Weekly Analysis - 18th August 2013


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The table below shows the weightings that TFF places on the different asset classes we trade and report on.
They represent the relative importance TFF gives to Technical and Fundamental Analysis to achieve a Trading Decision or Recommendation.
Based on these weightings we assign a combination of +/-/N Rating to each Trade and Recommendation in both categories.
When they align (+/+ or -/-) it is the highest rating and therefore the strongest trade signal. This will result in the ARCP entering a position in that Asset Class.
When Ratings do not align, we will look at the weightings that apply to determine if a position is to be taken.
Each Trade and Recommendation implements the TFF Rating System, is summarized in the TFF TRADES AND RECOMMENDATIONS section and is explained in detail under MARKET ANALYSIS in all our Daily and Weekly Reports.
 

TFF TRADING RECOMMENDATIONS:

$ Index: -/- Bearish.
EUR/USD: +/+ Stay Long but watch for signs of a reversal at Key resistance.
GBP/USD: +/+ Stay Long but watch for signs of a reversal at Key resistance.
AUD/USD: +/+ Stay Long.
USD/JPY: -/- Stay Short.
Gold: +/+  Stay long and aggressively accumulate on any weakness.
Crude: +/N  Neutral. Better opportunities exist in other commodity products.
Equities: N/N Stay Flat.
Debt: -/N   Stay Flat.
Special Situations: None.

MARKET ANALYSIS

CURRENCIES: in last week's Weekly Report we warned that Economic data would have little effect in this summer holiday thin markets and that the general bearish trend in the greenback would remain, which is what happened throughout the week gone by. We see no reason to change this view.
 
USD INDEX: the Index pulled back to the 20 ema early last week and then resumed the downtrend, leaving the 200 sma behind. The next Key support at 80.60 is very likely to be reached next week and looking at the weekly chart, which shows repeated weekly pin bars rejecting the short term average, we feel the momentum will be such to force further downside beyond 80.60. The next level of support would be 78.90. We remain technically and fundamentally bearish.
                                                           USDINDX_U13 - Daily
                                                           USDINDX_U13 - Weekly

EUR/USD: the Euro retested 1.3200 Key support which was strongly rejected. Even though Friday's candle is an indecisive spinning top, bias and momentum remain up so Key resistance 1.3400-1.3415 is likely to be re-tested next week.
Recommendation: +/+ Stay Long but watch for signs of a reversal at Key resistance.
                                                             EURUSD - Daily
                                                             EURUSD - Weekly
 
GBP/USD: having re-tested confluent support midweek (1.5420, the 200 sma and the 8 ema) price bounced strongly and broke through 1.5600. We expect 1.5720 Key resistance to be tested next week. We remain bullish but watchful of how price will react to 1.5720.
Recommendation: +/+ Stay Long but watch for signs of a reversal at Key resistance.
                                                             GBPUSD - Daily
                                                           GBPUSD - Weekly
 
AUD/USD: price action in the Aussie over the past week caused us to change our short term view to Bullish on Thursday as price consolidated in a bull flag formation. So our readers should be Long around 0.9140 or better. Friday price broke out of the top of the bull flag, which is generally considered to be a continuation pattern, so further upside can be expected, though a break above 0.9200 would have been preferable. The weekly chart shows a pin bar candle closing above the short term average for 2 weeks in a row (first time in the recent downtrend), which supports a bullish stance. Likewise for the lower time frames, with the 4 hr showing the bull flag upside breakout and the 1 hr showing the 150 ema crossing the 365 ema and diverging. Clearly, 0.9200 resistance will need to be conquered next week and 0.93000 after that, which could then lead to a more meaningful 'relief rally' in the Aussie with the next resistance area being 0.9510-0.9714 (38.2 and 50 Fib levels).
Recommendation: +/+ Stay Long. Initial target 0.9300 but look for further upside.
                                                             AUDUSD - Daily
                                                           AUDUSD - Weekly
                         AUDUSD - 4hr                                                             AUDUSD - 1hr
 
USD/JPY: in the past week we got the pull back we had been waiting for and price gave a shorting opportunity as Key dynamic resistance between 20 ema and 50 sma. If price can get through 96.98 minor support, it is then likely to break through the 200 sma and possibly test next support at 94.10.
Recommendation: -/- Stay Short.
                                                              USDJPY - Daily
                                                            USDJPY - Weekly
 
GOLD: The rise continues and is still in its infancy. However as previously stated this will not be a straight line. Currently all our leading fundamental indicators point towards a short term overbought situation. We can therefore anticipate a short, sharp correction which would be ideal as it flushes out the weak, late arrival momentum traders and provides us with another great buying opportunity. Remember, the market is designed to benefit the small minority at the expense of the vast majority. Next week's anticipated correction will ensure that this happens. Fundamentally we remain maximally bullish.
Technically price is still reacting off last week's bullish Morning Star formation from confluent support. Having broken Key resistance at 1338, price paused at 1368 only for a short while on Thursday. Price is likely to next test 1414 Key resistance, though 1338 may be re-tested as support.
Recommendation: +/+ Stay long and aggressively accumulate on a pullback.
                                                              XAUUSD - Daily
                                                            XAUUSD - Weekly
 
