Global FX Weekly 19th Dec - The pit and the pendulum

Forex Market Commentary  

Finally we have lift off

Perhaps it can be said that the final FOMC meeting for the year and the inevitable rate hike of 25 basis points was too little too late. Most economists agree that we really should be on 50 basis points by now.  Yet with the EUR/ USD the first official US rate hike did not lurch the USD upwards. On the contrary the smart money has already left the room. The USD is already priced as it is at 50 basis points and the official rate hike was just a rubber stamp.  

Buy the rumor; sell the fact.

In terms of position trading for 2016 I would like to recap on some very important considerations:

There are 3 very important concepts to understand in the FX arena should you wish to succeed.

1. The Terrain - battleground is dominated by the gargantuan commercial banks dealing for customer interests and Goliath speculators seeking to exploit moments in time to push back against the commercial banks and often take currencies in an opposing direction
2. The Weather - the forces of work swing together like a pendulum. Seasons will change and the gravity of trading shall force new directions
3. The Time - The past is a memory and quickly becomes a shadow. The future can become anything and becomes the wasted field of daydreamers. Only by living in the present can one understand where the pulse of price action lies
and truly move with the direction of the blade as prices heave to and fro
with the perennial fight between the Titans.

Economies are dynamic but their interpretations lag 2 steps behind. 2016 will see the USD stall and retreat against the EUR/ USD should the Titans deem Euro equities and Emerging markets an exciting buy-opportunity. Low bond yields in Europe and successful Q.E of the ECB will shape Euro equities as a bargain as against a top heavy Dow Industrials which the Fed will have  to do all in their power to uphold above the 14,000 level with 50-75 basis points sufficient for 2016 to gently keep the steam in the US stock markets. There is no way the US Fed will undermine the actions of former chairman Ben Bernanke and current Fed Chair Yellen that nurtured the Dow from the  calamity of 2008 and the 7000 level and the sheer size of equity and wealth creation since then. Moreover, commodities have taken a beating these last 2 years. Watch out for position taking in the Loonie and the Aussie  as commodity currencies start to appear tantalizingly appealing for contrarian trades which could spark the beginning of a movement such as the long march of the USD in 2014/ 2015. Track the CRB Index and crude oil and gold bullion
as gauges for possible adverse impact upon the USD in 2016.

The Pendulum looks set to swing in 2016. If 2015 was about smart money taking directional trades on the USD the watch out for 2016 where the smart money may turn with the Pendulum and leave small traders in despair flung into the abyss of the darkest Pit.

 
Important data:

Equities:

Asia:
Nikkei 225  18,986.80   - 366.76 (1.90%)
SSE Composite 3,578.96   - 1.03 (0.03%)    
Hang Seng 21,755.56      - 116.50 (0.53%)
 
Europe: 
DAX 10,608.19    - 129.93 (1.21%)
CAC 4,625.26    - 52.28 (1.12%)

USA:
Dow 17,128.55   - 367.29 (2.10%)

Fixed Income Markets:
US Federal Reserve -  +0.50%    
ECB Base rate 0.050 % 
Chinese interest rate PBC     China     4.35 % 
Japanese interest rate (BoJ)    0.10 % 

Important moving averages:

USDX  above the 50 day m.at 97.5
EUR/ USD below the 50  day m.a at 1.085
Crude Oil WTI below the 50 day m.a. at 44
Gold below 50 day m.a. at 1133
US - 30 DAY FED FUND below 50 day m.a. at 99.68
US - 10 YEAR T-NOTES below 50 day m.a at 127.1
    

In speaking of moving averages; markets are not rational and daily price action volatile, but in the longer run trader expectation and negative sentiment can be collectively summed up through the 50 day moving average. Always  look to support and resistance band lines as the key to understanding  in the long and short term where prices are converging. Professional  technical traders use 50 day and 200 day medium and slow moving averages  as fundamental cornerstones for interpreting the direction of price  action.

USDX

US Dollar 
98.718    -0.336 -0.34%       
Support 97.848     Resistance 99.094
Forward 1 year - 99.69s.

EUR/ USD

1.086965     0.000000 0.00%
Support   1.07707        Resistance 1.10091
Forward 1 year - 1.1000s.  

Crude Oil  WTI

36.06     -0.41 -1.14%

Support 35.30 Resistance 38.40

Forward 1 year - 41.43s.

Gold

1066.135     +10.835 +1.02%
Support  1,067.2    Resistance 1,092.3
Forward 1 year  - 1,089.0s.


Merry Christmas and Happy New Year all! 

Pieter Bergli - DeLoren Trust Holdings

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