All’s well that ends well – Europe Interest rates and the US Job numbers

Dean Peters-Wright

Senior Analyst

fxKnight.com

The European central bank is expected to raise interest rates this week in an effort to fight the rising inflation causing panic within governments. It is expected to be raised by 25 basis points, the first time the ECB has changed the rates since May 2009. In an attempt to curb the rocketing prices which has caused global inflation, the effects will be felt in different ways across different countries. Pressure on Portugal, Spain, Greece and Ireland as they struggle with liquidity issues may result in further complications in the regions financial systems. Spanish banks are exposed to Portugal’s banking system and liquidity problems in Portugal could inadvertently cause a credit run on the Spanish markets. This in itself would not cause the case for Portugal to accept a bailout, but it will make it harder not to.

An interest rate hike will most likely cause further strengthening of the euro against most other currencies. Whilst this is good for production that use overseas materials and suppliers, this will also will put pressure on exporters and those economies that gain a substantial percentage of their GDP through tourism from visitors outside the single currency zone. If however the perceived danger to the smaller weaker economies outweighs the benefits of fighting inflation, there could be a sell off the euro as confidence decreases in the regions stability.

The US had a surge in the dollar when the non farm payroll figures were disclosed and the unemployment rate fell to 8.8%. Whilst the most powerful economy in the world celebrated along with all of its trading partners that have generally relied on the US being the engine driving world economic growth, it did highlight just how far the recovery has to go as prior to 2008 the US unemployment rate was under 5%.

The EUR/ USD has once again reached a key resistant point at 1.4234 where the euro sold off heavily before. If however the buying pressure breaks through this key level then we could be seeing new highs gained against the dollar with an ultimate target of 1.4790. Further long targets to watch for are 1.4427 and 1.4680 where key buying and selling levels have taken place through 2009.

IF the EUR/ USD retreats then 1.4037, 1.3887 and 1.3725 are significant support levels from before. 

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

Technical Analysis of the FTSE100

For readers who are not familiar with the term FTSE100 – it is simply an index of the 100 largest companies on the London Stock Exchange.  The index is maintained and owned jointly by the Financial Times and the London Stock Exchange.

The index came into being on the 1^st of January 1984 with a base value of 1,000.  It reached a record level of 6950.6 on the 30^th of December 1999.  The financial crisis of 2007 – 2010 saw it drop dramatically to 3,500.  Since then it has recovered to a large extent, reaching a high of 6,091.33 on the 8th February 2011.

Analysis

If one looks at the price of the FTSE100 in relation to the Ichimoku Kinko Hyo cloud in Fig. 3.29, it clearly shows that the market is currently in a declining phase.  The price is well below the cloud, which indicates that a long position at the present moment cannot be recommended.

The green Chinkou Span line is also well below the price, which supports the signal given by the Ichimoku cloud.

The Index started trading below the cloud after the earthquake/tsunami disaster in Japan and closed at a low of 5552.50 on the 16^th of March.  Since then it has recovered significantly, but during the last few days it has started drifting sideways with no clear direction being evident.

If the market should recover and break through the upper level Senkou Span A line of the cloud, this could indicate that the previous bull market has been restored and that we can expect further price increases.

A drop below the blue Kijun Sen line will, however, be a signal that the downward movement has gained momentum and in that case traders should look at a short position to cash in on a potentially significant price drop.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

How to Trade Oil Profitably in the Current World Situation

At the moment, the oil market appears to be in something of a state of turmoil.  There are certain forces at play that will push prices up for the foreseeable future; yet recent events have created a situation that could have a dampening effect on prices, at least in the short to medium term.

Market Analysis

On the demand side, large economies, such as India and China, are still growing strongly.  If this trend continues, it will ensure constant growth in the demand for oil in the short to medium term.  On the other hand, economic activity in many important Western economies is still lacklustre.  Despite several predictions of an imminent upturn, the US and UK economies have not lived up to expectations, which will, to a large extent, keep demand for oil in check.  The upcoming summer months in the northern hemisphere will also act to keep demand for oil within reasonable limits during that period.