CRUDE: Whilst fundamentally we anticipate all commodities to rise into the end of the year, including crude, we foresee massive out-performance in the precious metal sector. Therefore we maintain our stance and will only move from Neutral to Positive if crude re-visits the low 100's. Fundamentally we remain neutral.
Technically, price reacted off last week's Morning Star formation at confluent support, though this week it's been a slow grind higher. 108.58 Key resistance should be reached sometime next week.
Recommendation: +/N Stay flat and await better buying opportunities elsewhere in the commodity sector.
                                                            CRUDE_N13 - Daily
 
EQUITIES: The FTSE was quiet but again lower in Friday morning trading following a poor session in the U.S on Thursday but later perked up to close in positive territory amid thin volume.
The S&P had a quieter session on Friday and drifted lower after slightly weaker Housing data. Fundamentally we would like to see a further pullback to just over 1600 where we would look to go long for one final push up before looking for long term shorting opportunities. The S&P closed down 4.6 at 1655.9, down 35.4 on the week. The weekly range was 1651.9-1697.0. Fundamentally we remain neutral.
Technically, we offer the same comment as Thursday's Report, with the previously identified Head and Shoulders pattern triggering but leaving little Reward:Risk to its mathematical target of 1645 which was almost reached on Friday. Such a level should act as support but further downside cannot be ruled out, with 1625 and 1600 as the next levels of support.
Recommendation: N/N Stay flat.
                                                              S&P500 - Daily
 
DEBT: Peripheral yields were lower in Europe on Friday on continued hopes of growth in the Eurozone but major markets were unchanged. As you will see below the peripherals had a very good week with hopes of recovery continuing across the Eurozone.
Regular readers will know that we were bearish on the U.S bond at the 150 level and often mentioned a target of 125. Because of the speed of the descent we recently recommended going flat for a short term bounce. This bounce clearly did not happen and we are therefore looking at the next possible scenario. There is still a chance that we get the bounce before the next FOMC but at the moment that is not looking likely. However at these prices you have to believe the market is pricing in some pretty aggressive tapering by the FED which we do not think will be the case. We think the FED will start with something between $5bn-$10bn and some of that will come off the short end. If that is the case then there will actually be a huge rally after the FED announcement which will then give us another shorting opportunity. The bond closed down 57 cents at 131.09, down 341 cents on the week. The weekly range was 130.50 – 135.03. Fundamentally we are now neutral.
Technically, as price broke decisively through 132.00 Key support, having hovered above it for more than a month, we see little in the way of price falling to the next Key level of support which is the 122.50-125.00 area (best seen in the weekly chart below).
Recommendation : -/N Stay Flat.
                                                          USTBOND_U13 - Daily
                                                          USTBOND_U13 - Weekly
 
Please see below the weekly price and yield changes for the major cash bond markets.
 
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FUNDAMENTAL VIEW & TOMORROW'S TFF LEADING INDICATORS REVIEW:

COT DATA:

PRECIOUS METALS: Both gold and silver witnessed an increase in commercial short position and an increase in large speculator longs.
COMMODITY CURRENCIES: The AUD continues to be the most unloved currency in the world. Remember that under 'normal' circumstances commercials are always long the US$ and short the rest. This is because the US$ is the world's reserve currency in which international trade is priced and commercials conduct their business' internationally. They are therefore always long the US$. As this is not the case currently needs to be taken very seriously indeed irrespective of the fact that the extreme long positions in the commodity currencies has been reduced slightly.
TREASURIES: Commercials continue to maintain their extreme long position which justifies our Neutral stance. The Treasury market has 'priced in' the September tapering and is due for a big corrective bounce.

The increase in the Commercial short and large speculator long positions for both gold and silver can be interpreted as bearish. However as both are coming of an extreme low position it in fact marks the start of a growth cycle. This is because commercials are never heavily short at a major market low and currently they are not.

We spotted an interesting article regarding physical gold demand which we replicate here:

Globally, jewellery demand was up 37% in Q2 2013 to 576 tonnes (t) from 421t in the same quarter last year, reaching its highest level since Q3 2008.
In China, demand was up 54% compared to a year ago; while in India demand increased by 51%.
There were also significant increases in demand for gold jewellery in other parts of the world: the Middle East region was up by 33%, and in Turkey demand grew by 38%.
Bar and coin investment grew by 78% globally compared to the same quarter last year, topping 500 tonnes in a quarter for the first time.
In China, demand for gold bars and coins surged 157% compared with the same quarter last year, while in India it jumped 116% to a record 122t.
Taking jewellery demand and bar and coin investment together, global consumer demand totaled 1,083t in the quarter, 53% higher than a year ago.
--Mark O'Byrne, "Physical Gold Demand Surges 53% in Q2, Total Supply Down 6%--Price Falls 35%", www.ResourceInvestor.com - August 15, 2013.
 
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CHARTING LEGEND:

NB: Our MT4 charts are based on One Financial Markets data. OFM being a UK based broker run their charts off GMT (Greenwich Mean Time), so their daily candles close at 00:00 GMT. For our Daily Reports we take snapshots between 21:30-22:00 GMT to coincide with the US closes.

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