Yellen's Sleepless Nights

Where shall we start our discussion this week? Honestly, there were so many economic data released that need careful assessment but the overall big picture is rather negative to say the least. Financial media claimed that economic numbers out from China shows stabilisation yet certain key data is in contraction mode (that is after many series of stimulus programme) and to top the week with an Non-Farm Payroll data of 142k is just too much to bear.

Central banks around the globe continue to promote easy monetary policy as they cut interest rates. China pledged tax cuts and other fiscal stimulus after their national holiday seems to support the broader market for now. Confirmation of such action will send the market higher no doubt but there are questions remaining if everything is really back to normal or we are moving away from normal to bad and the worse is yet to come?

Sure there are a lot to take in and scrap that October rate hike completely of the agenda. No matter what we wrote here, talk of rate hike for 2015 will be back on the table. Miss Yellen already stresses this and yet the market remains steadfast that with bad data, there will not be a rate hike this year. We beg to differ, instead lean to the slight chance of a rate hike at least once for 2015. Potentially, that could be the catalyst for a global stock market turnaround?

China remains the problem child but it has the capacity to transit away from being industrially dependant to a growing service sector. Never underestimate their power to change policies overnight just to favour their own economy. Meanwhile, other emerging economies may have to take on much bitter pills and shore up with easy money so as to sustain their own economy. One thing for sure, global currency war could escalate into 2016 and things may get slightly nastier. Considering that central banks are already “balls deep” with stimulus programs and low to zero interest rate – what happens and who will save the economy if it is tanking?

“Next week mark the all-important Non-farm payroll week and it is already forecasted to be better than previous number. If it comes lower than last month number, it could well spell trouble and turn the market upside down. However, we felt that the market could remain indecisive as uncertainty remains on the surface.”

What can we deduce for next week? China has an extended national holiday but we will host several key data such as US ISM non-manufacturing PMI, Australia Interest rate decision and UK interest rate decision. All in all, a rather steady and quiet week in terms of economic data – which should allow traders to digest what else to consider and what might come around the corner.

It has been years that the global economy has managed to dig itself out of the hole of debt that was created through pure greed and unsustainable programme of easy monetary policy yet we are told to believe that things are better with MOAR easy money. We highlighted several key issues already in our previous articles on the concern of over production, no consequences on the aftermath of “normalisation” and silly assumptions on economic projection. With much time to ponder, we would like to raise the following question – who is hedging on the opposite side of all this?

Dollar Technical Outlook

Once again the long dollar trade look extended and the period of consolidation was met with a sell-off post NFP numbers then a recovery bounce. Going into next week, we envisaged a weaker dollar to start with as dollar bulls look to unravel and switch to short term safe haven trade. A weekly doji inside last week bullish engulfing candlestick could well signal the bulls do not have what it takes to regain previous high. A pullback lower is healthy but we cannot discount the fact that dollar index may continue to linger and sidesteps where it currently is until we head to another FOMC meeting. Remember that Miss Yellen is adamant for a rate hike in 2015 and the dollar could remain alleviated just on that news. That bloody carrot is still dangling, with that in mind – dollar strength continue until it no longer applies.

“The weekly chart is setting out for a potential breakout higher – range trading within the ascending triangle remains. Daily chart also shows a period of consolidation – as the market try to gauge the next big move. Dollar seasonality index is suggesting further weakness is due till the end of the year but we remain uncertain how to translate this into the current price action given that a rate hike is imminent.”

Gold Technical Outlook

Gold price action is playing out with seasonality index and we cannot rule out that the 1st week of October started with a bang higher. Post NFP numbers, gold closed well above its 20 daily ma (but failed to close above weekly 20 ma) – as short covering run rampant again. We continue to see higher gold prices going into next week – albeit to retest previous high at 1141 but uncertain if we can break above 1146. Failing that will mean a deeper pullback which could break the psychological support at 1100 (many long have their stops here). Any trigger below will open the gate to revisit 1070 and even much lower.

“Gold did break above the 20 weekly ma but failed to close above it. We think that this is a very important level – a break and close above should give the bulls more firepower. Given that it failed, we are adamant that a deeper pullback is still in the cards.”

Silver Technical Outlook

An impressive short covering rally in silver but we maintain the view that this is short term respite – so we expect higher prices which might not last. If Silver rally into next week, we are looking to short the white metal at the daily 100 ma which coincide with the 20 weekly ma levels. Our argument has not changed on the fact that it is remain a bear market and rallies are shorting opportunity.

Platinum Technical Outlook

We admit we got this completely wrong as the selling escalated with concern of future scandal – potential slowdown in the global economy – rate hike – various other fundamental reasons that aim for lower Platinum prices. Short term, we are biased for a bullish move higher – potentially for another bear flag formation. Only a break above 20 dma will abate more selling.

“Going forward, we will only be bullish on a break and close above the daily 20 ma.”

Palladium Technical Outlook

Rocket Palladium – short busy covering here and no doubt it is a buyer’s market for now. However, we do expect this impulsive buying to end and a retest of previous low is imminent.

“We will not rule out a retest of previous low or at least the weekly orange coloured trend line. Short term price could still test higher into next week but rallies could be an opportunity to add on short.”