A number of countries have suffered crippling natural disasters in the past few months.  The earthquake and subsequent tsunami in Japan was no doubt the worst of these and has now raised fears of a recession in one of the world’s biggest economies.  Once the focus shifts from immediate need to rebuilding, the construction industry in Japan will no doubt receive a huge boost.  This will, in turn, lead to stronger demand for various imported commodities and stimulate economic activity, and the demand for oil will increase.

The latest unrest in various oil producing countries of the Middle East/North Africa (MENA) region has created fear of disruption to the oil supplies.  This situation has been exacerbated by recent developments in Libya, where a civil war could potentially break out after military intervention by Western powers.  This will lead to further upward pressure on the price of oil.

Something else that has to be taken into account is that the threat of a nuclear disaster in Japan has made many nuclear powers rethink their approach towards this form of energy.  Germany, for example, has already decided to close several of its older nuclear power stations.

Since nuclear energy is an alternative to oil, any development that curtails the supply of this alternative energy source will, in the long run, act to stimulate the demand for oil and push the price up even further.

What we will probably see in the short to medium term therefore, is a temporary lull in the demand for oil.  In the medium to long term, everything points to higher oil prices and it would not be surprising to see new record prices within the next two years.

Technical Analysis

Technical analysis of the situation seems to confirm the foregoing conclusions.  The market was in a strong bull run before the earthquake in Japan on 11^th March 2011, but since then there has been a significant price correction, because many traders feared an imminent recession in Japan.  The market reached a low on the 15^th of March, with Brent Oil closing at 108.28 – see fig. 3.21.

At its lowest level, the price moved marginally below the Kijun Sen (the blue line) on the Ichimoku Kinko Hyo, but rebounded sharply from there and right now it is trading above both the blue line (Kijun Sen) and the shorter-term average, the Tenkan Sen (the red line).

Trading the Current Oil Market

The Ichimoku Kinko Hyo currently indicates a clear bull market.  The Chinkou Span (the green line) is above the price of 21 days ago; the price is well above the cloud and also above both the blue and red lines of the Kijun Sen and Tenkan Sen.

A possible trading strategy is therefore to buy Brent with a stop loss placed at the red Tenkan Sen line.  Along with the Ichimoku Kinko Hyo, this line always acts as your first level of support.  Once the price breaks through the blue Kijun Sen, a long position is no longer advised.

The first resistance level is at 118.47, which was reached on 7^th March.  Once the price breaks through that level, watch out for 119.40, a previous high that was reached on 24^th February.  If the price breaks through this level, new highs are very possible.

As long as the price is above the cloud of the Ichimoku Hyo, medium term short trades cannot be advised.  This does not mean, however, that an astute day trader cannot make money from short-term corrections in the price.  In this instance, figure 3.21 should be redrawn using an hourly or even shorter-term chart.  The same rule applies when the price is trading above the cloud; take in a long-term position.  When it is in the cloud, stay out of the market and when it trades below the cloud, it is time to go short. 

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

Technical analysis GBP/USD

GBP/USD made a valid attempt at rebound in the final week of January, yet the limit stayed well below 1.6057 resistance and eventually weakened.  Initial bias remains neutral for the upcoming week and more consolidations could still be achieved below 1.6057.  Nevertheless, even if there was another drop the pair is expected to remain bullish in the short term.  This depends on how well 1.5664 resistance turned support holds and whether the rise from 1.5343 is allowed to continue.  Above 1.6057 should resume the rise to 1.6298 first.  Still, break of 1.5664 will be proof that a rebound from 1.5343 is completed and focus should shift back to support.

Spread betting carries a high level of risk and you can lose more than your initial deposit, so you should ensure spread betting meets your investment objectives. 

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

Technical analysis EUR/USD

EUR/USD jumped as high as 1.3757 in the final week of January.  The pair stayed at that level for a short while on bearish divergence conditions in four hours MACD.  However, strong support above 1.3245 is anticipated to bring a rally in the coming weeks.  The pair’s total decline from 1.4281 should have ended in three waves down to 1.2873 already; above 1.3757 should lift the pair closer to 1.4 to test 1.4281 resistance first.

