5 Things To Watch Next Week + ChartBook

Bank of England to Follow Fed’s Dovish Lead?

GBP/USD, 4-Hour Chart Analysis

After getting overbought, the Great British Pound pulled back this week following the strong ‘Brexit-delay’ rally, since on Tuesday, the House of Commons rejected two proposals that would have extended the exit deadline up until December. Now, Theresa May is authorized by the House to renegotiate the draft Brexit plan with the EU, but Brussels continues to stick to the original deal, so uncertainty remains high regarding  the crucial process.

While it’s hard to predict the developments of the coming weeks, we believe that without a deadline extension, the EU will finally cave in, and try to reach an agreement that would likely be accepted by the British Parliament as well. Until then, volatility could reign supreme in British assets even though, the odds of a no-deal Brexit are very low here.

The Bank of England will hold its monetary meeting next week in this environment, and especially following the global dovish shift by the Fed, the ECB, and the Bank of Japan, the Central Bank might surprise the market with an outright dovish step, or a possible emergency measure for a no-deal Brexit.  In any case, event risk is still very high in the Pound, but technicals continue to point higher.

Google, NVIDIA, and Disney to Conclude Earnings Season

Google, 4-Hour Chart Analysis

So far, the US earnings season lived up to expectations, as although we saw clear signs of the sharp Chinese slowdown, with several companies, such as Apple (AAPL) and Caterpillar (CAT) confirming the broad weakness.

US demand remained strong in the 4th quarter, and even though there are signs of a slowdown in the US, the divergence with the rest of the world is still apparent. Around 75% of firms beat the muted profit expectations, and while a lot of companies missed out on their guidance, the market’s reaction was solid in most cases, with the help of the risk-on shift of the last months.

Google parent Alphabet (GOOG), NVIDIA (NVDA), Disney (DIS), and Philip Morris (PM) will highlight the last strong week regarding earnings, and following a period of relative strength, analysts expect a great quarter for Google even amid the global slowdown.

The firm’s online ad business, driven by You Tube ad sales and mobile search is very stable, with an expected organic growth rate of 12%/year, and that stability could translate to continued relative strength compared to some of the other, more cyclical tech niches. That said, as the oversold technicals are now cleared, there is way less fuel to drive the stocks post-earnings, and we could see some nasty reversals next week.

Emerging Markets Continue Rally, Recovery or Bull Trap?

EEM (Emerging Markets ETF), 4-Hour Chart Analysis

While following the late-summer rout, emerging market currencies capitalized form the pause in the broad Dollar rally in recent months, equities in the segment continued to show relative weakness, and even following the strong rally in the US, they are still clearly in a bear market, being well belwo their 2018 highs.

From a technical perspective, the segment, as measured by the EEM ETF, made some progress last week on the hells of the dovish shift by the Fed and its peers, topping a key resistance level, but with risk assets being as stretched as they are, the chances of a bull trap are high here.

From a fundamental standpoint, the main question is that will the last-ditch Chinese stimulus stop the deterioration, despite the already historic debt bubble. The mature business cycle in the developed economies is also put to a test and although the Fed already stopped tightening, as the effects of the US tax cuts wanes, economic headwinds will just get stronger.

Top Cryptocurrencies Still Looking Weak Following Rally Attempt

XRPUSDT, 4-Hour Chart Analysis

While the top 3 coins completed the technical breakdown that we expected to kick the week off, and volatility also surge higher accordingly, Ripple’s mid-week rally attempt saved the segment from an even deeper downswing. While we avoided a move towards the bear market lows, for now, the technical setup didn’t change significantly, and the majors are still in clear downtrends on all time-frames.

We are likely in for another active week in the market, since most of the majors continue to trade below the prior trading ranges with the lower boundaries of those ranges acting as resistance levels ever since the break-down.

The few positive signs, like Litecoin’s relative strength and Bitcoin’s stability, aren’t enough for a constructive outlook here, and we still think that even if a broader bottoming process might already be underway, the test of the bear market lows remains likely, and the risk-rewards ratios are not yet favorable for new positions here.  That said, should the coins successfully test the lows, a great low-risk buying opportunity could be ahead in the coming months, but investors should remain patient until we start to see signs of technical strength in the segment.

A Calmer Week of Economic Releases

Following one of the busiest weeks of recent memory, we will be in for a relatively quiet period regarding economic indicators and central bank action. That said, besides the Bank of England’s monetary meeting, there will be a few crucial measures coming out in the UK and the US.

We will have the British Construction PMI and US Factory orders on Monday, the highly-anticipated ISM Non-Manufacturing PMI, Eurozone Retail Sales, and the British Service PMI is scheduled for Tuesday, while German Factory Orders and the US Trade Balance Balance will highlight Wednesday’s session.

The second half of the week will be all about the BOE meeting, but the British Halifax Housing Price Index EUs Economic Forecast will also be out on Thursday, and the German Trade Balance could make waves on the last session of the week, especially amid the sharp slowdown in China.

ChartBook

Major Stock Indices

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Forex

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.