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Strategic Report Sample

  • Strategic Report, 2014 Week 47

    Technical Analysis



    The single currency has seen a period of consolidation against the greenback the previous week after a poor month for the euro. The strength seen in the euro the last couple of days and the bulls to maintain the price above the key support level of 1.2500, has brought some signs for a recovery and thus the 1.2500 level will be a significant level for the euro bulls the following week.


    The 4-hour charts show that the pair has been in a clear downtrend since June 2014. After the pair tested the 1.2500, it made several attempts to break higher, but the 50-period SMA provided a significant resistance to the price action near the 1.2900 and the 1.2700 areas, preventing the price to move towards the descending trend line for a retest.

    Having the above in mind, if the buyers manage to maintain the price above the psychological level of 1.2500, the next target for the pair will be the 1.2600 level, where the 50-period SMA is ready to provide a strong resistance to the price action. From there, if the bulls manage to win the battle then we could see further pressure on the 1.2700 level. Our bullish scenario is supported by the MACD oscillators, since is moving upwards and above its trigger line, suggesting that the pair is ready to push higher. Furthermore, the RSI and the Stochastic moved away from their oversold levels indicating some weakness to the downtrend.

    Alternatively, a failure to break above the 1.2600 level, could provide an opportunity to retest the key support level at 1.2400, and thus would negate any bullish scenarios for the EUR/USD pair.




    The British pound has potentially turned more bearish against the dollar after breaking below the 1.5870 and the 1.5790 levels the previous week. This is a very aggressive rally so far and is showing no signs so far that it will pull back any time soon.


    However, the pound also took advantage of the dollar depreciation and managed to pare some if its morning losses at the end of Friday's session. The pound rebounded from a 14-week low against the dollar and gained some momentum the last couple of days, closing slightly below the lower descending trend line. Going forward and remaining on the daily chart, I would expect the pair to consolidate on Monday's session between the 1.5600 and 15800 levels and to pick up some momentum during the middle of the week, ahead of some significant data out from the UK and US, including UK and US CPI figures, UK Retail Sales and the BoE and FOMC minutes.

    That being said, if the bulls manage to drive the battle towards the 1.5790 barrier, which includes the lower boundary of the downward sloping channel, then I would expect extensions towards the 1.5870 hurdle, for now. On the other hand, if the sellers manage to maintain the price below the aforementioned obstacles, then the price should attempt to challenge the 1.5590 key support level. A clear break below the latter level, then I would expect the bears to drive the action towards the psychological level of 1.5500.




    The pound fell for a fourth consecutive day against the euro and gave all of its gains made the last month. Technically and according to the daily chart the EUR/GBP pair is moving in a sideways channel and despite numerous attempts to break out of the channel, so far all attempts have failed with the most recent ones to be supported at the 0.7767 - 0.7800 zone.


    From there, the pair gained an upward momentum and surged above some significant obstacles including the 50-period SMA, the 0.7800 and 0.7900 levels. Currently, the price is testing the 200-period SMA, near the 0.8000 level. Having n mind the above, the next target for the pair should now be the 0.8050. From there, if the bulls manage to win the battle versus the bears, then i would expect more extensions towards the 0.8100. MACD is rising in bullish territory confirming the aggressive move towards the 0.8000. The Stochastic still maintains its bullish sentiment, while the RSI is testing the 70 line. For confirmation of the trend reversal, we will need to see a break above the descending trend line and the 0.8160 level.

    Alternatively, a failure to break above the 0.8050 level, could provide an opportunity to retest the key support level at 0.7900, and thus would negate any bullish scenarios for now.




    The euro looks set to continue its push higher, following some consolidation over the last couple of months. The fact that the price failed to break below the key support level of 1.4010 would bring a more bullish outlook, as it suggests there is plenty of buyers trying to defend that level.


    However, the downtrend remains in effect since the price continues to follow its downward path. A clear break above the 1.4390 level, could change the outlook to bullish and I would start looking for a trend reversal above the psychological level of 1.4500, which includes the 200-period SMA on the daily chart. On the other hand, if the bulls fail to push the price higher, then I would expect extension below the strong support zone of 1.4010 - 1.4045, at 1.3900. Relying on short term oscillators does not seem a solid strategy since they lie near their neutral levels.




    XAG/USD moved higher testing once more the descending trend line, near the 16.68 level. Following the aggressive sell-off few weeks ago, below the key level of 16.70, the metal rebounded from the 15.06 area and managed successfully to move above the 16.00 level.


    As it stands, a clear break above the 16.70 hurdle might drive the battle towards the 17.73 barrier. All our technical studies support a further rise, since the Relative Strength Index is following an upward path and the MACD oscillator is ready to cross above its trigger line in the positive territory. On the other hand, if the white metal break below the 16.00, a strong technical level, further support should be found around the 15.00 floor, where a battle is expected by both market forces.




    DAX30 index has been trading within a clear negative trend, establishing clear lower lows and lower highs since it reached the 10,045 level. However, last week's fall below the 93,000 did not came as a huge surprise, following the powerful rally in the German index, which saw it break through many significant levels including the 8,875 and 9,080 barriers.


