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Weekly Digest - U.K. and Chinese GDP and global CPI inflation data, are the economic calendar releases to closely monitor this week

Monday, January 13, 2020 11:06 AM GMT

The new year has begun with a bang and not a whimper. Chinese officials announced the PBOC (China’s central bank) would engage in a significant monetary stimulus. This development, combined with the assassination of Iran’s general Suleimani and Iran’s subsequent response, has ensured that: Forex, equity, commodity and debt markets didn’t gradually wake up from a slumber when western markets fully opened from Jan 2nd, instead, they’ve exploded into life.

 The geo-political and economic events have impacted on FX markets as Investors sought refuge in safe currency havens such as: JPY, CHF and USD. Precious metals continued to rise and oil (both Brent and WTI) also rose due to Investors fearing global production and supply issues. Crypto-coins’ price increased, most notably BTC, as bitcoin begins to develop a reputation as a save haven.

 ZuluTrade’s Traders and Investors have experienced opportunistic copy-trading conditions during the first trading sessions of the new year, as a consequence of the tensions. Volatility was increased further in forex and commodity markets when Iran retaliated on January 8th with missile strikes on a military base occupied by USA troops, having first given warning to USA officials that the strike was imminent. Tragically, Iran has now admitted that a stray missile also hit a passenger jet, killing all on board.

CopyTrade Economic News at ZuluTrade

 Oil reaches a nine month high due to Middle East tensions

 The initial retaliation caused relief amongst Investors and analysts (both political and economic) as they interpreted the response as evidence that Iran would go no further. And after oil reached a high not seen since May 2019, it gradually gave back its gains and reverted to the mean; trading close to the 50 DMA (illustrated by the yellow line on the chart below) as markets closed on Friday evening. Iran will now be subject to severe sanctions via the USA, due to the passenger jet tragedy, sanctions which Canada, the EU and U.K. will have both the moral and economic justification to comply with.

 Russia and China, Iran’s main strategic supporters who also have skin in the game in relation to the supply of energy supplies from Iran (both future and present), have been notably absent amongst the intense diplomatic and political statements which have been broadcast through various countries’ channels. Both super powers remaining on the sidelines, will be viewed in a positive light, in relation to investment and market sentiment.

 Chart of the week, oil reverts to the 50 DMA

 

Moving averages, when plotted and analysed on higher time frames, can provide an excellent basis from which to determine medium to longer term trends. Higher moving averages, such as the: 200, 100 and 50 DMAs placed on the daily time-frame, are often the simple graphical method which institutional level Traders use to make both trading and analysis decisions.

 Therefore, if you’re a Trader or Investor looking for swing and position trading opportunities, then including the daily time frame in your multi time-frame analysis, could ensure you’re trading in concert with institutional level money, which accounts for approximately 85% of forex market trading. Analysis of the ZuluTrader leader board will quickly reveal which Traders within our growing  community prefer to swing-trade, as opposed to preferring day-trading or scalping.

 A simple measurement you can apply if you’re looking to follow swing Traders, is to measure their frequency of trading. If a leading Trader trades consistently, is generally always in the market, but trades infrequently and are even prepared to suffer temporary drawdowns when they’re convinced of their analysis, is an indication they’re more likely to be swing, or position Traders. Such Traders can be the ideal partners to follow for Investors who wish to search for longer term, achievable gains, without having to over analyse their involvement in our copy-trading service several times per day.

 USA equity markets reach record highs

 Despite the recent conflict events, USA equity markets have continued to rally, taking out new highs on a regular basis during the early, new year, sessions. Equity markets slipped each time the geo-political events became critical, however, the risk on sentiment was quickly revived as the DJIA 30 breached 29,000 for the first time in its history, during Friday’s trading sessions. Sell orders may have been triggered at this crucial handle, as evidenced by the index giving up its gains shortly after New York opened, eventually closing down 0.46% on the day.

What could cause equity markets’ to sell off during 2020?

 Many Traders and analysts quoted in the mainstream financial media are beginning to question where equity markets globally are headed during 2020, as doubts emerge over USA equity markets repeating the incredible growth experienced during 2019. Earnings are not driving prices higher and a period of irrational, speculative, exuberance appears to have taken hold. This article highlights what could occur to derail markets during 2020  The author cites: lack of earnings growth, over-valuations, the yield curve, debt, a weak economy, the trade war, election year, inflation and the Fed as subjects to closely monitor. There’s also a reminder that economies don’t need to be a recession to cause a meltdown in valuations; there was no recession during the Black Monday of 1987, or during the bear markets of 1966 and 1962. Conversely, a collapse in confidence can cause a subsequent recession.

