What moved markets this week and some clues on what's coming next
Some of the main news this week driving financial markets has been Donald Trump's claims that a trade deal with China is getting closer. The president asserted that American negotiators were about to agree a first phase agreement to end or at least decrease the intensity of the trade war. On the other hand, tensions remain fairly high, with Mr Trump repeating his assertion of support for pro-democracy protesters in Hong Kong.
Data from China on Tuesday morning showed that Mr Trump's tariffs are starting to bite. Chinese industrial profit sank nearly 10% annually, the biggest decline in eight months and the third contraction in a row. The positive that many analysts have identified here is that the pressure's now on President Xi Jinping to agree a deal with the USA despite the various concessions that will probably be necessary.
One of the biggest events in data so far this week was Wednesday afternoon GDP release from the USA. The second estimate of third quarter GDP beat the consensus by 0.2% and gave the dollar a boost in most of its pairs.
European markets have been fairly uneventful this week, with slightly better German data failing to give the euro much of a boost in most of its pairs. Many indices in Europe as elsewhere though reached monthly highs as a Sino-American deal is increasingly expected.
Dollar-shekel, daily
Dollar-shekel's extended downward movement appears to have halted. The Bank of Israel's cut of 0.15% to its benchmark rate on Monday afternoon was widely expected but nonetheless seems to have taken some wind from ILS' sails. The current political impasse in Israel, which has lasted on and off since April, hasn't had much effect since the first half of the year. The strong gains made by natural gas - Israel is a major producer - since the end of last month have been key for the shekel in November so far.
The technical picture here suggests that the downward trend is close to exhaustion. The slow stochastic has moved clearly into oversold and volume has been very low since the middle of September. Meanwhile recent candles have extended tails, demonstrating that although demand is still there for selling, there's little follow through.
The most likely scenario here sooner or later is a retracement upward towards the confluence of the 50 and 100 SMAs with the 23.6% Fibonacci retracement area. The current period of consolidation and inactivity though might continue for several days next week.
American light oil, daily
Oil hasn't been nearly as volatile as usual over the past few days, with price continuing its current uptrend fairly consistently. Probably the key fundamental factor for oil as with indices is increasing expectations of a deal between the USA and China.
On the other hand, slowing growth in China is likely to lead to lower demand for crude sooner or later. It's going to be very difficult to identify when these two factors reach equilibrium. Tuesday night's stock data from the API was reasonably good for oil: although the change was still positive, it was lower than last week by over two million barrels. This was balanced to a degree by very slightly weaker figures from the EIA on Wednesday afternoon, with stocks going up by nearly 200,000 barrels.
The first key area technically is likely to be the 100% Fibonacci extension level (based on the resumption of big gains at the end of October). This is slightly below the critical psychological resistance zone of $60. To the downside, the 200 SMA might be an important area of support in the near future: having previously resisted price in early November, we can see that Monday's attempt to close below the area failed.
Buyers should be very careful to monitor the slow stochastic here. Despite a number of false signals so far this month, another close below the 200 SMA (or even the 100) combined with a downward crossover in overbought might signal a swing back down to October's lows.
Euro-dollar, four-hour
The situation for euro-dollar is pretty similar to a fortnight ago when it previously tested 1.10. If there's a significant break below this support, many sellers are going to get involved again. On the other hand, the picture in the short term probably favours the bulls. Lower volumes, a golden cross of the 50 and 100 SMAs and a classic upward crossover of the stochastic makes selling here very risky.
Despite good GDP data from the USA on Wednesday and weaker preliminary data on German inflation, many traders will want to wait for next week before committing themselves. German manufacturing PMI on Monday and eurozone GDP growth on Wednesday are both crucial releases.
Dollar-yen, four-hour
Once again, trade is the focus of fundamentals here. Without much change in general data, the dollar has moved up more strongly this week against the yen. The knock-on effect of better sentiment on trade is of course gains for indices, including JP225.
Despite positive news here so far this week, a consolidation seems to be necessary fairly soon for anybody to hail the start of a new healthy trend. Overbought conditions have dominated since Monday afternoon, with the slow stochastic fairly consistently above 80. Price even closed outside the upper deviation of Bollinger Bands (50, 0, 2) five times!
This article was submitted by Michael Stark, market analyst at Exness.
Disclaimer: opinions are personal to the author and do not reflect those of Exness.
