RISK BACK ON (how long for?) – Inter Market Analysis

Risk On

  • Asian equities fared better – European equities took off overnight as usual – risk on sentiment kick start with a lag after several talk of stimulus
  • Euro-Area inflation rate turns negative – ECB needs to act – talk of additional stimulus by end of year
  • BOJ additional QE by October (bond purchases) = Yen weakened and Risk On sentiment kicks off
  • Big improvement in UK current account give boost to the overall economy picking up / UK GDP final 0.7% – Sainsbury led the FTSE rebound – Glencore dead cat bounce and overall mining industry get relief buying
  • Most of the negative sentiment has been priced in – as argued per yesterday contrarian view
  • Bad News is Good News correlation is back on – VIX hit resistance yesterday

Risk Off

  • Euro and Yen weakened while safe haven commodities took a dive lower – Bunds lower
  • Many of the recent risk off events has yet seen any marked improvement or changes in policy (could well haunt us again)
  • How much longer can the pool of liquidity maintain the market at this pace? If October rate hike did not materialise then another potential turmoil is in the cards?
No comment added as per yesterday’s analysis. The market is heavily underinvested and with start of the month this rally could remain short term which is the only risk for now.

“Tuesday open could well be a dead cat bounce-overall trend and sentiment at extreme bearish level which a contrarian trader may consider to look for counter rally. End of month and quarter trading – window dressing as per Adam Button of ForexLive has put it nicely.”

Extra Stimulus has yet to kick in but wary of the build up to Santa rally

Multi Time Frame Analysis

USD index

Daily

4 hour

Given that the US dollar index rallied overnight, this has given risk on sentiment a big boost. Price action on the 4 hourly chart may have broken out of the rising channel but again we see this as a period of consolidation as we enter the 1st week of October. We cannot rule out a retest on to the upper resistance line again but failure to do so could well spell trouble for USD/JPY trade as well as equity market that may well fall into turmoil again.

German Bund

Daily

4 hour

Daily chart on the Bunds has a doji yesterday and today mark the start of a sell off but will this last? Safe haven buying remains at the moment as we entered the beginning of the month and final quarter of 2015. However, if RISK ON sentiment comes back with a vengeance then the bunds need to trigger a sell off.

Eur/Usd

Daily

4 hour

Euro stepped into the seller’s zone again in the short term – forming a lower high and higher low. As we are soon entering NFP day, the EUR/USD trade may well converge and consolidate before a big directional move. Bear in mind that EUR/USD bid higher on the back of RISK OFF sentiment – all depending on how the VIX fear index play out as well.

German Dax

Daily

4 hour

Well we have Europe and US open where price action was slumbering as the bulls and bears fight it out. When US equities struggle with retest lower, European equities seems to fare well and this morning gap up is a testament of a squeeze into the beginning of a new month. Current outlook is to buy on pullback for a retest higher since a short term low is potentially in place.

Gold

Daily

4 hour

Gold continue to sell off – VIX fear index confirms that Risk is back on – safe haven buying has dissipated and we have the German Bunds to confirm. Only a break below 1120 will break the current structure to target lower prices but if we see a bounce then we could potentially form a RHS for a head and shoulder formation. This is certainly one to watch as we head into NFP day which could suggest the next directional play.

Silver

Daily

4 hour

With Silver prices hitting a band of support and the order block of buyers, we expect a short term rebound within the 4 hour time frame. We have a potential double bottom but current formation looks like a bear flag. Despite that, short term rebound could be in place as it hit 76.8% retracement and we continue to use the daily 20 ma as resistance to the upside for now.

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