    That upward move was halted by the 200-period SMA on the daily chart. The ability of the index to close below the 9,500 brings a negative bias in the medium-term and for that reason I would expect to see further downside movements in the coming days or so. Should this come through, the next support level to watch out is the 9,080 and then the 8,875. Momentum indicators support the notion, since the RSI failed the 70 level and Stochastic escaped from its overbought area. Around the 8,875 area, I would expect a battle to take place between both market forces.




    Coca-Cola Inc. (SYMB: CCE) moved higher after rebounding from the strong support level of 39.00, but the advance was halted by the 50-period SMA and the strong resistance level at 43.60. From there the stock is trading lower below the 43.60 - 44.15 zone, as well as below the descending trend line and the 200-period SMA on the daily chart.


    As it stands, if the bears manage to take control and push the stock lower, breaking the 41.60 barrier, then I would expect further pressure on the 40.45. Further fall will then be limited at the psychological hurdle at 40.00. On the other hand, a bulls' victory, would be likely to open the way for a push higher towards the 45.80 and this will indicate the end of the correction phase. Meanwhile, technical indicators are providing mixed signals. Relative strength Index is struggling near 50, while the 50-period moving average remains below the 200-period moving average on the daily chart. Furthermore, the ADX crossed below 25 and stochastic just exited its overbought area, suggesting a weaker stock in the next few weeks.


    FX Weekly Market Preview

    1. Week Ahead: BoE and FOMC Minutes, UK and US Inflation Reports, UK Retail Sales and German ZEW Survey

    There was some positive news from Europe the previous week, which could help the euro recover from its recent losses. During Friday's session the Eurostat reported that the euro zone's economy grew more than expected in the third quarter. Euro zone gross domestic product grew by 0.2% on the previous quarter, while Germany's economy expanded by 0.1% over the period, meeting expectations. Meanwhile, Greece ended its worst recession after almost 6 years. Greek GDP rose by 0.7% in the third quarter of 2014 and the annual GDP is up 1.7% over the last 12 months, according to Eurostat. Furthermore, data showed that the Eurozone CPI rose 0.4% yoy in October. Even though the Eurozone's recovery picked up speed in the third quarter, the region still has a long way to go.

    The EUR/USD fell versus the dollar for a fourth consecutive month, (Jul -2.21%, Aug -1.91%, Sept -3.81% and Oct -0.85%) and is currently on the way to add another negative month (currently -0.03%). To find a five consecutive falling months for the EUR/USD pair we need to go back in 2010, when the pair fell aggressively from the 1.51 levels towards the 1.19 areas (7 consecutive falling months).

    Overall, the greenback had a good week, ending higher versus the pound and the yen, while retreating against the euro and the beta currencies. Furthermore, the Gold rose for a second consecutive week as aggressive buyers and metal traders pushed the precious metal from the 1150 areas towards 1200.

    A relatively quiet week for the Eurozone, given the excitement emanating from the UK and US economies, where the only event of note comes in the form of speeches from the ECB's President Mario Draghi on Monday and Friday, where a market volatility is expected.

    On Tuesday, all eyes will be on UK inflation for October. The inflation in the UK dropped to 1.2% in September, following 1.5% the prior month. This is the lowest rate in five years driven by a fall in energy and food prices. UK inflation is estimated to be up 1.3% yoy from 1.2% yoy. Moreover, it is unlikely that the Bank of England will raise rates before 2015.

    The other highlight of the day will be the ZEW survey for Germany. Investors' sentiment dropped in October to -3.6 from 6.9 the previous month, returning below zero for the first time since November of 2012. The Current Situation is forecast to have fallen to 1.8 from 3.2, while the sentiment is expected to have returned in a positive territory 0.5.

    In the US, National Association of Home Builders' (NAHB) housing market index is estimated to remain unchanged in January at 54, following four consecutive rising months.

    On early Wednesday, the Bank of Japan decides on its cash rate target, which is expected to remain unchanged. In their last meeting, BoJ surprised the markets while deciding to expand its massive stimulus spending. Since then, the yen is depreciating against its other G10 counterparts. A press conference by Governor Kuroda will follow.

    On Wednesday, we have another big event for UK and US. The BoE and FOMC minutes.

    FOMC will release the official minutes from their last policy meeting. The FOMC announced that it is ending its quantitative easing program, although did not say when it would start raising interest rates. Markets will therefore carefully go through the minutes, hoping to find any hint toward an earlier-than-expected rate hike from the Fed.

    Close attention will be paid also to the UK Retail Sales and US inflation rate on Thursday. UK Retail Sales are due to increase in October by 0.3%, a turnaround from a -0.3%. This will drag the yoy rate up to +3.80% from +2.7%. Since consumer spending is one of the main engines of growth in the UK, this could help the pound's recovery.

    In the US, inflation rate dropped down to 1.7% in September, away from Fed's target of 2% for a second consecutive month. CPI is expected to drop 0.1%, while core CPI is predicted to gain 0.2%.

    Finally on Friday, attention will turn to Canada, where the Bank of Canada releases its inflation report. The Bank of Canada's core measure of CPI for October is expected to have remained unchanged at 0.2% mom. This will keep the yoy rate unchanged at 2.1%. The Consumer Price Index on yoy basis is also expected to have remained unchanged at 2.0%.





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