This analysis was supplied by one of the students, Judith, from our pro traders course. Her remit is to analyse the global macro economic and geo political situation and use that knowledge to hone in on specific currency pairs for the week ahead;   This week was not without noise, and the inevitable reaction to news happens every week to greater or lesser degrees. But underlying fundamentals take much longer to expose any real change and it is easy to forget that any strong underlying fundamental IS the trend and its also easy to think a trend is just a line a chart.

A chart displays evidence, it cannot be predictive, does not have a life of it’s own and it is always lagging whether by small time lapses or more dangerously, larger ones. A chart is a story of human behaviour and a mirror of global realities, and human behaviour, in particular, can be somewhat noisy, distracting and misleading. This week I have taken a look at longer time frames when assessing what really went on in the world markets this week and started in equities and commodities.

Looking at these markets generally from further out provides context and avoids rushing to judgement on sentiment changes on the basis of a weeks trading and worse on one day in the markets, allowing longer term strategies to harmonise with those global realities.

There was a lot of talk this week of falling equities, and it is true that drama (often noise) makes better press. Certainly there was truth in it and a cautious tone appeared in the US equity markets *. Having said that the market has been rampaging for 2 months and as the weekly chart for the S&P500

 and the DJ30

show it is a force not to be underestimated and will take a significant shift  in poilcy or data to derail it. As they say ‘it is not over until it is over’ The data was mixed from the US this week…nothing to harden the hawks or soften the doves. Final GDP came in lower than expected.

  The weekly Nikkei

shows a down move. Change in sentiment? Most definitely not. Does it mean there won’t be one? Certainly not, but for the fundamentally awake trend trader, it is what it is.   In Europe

 the tone was a little more upbeat but again it isn’t in evidence on a weekly chart of the Euro Stoxx 50 and as pointed out last week there is less appetite in Europe for equities where bond buying  has steadily increased over a nine month period   This is  shown on the EURO-BUND weekly chart.

It is true to say that German data, europe’s strongest economy briefly buoyed up equities on inflation numbers and an increase in French spending. It was supported to a lesser degree by digestion of US news and the ‘Yellen’ effect.   The FTSE 100

on a lower time frame shows the drift down this week with a recovery on Friday.   The same pair on a weekly over a 5 year period

sends a different message  The  BOE have introduced some credit controls in an attempt to cool off the housing market. Carney still looks like a front runner (despite all the comments thrown around the press), to pull the rate hike trigger, maybe as early as November.   In the Bond markets, US treasuries

had a lift and yields fell as did their expectations on both 10yr and 30yr notes. The US yield to date is 3.2 , Germany 4.8 and Japan 1.5. More context. German inflation news has done its bit to dampen fears of european deflation but the risks to the Eurozone economy are well in evidence, as Dragi himself said  ‘risks continue to be to the downside’. Europe only has a few stars to shine in it’s galaxy.   Moving to commodities the recent news has been Iraq and oil, where oil prices have calmed as events in Iraq narrow to sectarian violence. But in Europe

some critical steps have been taken this week in the Russian/Ukraine arena so I took a look behind the news. Of course the dispute has been a major geopolitical concern for some time. Here’s why. Ukraine have rich resources and a chaotic economy, rapidly shrinking after years of promising growth. No wonder when they rely on 60% of their steel and grain to be exported to Russia. They aspire to European Union along with Moldavia and Georgia, with increasing attempts by Putin to prevent it and to bring the economy to it’s knees.   And underneath it all lays the pipelines of one of the biggest networks in the world, connecting rich Russian resources to Europe. It’s name, ironically, the Druzhba line.

It means the friendship line. It divides into 2, north and south, and the south feeds through the Ukraine. Europe has threatened sanctions against Russia over the actions they have taken against the Ukraine but they know there will be consequences and the economy is not in a fit state to deal with them. Energy prices are up, and wheat imports as much as 20% since the crisis began. Brussels has a major headache over Ukraine entry taking on another weak economy and the backlash of Russia. They hesitate on sanctions, understandably and the treaty, somewhat of a compromise will in any event provoke a reaction. There is no apparent silver lining for the european economy and a lot of anxiety behind the smiling faces at the EU council on friday.

A note on Gold

the analyists did warn last week of short covering, and whilst it did attempt a break which failed, little happened during the week. Gold is not proving itself attractive as an investment but as a short/medium term ‘play’ and this week not even that.

And now to this week and next in the Forex.

I start with the most basic and most important underlying fundamental. The Central Bank comparison of interest rates.
NZD 3.25%
AUD 2.5%
CAD 1.00%
GBP 0.50%
CHF 0.25%
USD 0.25%
EUR 0.15%
JPN 0.10%

The bond yield comparisons
NZD 4.40%
AUD 3.54%
UK 2.64%
EUR 2.55%
CAN 2.24%
CHF 0.64%
JPN 0.55%

The strongest currency performers of the week are the CAD and the NZD, both gaining ground the weakest, The USD and the EUR. The rest had uneventful weeks taken overall. Over the last three months, the performers are, NZD, AUD, CAD and to a lesser extent the GBP. The weakest, starting at the bottom, EUR, USD, CHF and the JPN.
My focus is on the EURNZD, EURGBP, GBPUSD and CADJPY

I mentioned the CAD

last week with stronger than expected inflation numbers but still with its rate at 1% and the trend up. News can effect this one if the BOC changes its direction, GDP on Monday afternoon, outside of rates, this is the most important piece in the economic health barometer. So definitely one to watch with care. In the CADJPY , a pullback to 94.30 zone with a ‘breathing’ stop for a long.

I am still long the GBPUSD

and nothing this week has changed my plan to follow the trend. I will add at the weekly trend line should it retest.

EURGBP

still offers shorting opportunities ,is still a favourite and I shall watch for an intraday opportunity with candlestick formations on the H4 chart. However I prefer the daily trendline pullback around 0.8060

The NZD continues to show strength as we go from week to week both against the dollar

and the EUR.

Both moves are a little overextended but a Pullback to the 1.5700 zone in The EURNZD with stops above the trendline shall be where I focus. The NZ trade balance numbers on thursday evening came in above expectations driving the currency as exports rise and foreign importers demand local currency to buy their goods.

Just a quick note on the VIX

The weekly chart shows a June low that is actually over a seven year period.

Events to watch next week; Canada has news this week GDP monday, trade balance thursday. , EUR CPI also monday. Tuesday Chinese data which can affect the AUD, a rate statement from the RBA in Australia . Manufacturing numbers from the UK and the US on tuesday also. Wednesday is Trade balance from Australia and Non Farm employment change from the US. This is a big day to take care with the AUDUSD. Yellen speaks again on Wednesday afternoon so a cautionary note on all dollar pairs. . The RBA follows data on thursday and yet more for the AUD with retail sales and building approvals. There is an ECB press conference and trade balance in the US also on thursday.

It may well be summertime, but there is no shortage of news to move markets, and if we can keep the fundamental framework in mind as we try to reduce noise levels our longer term trade plans should bring some opportunities.