week turns to central bank, interest rate, decision making.

Monday, December 2, 2019 11:13 AM GMT

If you struggled to squeeze profit out of the forex markets last week, either as Traders or Investors in our ZuluTrade community, then you weren’t alone. You can forgive yourself if you found the trading conditions extremely tricky, because the major forex currency pairs traded in extremely tight ranges, whilst several pairs whipsawed violently between bullish and bearish sentiment, as the week progressed. As an example, on a weekly basis; EUR/USD closed the week out flat, USD/CHF up 0.28% and AUD/USD down -0.32%. Evidence of the tight trading ranges and whipsawing nature is provided here in a chart of EUR/USD, illustrated on a 2hr time frame.

After trading in a narrow range during previous sessions, price fell through to the third level of support S3 during Friday’s morning trading session, price whipsawed in a wide daily range, as it reversed direction and then breached the second level of resistance R2. The major pair EUR/USD, is the most traded pair in the forex market, As the most traded currency pairs, EUR/USD and USD/JPY, account for approximately 41% of all forex trades annually. An astounding percentage, when you take into consideration the size and scale of the overall forex market. Here’s an interesting link which highlights the breakdown of the overall forex market, in terms of percentages relating to the various currencies and currency pairs.  

CopyTrade Economic News at ZuluTrade

The unpredictable trading conditions last week provided supporting evidence to the claim often referred to in trading communities; that markets range by approximately 80% of the time and only trend 20% of the time. However, despite the tricky conditions, there’s always Traders in ZuluTrade who will manage to navigate the conditions to help deliver significant gains for Investors who copy-trade their profitable trading-strategies. The ZuluTrade leader board should be the first place to visit for Investors new to our proposition. Or for those Investors who have familiarised themselves with the process through a demo account and are now ready to open a live trading account, to become fully immersed in our exciting proposition.  

Trends remained mostly unbroken 

The major fundamental calendar events and data published during the past week are unlikely to have caused the reversal of various forex pairs’ trends. Politically, the developments in the U.K. in relation to Brexit were relatively benign. The U.K. pound continued to rise, based on opinion polls suggesting the Tories would remain in power after the December 12th election. Markets like certainty and the continuation of a (supposed) business friendly government, is usually looked upon as favourable by forex analysts and Traders. As a consequence, GPB/USD closed the week up by 0.69% and sterling rose versus the majority of its peers. 

USA equity markets are struggling to make higher highs

 

USA equity markets traded short of the record highs posted during the previous trading weeks, as investors struggled to justify any reasons for bidding the market higher, the thanksgiving holiday in the USA also impacted on overall market activity and volatility. The SPX traded in a tight range, as did the DJIA and the NASDAQ 100. Many analysts are pointing out that the equity markets have risen due to higher valuations, not higher earnings. 

It’s probably worth gauging and judging the significant rises witnessed during 2019 versus the previous record highs posted in 2018, as opposed to simply recording the year to date rises, as a year to date rise can often deliver a false perspective. From peak 2018 to peak 2019 the leading USA markets are up (on average) circa 5%. For example, the SPX flirted with 3,000 in 2018 and traded at 3,142 at Friday’s close. When measured over a two year investment period, December 2017 to December 2019, the rise could be considered even more modest; approximately 8% over those two years.

CopyTrade Economic News at ZuluTrade

The Santa rally 

As we enter December, market participants will become aware of the phenomenon referred to as the “Santa Rally”. It generally becomes evident during the last trading week of the year and first couple of days in the new year, when many institutional level traders are unwilling to book losses. Therefore, they’ll even remain in losing positions rather then bookmark a loss, because booking trading losses could impact on their yearly bonus calculations.  On average, according to the 2019 Stock Trader's Almanac, the stock market has risen 1.3%, during the 7 trading days in question, since both 1950 and 1969. 

This Santa Rally phenomenon occurs most years, however, December 2018 proved to be an anomaly, as the China-USA trade war and the tit-for-tat tariffs, caused a massive sell off. The issues of the trade war and tariffs have remained largely unnoticed during 2018, from being the all consuming discussion feature of late 2018, this year the issue has been mostly played down. 

