5 Things To Watch Next Week + ChartBook
GBP/USD, 4-Hour Chart Analysis
The Great British Pound had its most volatile week since the Brexit referendum, with still the same issue causing turmoil years after the initial shocking decision. For now, nothing is certain about the outcome of the saga, even with several deadlines quickly approaching.
After the exodus of some of the key members of Theresa May’s government, the outlook for the approval of the draft Brexit plan turned very bleak. The situation this week evolved to a real crisis concerning the Prime Minister’s position, with her Cabinet crumbling, a vote of confidence brewing, and the odds of the plan’s approval sinking.
A special EU summit will take place on the 25th of November, and after that, should the treaty be signed, the House of Commons will be up, and Mrs May is facing an uphill battle.
In the current uncertainty, day-traders have the best opportunity to profit from the Volatility and the quickly changing sentiment, but from a longer-term perspective, the best investors can do is to stay away from the closely connected assets.
Treasuries Rally, Dollar Dips; Another Correction or Something More?
EUR/USD, 4-Hour Chart Analysis
US Treasury yields plunged across the curve this week, first due to the sharp selloff in risk assets then thanks to the cautionary words of Fed Chair Jerome Powell, which also led to the largest drop in the Dollar this month.
Yields are nearing their lowest levels in 2-months, and should the move, which is still clearly a counter-trend one from a long-term perspective, continue, it could stabilize global markets which have been very nervous ever since the start of the October selloff. That said, the Dollar’s long-term uptrend is not in danger, and despite the hawkish words of Mario Draghi, fundamentals still support the Greenback even in the case of a deeper correction.
China Show Strength as Trade Confusion Intensifies
Shanghai Composite Index CFD, 4-Hour Chart Analysis
We had lots of contradictory reports with regard to the state of the US-China trade talks, ranging from a halt of the tariffs to another $250 billion package, but it seems likely that we are closer to a new agreement than ever, even after Mike Pence’s harsh words towards the country at the APEC summit. Financial markets also show encouraging signs concerning China, as the previously weak equity markets in the country showed some early relative strength this week.
While we think that the Chinese bear market is far from over, the two sides now have many more reasons to agree, following the midterms and the slowdown in China, and a deal would likely cause a major bounce in the battered Chinese assets. Jerome Powell’s slight dovish shift could temporarily ease the funding pressures in China and other emerging markets, so a stronger “feel-good” rally could be ahead in the troubled markets.
Oil Market Eyes Recovery After Rout
WTI Crude Oil, 4-Hour Chart Analysis
After fundamentals finally started to matter in the oil market, prices fell by almost 30% top-to-bottom, and this week, the commodity experienced its worst daily decline in years shedding 8% in a selling panic that was likely exaggerated by forced liquidations. While a bounce already seemed likely before the liquidation event, when the WTI contract violated the $60 per barrel level, it fell as low as the next major support zone near $55 before a weak rally.
The increasing US output, the Canadian glut, slowing global economic growth, the doubtful Russian and Saudi production levels, and the softening Iranian sanctions are all negative for the price of oil, but we still think that oil is stretched on the downside, and a short-covering rally towards the $63-$65 zone is likely, which would reset the sentiment.
Also, on an interesting note, the main US producers are much less vulnerable after the cost reductions in the wake of the 2014-2015 crisis in the sector, and that could also mitigate volatility in the segment despite the recent selling panic.
US Consumer Economy Looks Promising Ahead of Black Friday
While the importance of Black Friday, the start of the US holiday buying frenzy, sales is widely overstated by the media, the holiday season as a whole is a huge chunk of the annual sales of several sectors in the consumer economy. Consumer confidence in the US is near all-time highs, this week’s retail sales report beat estimates across the board, and the labor market continues to be supportive for sales, with payrolls and wages increasing steadily.
While we know that consumption can fall off a cliff quickly in the case of an economic slowdown, while the labor market in general is lagging the economic cycle, we still expect a positive holiday season, even if corporate earnings likely already peaked out. That could aid the stock market towards the end of the year, although we believe that a broader risk-off shift is already underway, and we will likely not see all-time highs in the major indices for a long while.
Major Stock Indices
S&P 500 Futures, 4-Hour Chart Analysis
Nasdaq 100 Futures, 4-Hour Chart Analysis
Dow 30 Futures, 4-Hour Chart Analysis
VIX (US Volatility Index), 4-Hour Chart Analysis
DAX 30 Index CFD, 4-Hour Chart Analysis
FTSE 100 Index CFD, 4-Hour Chart Analysis
EuroStoxx50 Index CFD, 4-Hour Chart Analysis
Nikkei 225 Futures, 4-Hour Chart Analysis
EEM (Emerging Markets ETF), 4-Hour Chart Analysis
USD/JPY, 4-Hour Chart Analysis
EUR/GBP, 4-Hour Chart Analysis
AUD/USD, 4-Hour Chart Analysis
Gold Futures, 4-Hour Chart Analysis
Copper Futures, 4-Hour Chart Analysis
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