CopyTrade Economic News at ZuluTrade

Does the latest NFP data point to economic fragility in the USA economy?

 The NFP data published on Friday was disappointing, as was the earnings data. The jobs number for December came in below forecasts at 145k, earnings were up 0.1% month on month, with 12k jobs lost in manufacturing. Analysts quickly deduced that January’s numbers could also be poor and that USA economic growth, separate from equity market growth, may have peaked. A noted analyst cites there’s a 50% chance of a stock market correction this year. Apple’s price grew by over 110% during 2019, it’s increasingly difficult to put forward a cogent argument that the tech firm could enjoy similar price gains in 2020, or that the NASDAQ could grow by circa 45% year on year.

 Will U.S. dollar strength continue during the coming week’s trading sessions?

 Not only have USA equity indices enjoyed an overall strong start to the year, USD has also registered significant gains versus its major counterparts. Jerome Powell, the Fed chair, reversed his hawkish interest rate policy stance during 2019, some commentators believed his volte-face was due to pressure from President Trump.

 There’s a direct correlation between high equity prices and interest rates in the USA. Therefore, Powell and the FOMC might continue their dovish rate policy, which saw the headline rate cut by 0.75% during 2019, rather than risk the wrath of Trump, despite previously lauding the benefits of the rate rises and the stabilising economic benefits, which may come from a normalisation policy.

 

 The safe haven status of USD has also helped USD rise significantly versus its currency peers during recent sessions, most notably versus JPY, as USD/JPY has risen by 1.28% weekly. As can be clearly seen on the 4hr time-frame/chart the rise stalled during the Friday trading sessions. Volatility reduced, as evidenced by the narrowing Bollinger Bands and ADX falling. The ADX indicator measures the strength of a trend based on the highs and lows of the price bars, over a specified number of bars.

 For those in our copy-trading community who’d like to identify and trade volatility opportunities, there are several technical indicators that can help identify such conditions; the ADX, the ATR (average the range) and Bollinger Bands. A volatility squeeze can often prove to be a precursor of change and the subject is covered in this link

CopyTrade Economic News at ZuluTrade

 High impact calendar events that could move markets this week

 Monday January 13th begins in European markets with focus on economic statistics for the U.K. The latest Reuters GDP forecast is for growth of 0.00% monthly, with quarterly at -0.1%. The U.K. trade deficit is forecast to improve, as is construction, which could be the sector which prevents a monthly negative GDP figure. Traders of GBP should remain alert when the data is published at 9:30am U.K. time.

 Tuesday January 14th mainly focuses on the latest CPI data for the USA published at 13:30pm. The forecast is for a rise to 2.4% YoY up to December, from 2.1%, a reading which (if met) could impact on the value of USD, if analysts translate the reading as likely to encourage the FOMC to raise the key interest rate.

 Wednesday January 15th begins with Japan’s BOJ Governor delivering a speech in Tokyo during the early morning Asian session, the content of which could impact on the value of yen. German GDP is forecast to slip to 0.6% from 1.5%, a result which could affect the value of EUR. The latest U.K. inflation figures could affect the value of GBP versus its peers, if there’s any change from its current 1.5% level.

 Thursday January 16th starts in Europe with the latest Bank of England liabilities and credit report. As the U.K. faces Brexit on January 31st, this report published at 9:30am, takes on increasing importance. At 11:30am the ECB publishes the minutes of its December policy meeting, the content could impact on the value of EUR. As concentration turns to the USA economy the latest advanced sales figures are predicted to show a modest improvement to 0.3% monthly.

 Friday January 17th commences with a raft of Chinese data which could reveal the extent of the damage inflicted by the trade and tariff conflicts which dominated the global, economic, landscape during 2019. Chinese GDP YoY is forecast to remain at 6%, with quarterly growth slipping to 1.4%. Although a significant YoY figure in comparison to western levels, this is a fall in relation to the average growth China has experienced over recent years.

CopyTrade Economic News at ZuluTrade

 U.K. retail sales are poised to reveal a major improvement when the data is published at 9:30am, due to increased Black Friday and Xmas sales. The rise could be positive for GBP, unless the result is already priced in. CPI in the Eurozone is forecast to rise to 1.3% in December, from 1.0%, which could affect the price of EUR versus its peers.

 A raft of USA data published shortly before and during the New York trading session, could indicate the underlying lack of strength in the USA economy. Building permits and housing starts are forecast to show a significant reduction, industrial production could come in negative for December, with manufacturing production falling to 0.1%. As to whether the readings (if the predictions are met) will impact on USA equity markets or the value of USD, is difficult to predict, based on the current strength of the risk on sentiment.

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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