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We released our performance portfolio for June 2012: Performance
There is a reason why a person’s relatives do not act as a surgeon to him/her. They need to keep their emotions out of their work before they can begin their high precision job of cutting the human body. Traders can learn a lot from highly skilled surgeons who have over the years kept the emotions under control and often not visible during the duration of their work schedule (surgery). Emotion can often be of mortal danger to the patient as it slows the surgeon’s actions and makes his thinking clouded.
In today’s charts and analysis (more lengthy than the usual daily analysis) we will cover weekly and daily chart setups but also dwell upon the fundamental case before us.
Please take a deep breadth as we look at over 25 charts and intermarket setups to set ourselves for trading next week. We will also look at what we said last week to maintain the continuity.
But first get that expresso as we start warming up with some fundamental news and analysis.
US Economic Data
The US trade deficit came in somewhat higher than expected in April at $50.1bn, although it declined from an upwardly revised $52.6bn in March. Exports fell 0.8% but were outpaced by imports which dropped 1.7%. While the declines would be consistent with slower growth both in the US and globally, they mainly seem to be a payback as they come on the back of significant gains in March when exports were up 2.5% and imports 5.2% (chart).
In real terms, the goods deficit declined by $1bn to $48.5bn. It remains above the monthly average of $47.7bn recorded in Q1, however, indicating that net trade could be a slight drag on real GDP growth in Q2.
German Economy
Germany registered unexpectedly strong GDP growth in the first three months of 2012 (0.5% in quarter-on-quarter terms; consensus: 0.1%). In contrast to the rest of the euro area, the highly competitive German economy has not entered a recession. Still, it is unlikely to expand at the same pace in the next few months. The important purchasing managers’ index (PMI) is pointing downwards, probably due to the
uncertainty caused by the sovereign debt crisis.
Uncertainties about growth have recently increased considerably. While the Ifo business climate index is pointing upwards again (see chart), the important PMI for the German industrial sector was down in the past three months. This is the first time that the Ifo index and the PMI are at odds to this extent. The German economy will probably grow considerably more slowly in the second than in the first quarter. The uncertainties caused by the sovereign debt crisis are probably the main reason why the German economy is not cruising along at full speed, despite its high competitiveness and the fact that the ECB key rates are much too low for the country. The political drama in Greece, budget risks in Spain and Portugal and the reform stop in Italy periodically cause the sovereign debt crisis to return to the forefront. However, Europe’s political and business elites depend on the survival of the monetary union, so they will probably agree even to joint bonds if push comes to shove.
EU debt monitor
On the EU debt crisis front, reports in the media suggest that Spain will submit a request for EFSF funds for its banks at the weekend, based on what they have heard from German government circles and EU delegates. Spain’s government spokesperson does not wish to comment on these reports and has referred to Prime Minister Rajoy’s statement that the Spanish government firstly wants to wait for the reports of the IMF and private audit institutes on the position of Spanish banking sector, due in the next two weeks. However, the country appears at least to be moving closer to making such a request, as German government circles have confirmed that a telephone conference of Eurozone finance ministers will take place at the weekend on the subject of a rescue programme for Spain. Details are not known at present. However, Spain is initially only likely to request support for its banks. This is possible since changes were made to the EFSF last year. The advantage for Spain would be that conditions would only have to be fulfilled with regard to the banking system and Spain’s entire economic policy would not be under the control of the creditors like it is in the case of Greece, Ireland and Portugal. The money would presumably flow directly into the bank restructuring fund FROB and would therefore not have to be refinanced via the market. Spain’s public debt would of course rise even so – unlike in the case of direct payments of the EFSF to banks requested by Spain and other eurozone countries. Should Spain actually request aid for its banks, one of the biggest questions in the coming weeks will be whether Spain will also have to make a general request for support. After all, Spain would be admitting, by such a request for support to banks, that it can no longer finance itself for all purposes on the market. We believe it is possible at least that investors will more and more doubt whether Spain can finance its deficit and the redemption of expiring governments bonds via the market. Consequently, Spain could be forced to request a general rescue package soon. Should Spain ask for help for banks at the weekend, this would happen via the EFSF. Consequently, the risk of the total rescue fund (EFSF+ESM) not sufficing would also lessen somewhat, as it was decided at the start of the year that already granted EFSF funds would not be charged to the ESM. The ESM, which enters into force at the start of July, could therefore still use its total volume of 500 billion euros for new rescue programmes. And this might be urgently necessary. Indeed, if Spain were now to slip under the rescue umbrella at least in part, the focus of the market would soon turn back to Italy, where there is plenty of bad news: the economy’s downturn appears to have accelerated recently and the government’s will to reform has visibly waned. The ESM could only support Spain and Italy together for three years if the total 500 billion euros were available and were not used in part for the rescue programme for Spanish banks.