Overall, the question that remains is whether mid-range correction from 1.6039 has finished its three waves down to 1.1875.  The hard break above 1.35 again affirms that the fall from 1.4281 was simply a correction and the general rise from 1.1875 is ongoing.  Also, insiders are quick to note that break of 1.4281 will give new life to the argument that mid-range term correction from 1.6039 was completed in three phases down to 1.1875 and that a long-term uptrend could be resuming.  On the other hand, below 1.2873 is likely to turn the focus back to the 1.1875 low.

Over the long term, considering the five wave structure of the long uptrend from 2000’s low of 0.8223 to 2008’s high of 1.6093, price actions from 1.6039 are considered merely correction.  Thus, watchers first anticipate strong support between 61.8% retracement of 0.8223 to 1.6039 at 1.1209 and that 1.1639 will contain downside.  Second, another high above 1.6039 is expected eventually, once correction from 1.6039 has been confirmed as completed.

Spread betting carries a high level of risk and you can lose more than your initial deposit, so you should ensure spread betting meets your investment objectives. 

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

Guide to swing trading

Swing trading represents a middle ground between fast-paced day trading and long-term trend trading.  Those who follow a swing trading strategy typically hold a stock for a period of time, usually no longer than a few days or weeks and trade shares based on the stock’s weekly or monthly fluctuations.

Keys to Successful Swing Trading

Choosing the right stock:  The most favourable candidates are the large-cap stocks that are most actively traded on the major exchanges, for example Cisco, Intel, Microsoft, etc.  In an active market, these stocks typically move broadly between high and low extremes.  The swing trader follows the trend in one direction for a period of several days or week and then switches to the opposite side of the trade when it reverses.

Choosing the right market:  Swing trading presents some unique challenges in both a bear and bull market.  In these extremes, even the most active stocks fail to exhibit the normal oscillations that occur when indexes remain relatively stable for weeks or months at a time.  In a bear market or a bull market, stocks are carried by momentum in a single direction for long periods of time and may exhibit only subtle shifts that can be difficult to catch.  Therefore, the best strategy during periods of market extremes is to trade along with the long-term trend.

A stagnant market is best suited for swing trading.  When stocks and indexes are stable, there is a greater opportunity to take advantage of short-term movements.  For the swing trader, these short-term ups and downs generate the most significant profits.

Setting the baseline:  Historical analysis has proven that a market favourable to swing trading is one in which liquid stocks tend to trade above and below a shared baseline value.  This value is often shown on a chart with an exponential moving average (EMA).  Once the swing trader has used the EMA to identify a desired stock’s typical baseline, the trader can then adjust the swing strategy to the long or short, depending on the direction of the trend.  Conventional swing trading strategy dictates going long at the baseline when the stock is trending up and short at the baseline when the stock is trending down.

The most important consideration here is that swing traders are not looking to cash in on a single trade; there’s no real incentive to allowing oneself to become preoccupied with precise timing, to buy at a stock’s rock bottom and sell at its ultimate high or vice versa.  Instead, successful swing traders wait for a stock to hit its baseline value and reveal its direction before making a move.

When a stronger trend in either direction is evident, the trader may choose to go long when the stock falls below its EMA and wait for an uptrend or may short a stock that has jumped its EMA and wait for the drop.

Taking profits:  The object of swing trading is to exit each trade as close as possible to the upper or lower limit without being overly meticulous.  Of course, this also increases the trader’s risk of missing the most lucrative opportunities.  In a strong market, when stocks are exhibiting definitive and certain directional trends, swing traders are likely to wait for the stock to reach the channel line before claiming their profits.  In a weak market, when trends are harder to predict, traders may take a profit before that limit is reached in anticipation of a sudden directional shift that forces the stock to miss the channel line.

Conclusion

Swing trading is historically one of the best strategies for novice traders, but still offers substantial profits for more experienced and even advanced players.  Swing traders are able to receive feedback on the trades in a short amount of time, which goes a long way to build motivation for those new to stock trading.  However, the long and short positions that are typical to stock trading last several days; this is generally sufficient enough to stave off distraction.  Trend trading may promise greater profit potential if the trader can catch a major market trend over weeks or months, but few traders actually have the discipline to hold a position for that long without succumbing to distraction.  On the other hand, while day trading may be more intense and exciting, buying and selling dozens of stocks each day usually proves overwhelming for the majority of traders who employ the strategy.  Thus, swing trading is a happy medium between these two extremes.

