Review: The escalation of the crisis in the Middle East puts upward pressure on the oil price and results in falling equity prices. Several asset classes are now over the edge and we will soon have to see a turnaround. If we do not see a turnaround, we will most likely see a continuation of the downturn to the extent seen in the autumn of 2011.
Retail sales in the US disappointed as it came to -0.3% against the expected level of -0.2%. Jyske Bank’s macro-economists state: Retail sales are somewhat weak after two very strong months. However, this weakness is undoubtedly affected by Hurricane Sandy and therefore the development is somewhat uncertain. Therefore we should be cautious about jumping to conclusion about the October figures.
The FOMC minutes showed that there are prospects of further stimuli from the Fed.
Most likely the Fed will decide to resume its purchases of government bonds at its December meeting. If that happens that will be yet another signal that the Fed will solve the crisis by easing anything possible to stimulate the economy and hence improve the employment situation.
This would support risk appetite and that is a supporting element in our main scenario as stated in Spot On (to be published in English very soon) to the effect that we expect a risk rally a the end of 2012.
Rumours still have it that a Spanish rescue package will materialise soon, and therefore the yields on Spanish government bonds only rise moderately, which in turn prevents EUR from falling to any stronger extent.
Market sentiment: We could easily get the feeling that we are about to see something big - but whether we are in for an upward or a downward ride is difficult to say. A look at the price development indicates a downward ride. On the other hand, it will not take much to move things in the opposite direction. If Greece is granted more money at the end of November, we will take an important step towards renewed investor confidence. For the short term, we maintain a defensive approach to the market, but recommend that investors supplement their positions with a 14-day EURUSD call option.
At 10:30, retail sales in the UK
At 11:00, the overall GDP for the EU and the euro zone
At 14:30, consumer prices in the US
EURUSD (SELL): We recommend that in the short term investors SELL EURUSD with S/L at 129.02
EURUSD begins to show signs of stabilisation after the recent extensive sales. MACD has given the first positive signal, but it should be noted that the last two times we saw this (see the black boxes and the red vertical lines), there was still one more go for EURUSD.
There is potential for a short-term decline to the range of 124-125.50.
The first strong level of resistance will be found at 129 - 129.48.
EURJPY (NEUTRAL): Prime Minister Noda’s announcement of an election before the end of the electoral term had been expected and resulted in selling of JPY. What caused market players to sell JPY was the even softer rhetoric of the opposition leader Abe as compared to that of Noda. At several occasions, Abe announced that he will speed up easing measures if he is elected.
MACD and RSI indicate a continuation of recent days’ increase of EURJPY. There is resistance in the range of 103 - 104.60.
If EURJPY breaches above 105, there is every indication that we will see a strong rally towards the range of 108-110.
EURGBP (from Sell to NEUTRAL): The recommendation was stopped out due to a stop loss, resulting in a loss of 0.82%.
Now EURGBP is again trading in the uptrend we have seen since July, which results in a short-term target up towards 80.80 - 81.40.
EURTRY (NEUTRAL): There is an important level of resistance at 230.50. If we see a level above this, we may before long see 235 again. The recent ‘soft’ signals from the central bank support such a movement.
USDPLN (SELL): We recommend investors to SELL USDPLN and to take profit at 315.00 and place stop/loss orders at 331.50.
USDPLN is one of the cross rates that will be most strongly affected by a change in sentiment. The risk of being stopped out is therefore always big, but if you match the expected movement, the gain will be high. We see a good, short-term risk/reward of about 1/4. Over the past couple of days, momentum has turned around favouring a setback.
Stochastisk has given a signal and RSI is in overbought territory.