And now the real stuff…………charts and setups
Bond Market
The US2Year yields are nicely positioned between the 50 MA and 200 MA at 0.28. A breakout may mean 0.32 level to be taken down and then there is nothing but air as it can rise to 0.4 in no time. A breakout is your signal to go long USD/JPY pair.
The Italian 10 year on daily is hitting against its resistance of daily BB 25,2 channel and should technically take support at 100.5.
The Italian 10 year bonds for the weekly are being supported by the mid line of 25,2 BB channel. A break of 100.5 on the weekly close will be tragic as it could fall straight to 91.77.
SCHATZ daily finally cracked the uptrend with a dip to the mid 25,2 line. Given the strength of the fall
one may be forgiven if you assume there is more down side for SCHATZ but not before some minor retrace to 110.75.
All through this uptrend in 2012, SCHATZ weekly has been kissing the upper BB 25,2. and has only once dipped to the mid line of BB 25,2 to take support. That is testimony to the power of EU schatz uptrend. The mid line now lies at 110.409 on a weekly close.
The German bunds daily have hopped down to levels below to 144.2 from over 50,000 sq ft zone where the air was getting really thin. Importantly it now sits at the resistance zone at 143.81. Expect a bounce to 145 before deciding whether it wants to fall further to 141.5 levels.
The German bunds (10 year government bonds) weekly are scrapping off the top of the upper 25,2 weekly BB channel. I am not interested in a long trade here given the near inside week printed. I would expect a test of 139.42 on the weekly.
Forex Markets
The AUDUSD weekly has been supported by the 25,2 BB weekly line. A close below .9650 could spell a cascading fall to .9100 which is the weekly 100,2 lower line. There is nothing but air below. What I would like to see here is a support and return to 1.0350 levels which is where the confluence of SMAs and BB mid lines converge. Your cue to go long on the weekly is net line standing at 1.0034.
AUDUSD daily stands at the resistance zone at .9911 which is close to the mid line 25,2 BB. Almost alway bollingers act as dynamic support and resistances and hence are important to master. The daily stochastics have upward mobility while vortex has just crossed into possitive zone. Hence the short term view here is for AUSDUSD to continue its climb to parity and then 1.01.
On the hourly AUDUSD has hit against a wall at .9920 zone which is the upper BB25,2. I expect .9862 to be tested pretty early on Monday.
EURAUD daily is standing at an important support zone of 100,2 mid line BB at 1.26 zone. Longing this pair back to 1.2770 is the trade to be taking but do not be afraid to flip the trade around on a break of a 1.2585.
AUDJPY has broken over its key resistance level at 78.69 and unless we see a reversal pattern (inside days, hammer etc) in the next 24 hours, we could be targtetting 82 levels.AUDJPY has been tracking risk sentiment over the last few days. The inside on June 2 was well pointed by us that we may be seeing a reversal in AJ.
This is I what we wrote on 3 June 2012: “On the weekly AUDJPY touches down at the 100,2 lower BB line. The dramatic move last week should see reversal here in the short term. What makes this chart even more inviting is the close presence of both 25,2 and 100,2 BB”
How true was that as AUDJPY came back smartly of those lows at 74.7 and now stand tall at 78.75. There is still strength left to take a go at 81.81 but will require a pause and steady consolidation.