Spread betting carries a high level of risk and you can lose more than your initial deposit, so you should ensure spread betting meets your investment objectives. 

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

The UK, the FTSE 100 and the effects that the Euro difficulties that could impose on sustained UK growth in 2011

Dean Wright ,Senior Analyst ,Fxknight.com

Many questions are being asked this week as the year draws to a close of how the economical outlook for the UK will look in the following year. On the frontlines of media coverage, it would be forgiven to assume that the UK is still at the foot of the hill and struggling to climb out of a recession that has taken hold of the UK economy and not let go. Benefits and welfare have been cut, pubic sector job losses have added to the dire unemployment situation and last weeks protests against raising tuition fees for university students has stamped its mark of perception of a lean treasury chest.

Looking a little deeper into the situation however, it is not so clear to distinguish and the outlook is a little more positive. The office for budget responsibility, the new forecasting office put in place by George Osbourne, has predicted that even though growth will slow sharply in the coming quarters due to the quick fire increase in national output the UK experienced being unsustainable, there will still be a steady increase in GDP output over the next two years.

Employment in the private sector has actually risen and the GDP outlook for next year has been forecasted at 2.1% which is up from 1.8% this year. 2012 has been predicted a further increase in growth, pegged at 2.6 %.

The FTSE has had a steady climb indicating investor’s confidence with the question being raised on whether the FTSE will break the 6000 level this year.

FTSE 100

The ups and downs of the Eurozone has certainly had its effects on the FTSE 100 price with the Greek debt crises pulling the FTSE down to 5060 from 5800 in an unfounded short space of time earlier this year. However, the FTSE 100 is back up to 5826 at the close of play last week, and it is possible investors confidence will continue to grow with the economy and push the FTSE up to 6000 level.

From a purely technical point of view, there certainly is scope for the FTSE to reach the 6000. The initial bull move in July saw a pull back to the 50% level on the daily chart. This level was tested several times as support before buyers out numbered the bears and the price started to rise once again. The 161.8% Projection level has been reached, usually signalling the complete move. However the levels have been respected as both support and resistance by buyers and sellers and has closed above the 161.8 % level at 5826.

If buyers now come in at this level to push the price up then there are a number of targets where bears are most likely to come in. Firstly there is the most recent high at 5904. If the bulls have enough power to push through this level, then anticipation of sellers coming in at the 6000 mark will likely see selling coming in just before this level.

If however the 6000 mark is broken, then the 200% Fibonacci level which is at 6071 could be a final resting place before selling drives the price back down again.

To the short side, the 138.2% and 127% Fibonacci projection levels have been significant levels with which traders have respected and so 5674 and 5602 would be ideal short targets for bears.

However, the forces of economics are seldom, if ever straight forward and taking an eye of the bigger picture, even for a second, could lead to some hard faced realities.

The weather outside

The dangers of the European crises from economies such as Ireland, Spain, Portugal and Greece, may have a substantial effect on the UK output with exporting industries suffering. Rising yield prices and the cost of borrowing for many countries in the EU is increasing the strain on member countries.  A growing resentment from those countries that have abided by the rules having to foot the bill for other member countries mistakes is becoming ever more apparent and fresh whispers about the survival of the Euro have been sparked, further consolidating pro-Euro and anti-Euro camps.

The actuality of any one of these struggling economies even contemplating leaving the Euro (in order to devalue their new currency and hence growing out of their deficit through exports) would be disastrous and would reach out far beyond their own boarders having the effect of the UK suffering collateral. Weaker economies in question could find themselves in the same dangers that Greece faced if allowed to default and if no bailout was offered: A deposit run and outside investors withdrawing capital; both of which would stall economic recovery, thus leading to a knock on effect in the UK and other countries in Europe with trade and exports.

Something to be wary of as we have seen time and again that when slow reactions to a fast changing economic reality can often lead the unthinkable becoming the inevitable.

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