Much will now probably depend upon Tuesday’s US CPI (inflation) data release.
The difference between success and failure in Forex / CFD trading is highly likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.
So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment.
Read on to get my weekly analysis below.
Fundamental Analysis & Market Sentiment
I wrote in my previous piece on 5th November that the best trade opportunities for the week were likely to be:
- Short of the NZD/USD currency pair as a day trade following a bearish reversal at $0.6000. This was an excellent call as the high of the week was $0.6001 before the price fell by more than 2%.
- Long of Cocoa futures. This was another good call, as Cocoa futures rose over the week by 2.98%.
These trades produced a large overall win.
Last week was dominated by a strong rise in the US Dollar, back in line with its long-term bullish trend, but also a strong rise in US stock markets. It seems as if money was flowing into the US rather than into a specific asset class. It is true that as last week advanced, traders became first more convinced that the terminal interest rate may have been reached, due to more dovish language from the Fed, which probably helped the Dollar rise. However, there is now more talk from the Fed about their continuing fears over inflation, with new CPI data being released this Tuesday, which may be helping to push up the US Dollar. On Thursday Fed Chair Jerome Powell said, “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”
The other major data releases last week were the Reserve Bank of Australia’s widely-expected 25 basis point rate hike to 4.35%, which was accompanied by a more dovish tilt on future rate hikes, which sent the Aussie firmly lower over the rest of the week, and UK GDP data which came in a little stronger than expected, showing a monthly increase of 0.2% when the rate was expected to remain unchanged.
Other important data releases last week were:
- Bank of Japan Governor Press Conference – there were no surprises.
- New Zealand Inflation Expectations – this came in slightly lower than expected.
- Chinese CPI (inflation) data – came in lower than expected, showing deflation.
- US Preliminary UoM Consumer Sentiment – a little worse than expected.
- US Unemployment Claims – this came in as expected.
The Week Ahead: 13th November – 17th November
The coming week in the markets is likely to see a higher level of volatility compared to last week, as there will be a release of highly-important US CPI (inflation) data. This week’s key data releases are, in order of importance:
- US CPI (inflation)
- US PPI
- US Retail Sales
- UK CPI (inflation)
- US Unemployment Claims
- US Empire State Manufacturing Index
- UK Retail Sales
- UK Claimant Count Change
- Chinese Industrial Production
- Australian Wage Price Index
- Australian Unemployment Rate
Technical Analysis
USD/JPY
The USD/JPY currency pair printed a large bullish inside candlestick over the week, closing very near the high of its range. The price ended the week in an area very near a 30-year high, well above the big round number at ¥150.
These are bullish signs, and with markets now speculating on a more hawkish Fed, there is scope for a further rise, possibly to a new 30-year high price above ¥152. Much will depend on US CPI (inflation) data which will be released on Tuesday.
Due to the strong momentum and long-term bullish trend here, there may be a long trade entry opportunity this week here.
NASDAQ 100 Index
The NASDAQ 100 Index printed a second firmly bullish candlestick, after the previous week’s biggest weekly rise seen here in over one year. The price closed near the high of its range. These are bullish signs, as is the fact that bulls succeeded in pushing the price up beyond an area of minor resistance.
There is bullish momentum here, but that could change on Tuesday if the release of US CPI data comes in significantly higher than expected. It is also worth noting that the US stock market was much more buoyant than stocks in other regions last week, which could be worth another note of caution for bulls.
I will wait for a daily close above 15,600 before getting involved here on the long side again.
Cocoa Futures
Cocoa futures have been in a strong bullish trend for over a year now and made another strong rise last week. The price chart below applies a linear regression analysis to the past 57 weeks and shows graphically what a great opportunity this has been on the long side.
The weekly candlestick was again firmly bullish, closing right on its high at a multi-year high price.
It is always a bit aggressive to enter without a pullback, but this is a strong trend that shows no sign of stopping on ever-increasing global demand for the superfood cocoa.
Trading commodities long on breakouts to new 6-month highs has been a very profitable strategy over recent years.
US Oil
The West Texas Intermediate Crude Oil market has rallied a bit on Friday as we closed out the week, after testing the 200-Week EMA at the $75 level. All things being equal, this is the market that I think does have a real shot at turning around and showing signs of consolidation. If we were to break above the 50-Week EMA, then it’s possible that the market could go higher. On the other hand, if we break down below the $75 level, the market could drop down to $72.50 in that move.
DAX
The DAX rallied a bit during the week after initially pulling back, and now it looks like it is clearing the €15,300 level. All things being equal, this is a market that I think every time we see a pullback there will be buyers as it looks like we are trying to come back into the market to find some type of value. On the other hand, if we were to turn around and break down below the bottom of the previous week, the 200-Week EMA will be targeted. If we can break down below there, then the market will test the €14,000 level.
BTC/USD
The Bitcoin markets have rallied during the course of the week, and it looks like they are going to try to push the market to the $40,000 level. Any short-term pullback at this point in time looks like it’s going to attract a certain amount of attention, with support all the way down to the $32,000 level. Ultimately, this is a market that continues to see plenty of bullish pressure, but we are starting to get near an area that has a lot of volatility, in the form of the $40,000 level.
Bottom Line
I see the best trading opportunities this week as:
- Long of the USD/JPY currency pair.
- Long of Cocoa futures.
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