On EUR/JPY, we pointed out on 3 June 2012 on how the reaction of the confluence of 100BB and 25BB both at 97.2 could produce a major reversal. It did produce as pair rallied to 100.6 more than 350 pips over the level which we pointed out. Falcon breakout on hourly at 97.2 was truly amazing as it was actually signalling a major move for EJ in the counter trend zone. Those who trade aggressive trade strategy around Falcon would have made a tonne of it. EURJPY could take some downward support at 98 zones before proceeding further to challenge the 100.73 levels again.
EURUSD has more left to challenge 1.2682 which also ties in with the EURAUD charts which suggest bounce to 1.2772.
ES daily has closed above the mid line BB of 25,2 channel. That is short term bullish. Weak stochastics and neutral Vortex may mean further advance may need support and buying off lower levels.
On the weekly charts, ES is now capped by 25,2 BB mid line at 1330. The 1330 zone is barrier as it reflects confluence of SMA on daily and hourly while also being a trend line support zone. So all trades on the long side have to be above this level.
Commodities Markets
Copper is diverging from SPX last week rally to 1330 zone while copper has stayed put at 3.25 levels. This is critical given that the red metal has a tremendous bearing on the overall risk appetite. Normally when the diverge, Copper has the last laugh.
The CRB index has been falling since Mar 1. It has fallen over 15% from 328 high to 272 levels. The falls below 290 have been with gaps. Those gaps have been filled as market rallied last week.
Gold/UST2Y yields are stuck between 200 MA and 50 MA. The triangular consolidation means there could be resolution pretty soon. We dont need to guess but as soon as 6461 is taken down, we know the direction of the break and we can trade it in that direction.
Inter Markets
The put call ratio (CPCE) at 0.78 is relatively calm and has no alarm bells for the markets. At 0.78 markets are neither oversold nor overbought.
The market internal ratio (10 SMA of NYDNV/NYADV) continue to be comfortable above 2.5 hence suggesting that the folks who sold are now not coming back. They are comfortable sitting out and watching the action. This is not a good sign if you are bullish.
As opposed to market internals, bond market flows to high yield assets suggest that last week rally may not be a fluke but well supported by bond markets. The JNK/TLT ratio put in one of its strongest rallies seen in recent times as it rose from 0.29 to .306. The confluence lies at 0.325 which could correspond with SPX at 1350.
The VIX/VXO ratio rose to 1.04 but the divergence between VIX/VXO was clearly visible even before last week as we pointed out in last sunday post. The divergence played out well as SPX rose mid week to 1325.
The VIX/VXO ratio has fallen to 1.017 but in the latest fall for SPX to 1278 has just shown a bullish divergence. This is probably an important divergence for bulls as they hold on to some threads which separate 1230 and 1260. The difference between the VIX and the VXO is that the former is based on the S&P 500 and the latter on the S&P 100.
Read Last week post
VIX was capped by the 25,2 upper BB line and was promptly taken down into the trading range. The support lies at 19.84 but a challenge of the upper BB is not out of the question.
Phew. Thats it for today and hope I have set you guys thinking and stretch your imagination. Captial3x subs are made of steel. They dont corrode nor are susceptible to emotions. We trade the markets and dont care which way it is swinging. We are never married to the position and ready to flip the trade around if we see an opportunity.
Best of emotionless trading. Winning is not just an obsession but a habit.
Mark
Capital3x is forex research firm which shares its premium trades with its subscribers. It also conducts its own live trade room and is the first internet firm to launch live bond market indicators for forex markets
- The June Live Trade Sheet
- The June Live Trade Room
- C3X Performance FX portfolio
- The Bond auction schedule can be found here: Bond schedule
- The speaker schedule can be found here: Speaker schedule
Captial3x has its own bond market indicators which are extensively used for forex trading.
The Indicator links are provided here:
1. Falconfx EUR/USD
2. Falconfx EUR/JPY
3. Falconfx USD/CAD
4. Gladiator ES
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