CopyTrade Economic News at ZuluTrade

Economic calendar events and data releases likely to move markets this week

 

Monday December 2nd could see movement in the value of the euro versus its main counterparts, as Christine Lagarde, the newly appointed president of the ECB, delivers evidence to a committee at the European Parliament from 14:00pm onwards. Naturally, market watchers and analysts will listen carefully for forward guidance clues, in relation to any monetary stimulus. Later in the New York session the latest ISM manufacturing and employment data is published for November at 15:00pm. Little change is anticipated for employment compared to October’s figures, but manufacturing is forecast to rise significantly, which could have a positive impact on the value of USD. 

Tuesday December 3rd begins with the RBA, central bank of Australia, announcing its rate setting decision at 3:30am. After polling their panels of economists, both Reuters and Bloomberg anticipate no change to the current 0.75% key interest rate. But due to the time the announcement is made, the lack of liquidity during the Asian session and the sudden volatility could cause spikes and opportunities for Traders and Investors to profit. At 9:30am the latest November PMI for the U.K. construction sector is published. The sector is in recession and a worsening figure could be bearish for sterling across the board. 

Wednesday December 4th witnesses the latest Australian GDP figure being published at 12:30am, the anticipation is for a reading of 1.4% YoY to be maintained. From 8:50am onwards in the London-European trading session, a series of Markit PMIs are published for the E.Z. and the U.K. Perhaps the most eagerly anticipated PMI is the U.K. services reading. It came in at 48.6 for October, any further reading below 50 could reaffirm that the U.K. is in a potential recession, due to services and retail accounting for circa 80% of the U.K. economy. A lower reading could negatively impact on the value of sterling. Conversely, a figure above 50 could prove to be bullish for GBP. 

During the New York session the latest interest rate decision from the RBA, Canada’s central bank, is broadcast at 15:00pm. The prediction is for no change from the current 1.75% rate. As always; it’s not necessarily the actual decision, but any accompanying narrative that can cause movements in the value of the domestic currency in question. Therefore, CAD traders should remain vigilant to any press release, or press conference the RBA hold. 

CopyTrade Economic News at ZuluTrade

Thursday December 5th begins with focus on the latest German factory orders manufacturing data published at 7:00am U.K. time, the last figure came in -5.4% in October with the figure for the month at 1.3% growth. Analysts will be looking for a continuation of positive growth in November. If not then the euro may come under bearish pressure. At 10:00am a series of nine data releases concerning Eurozone GDP will be published, with focus on the latest GDP figure, forecast to come in close to the previous reading of 1.2%. 

In the New York session focus turns to the USA economy, the latest trade balance is forecast to reveal a reduced trade deficit to -$48.6b in October. The latest unemployment new claim figures are forecast to remain fairly consistent, while durable goods orders and factory order numbers are predicted to illustrate an improvement. The cumulative impact of any positive readings could prove to be bullish for the U.S. dollar. 

Friday December 6th is an economic calendar day that mainly concentrates on employment and unemployment data for North America. Canada’s authorities publish their latest unemployment rate at 13:30pm, expected to come in at 5.5%. Analysts and market participants will also carefully monitor wage increases and the actual jobs created. Canada surprised the forex markets last month by losing -16.1k jobs in the month of October, which caused a sell-off in Canada’s dollar. Any improvement in either the employment and unemployment data could prove bullish for CAD. 

The first Friday of the month is traditionally the day when the latest NFP data is published for the USA. In previous years these employment numbers could cause significant market movements in both equities and forex. However, the impact of the NFP data has been lessened over recent years, as employment has been relatively stable and markets have reacted to stimulus and sentiment primarily. America is predicted to show a growth of 180k jobs in November, beating the 131k created in October. A series of data published by the university of Michigan will be published during the afternoon, the most eagerly anticipated is the sentiment reading for December, forecast to rise to 97, from 96.8.

CopyTrade Economic News at ZuluTrade

Disclaimer

The views expressed do not constitute investment or any other advice /recommendation /suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in the report do not represent the opinion of ZuluTrade Copy Trading Platform and do not constitute an offer or invitation to anyone to invest or trade.

 

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