Trading Journal

FXWES posted:
EUR/USD confirmed the break of yesterday's 200-day moving average and now the key support stands around $1.1040/50.

Agree. And the next after that - 1.0812.

With closed Asian markets, oil prices should capture the attention, and the trading volume should be more restrained. In terms of consolidation movements, the French retailer Casino has agreed to sell a majority stake in the Thai operator of supermarket Big C Supercenter by 3,100 M €, excluding debt to the Thai TCC Group. On the other hand, the Air France KLM said passenger traffic grew 3.20% in January, while the traffic loads decreased 6.40%.

It looks like European stocks are heading for 2013 low.

In recent sessions, European equities have been under strong selling pressure and since the beginning of the year have recorded a underperformance compared to their US counterparts. The reasons for this pattern are several. The first is that the European economy is far more exposed to China than the US. Another reason has to do with the resurgence of fears about the banking sector in different European countries. Another cause of selling pressure on European equities is that in December these equities are the first choice of global investors who had overexposure to European equity indices, justified by good economic prospects and the expectation that the ECB will implement further monetary stimulus measures. When earlier this year as risk aversion increased significantly, global investors rushed to reduce their exposure to equity markets and consequently those in which they held a greater exposure.

The banking sector will continue to be the protagonist of the European session. Until last week Italian banks had been chosen as a representative sample of the sector, but at this stage that role was taken over by Deutsche Bank. The bank’s activity has been penalized by restructuring costs and the legal costs associated with the various processes in which the bank is or was involved, the costs associated with greater regulation and also by the low levels of interest rates. In addition, investors will monitor developments in the oil and also the testimony of Janet Yellen in the Senate (15:00).

At a time when many investors and economists fear a potential recession in the global economy, the publication of the preliminary reading of the Eurozone GDP gains greater relevance. Compared to the previous quarter, the Eurozone economy will have grown 0.40%, which would put the annual increase in 1.50%. Underpinning this growth was essentially domestic demand and to a lesser extent investment. These items should have offset the slowdown in exports due to the weakening of China and other emerging economies. For 2016, estimates point, on average, for an increase between 1.50% and 1.80%, helped again by domestic demand, which should be underpinned by low interest rates and the fall in unemployment and fuel prices. The main risks are the economic slowdown in emerging countries, especially China, geopolitical tensions and volatility in financial markets.

At a time when many investors fear about the growth of the American economy, because of the weakness of other economies, the signal given by retail sales is comforting for two reasons. The first is that retail sales account for about a third of private consumption, which in turn corresponds to 70% of GDP. The second is that after several months, the American consumer seems to have a greater propensity to consume, justified by the increase in wages and the positive effect of fuel price drop in their disposable income.

If several central banks engage in negative interest rates, we will be able to watch a currency war in which each country tries to devalue the most of their currency in order to gain a competitive advantage in terms of exports.

A freeze on production will not generate a profound change in the supply/demand relationship for crude, but is a stabilizing base to its price. However, many investors argue that this agreement was less than expected (it was agreed a freeze in production but its not a cut), and they also had shown skeptical if this freeze will be extended to other countries and if it will be fully met. Despite all this engaging, at this stage, European investors seemed more focused on the banking sector yesterday which was once again penalized. Last week, Deutsche Bank had been a kind of “health” barometer of the European banking system, but surely doesn’t seem to be a reliable sample of this same system.

In recent days there has been a stabilization of the factors that had worried investors in recent weeks: the Chinese authorities have shown they don’t want the yuan to depreciate sharply, the Chinese stock markets stabilized and the oil price has recovered. This improvement has also contributed to diminishing fears in relation to bank stocks.

Despite reduced yields, the propensity of institutional investors to purchase bonds increased. Fears of a recession does not extend to Europe, which should continue to grow. If the stock market indices continue to be valued, the mentioned investors will have to follow their benchmarks and will have to allocate liquidity to the purchase of shares.

The main fear of global investors is that the US economy may come back into recession as a result of the slowdown of the global economy. Thus, besides following the signals given by economic indicators, investors will also monitor the S & P’s behavior, which will again dictate the evolution of other indexes.

Because of fears about the US economy, the S & P should lead the movement of other indexes. Yesterday, the index closed in the early resistance zone (1940-1950). While this index does not overcome this resistance is unlikely that the DAX overcome conclusively the 9560 level. Therefore, it is most likely to occur some profit taking for today and tomorrow the S & P may try a new test to the resistance zone.

So far, about 58% of the DJ Stoxx 600 components have reported their quarterly accounts. Although a slight majority have managed to surpass analysts’ forecasts in terms of profits, with respect to revenues only a minority has been able to exceed forecasts.

US markets ended with contained variations, managing to recover from early losses justified by the sharp fall in oil and the weakness of the US markets. The Dow Jones was losing 266 points and closed with a rise of 53 points. Oil price suffered a selling pressure, with investors showing their disappointment at the fact that Saudi Arabia eliminate the possibility of a cut in production and some skepticism regarding the freeze on production capacity to balance the relationship demand / supply . The session key moment occurred when the Department of Energy revealed that the oil reserves in the US rose by 3.5 million barrels last week compared to the envisaged increase of 2.42 million. However, the sharp drop in petrol stocks (-1.6 million barrels vs 0.73 M million) contributed to compensate the early fall. Additionally, the Association of American Railroads reported that crude oil transported through this route declined for the third consecutive week, confirming recent evidence that US oil production continues to decline, albeit slowly. Last year, in face of oil price fall, shale oil extraction companies adopted a series of measures in order to protect their business. These measures include the closure of oil wells with lower productivity, reduction in non-operating costs, renegotiation with banks of borrowing and the implementation of financial hedging strategies, which protect the oil price fall. However, at this stage, the potential of reducing costs both financial and non-operating is limited and the use of financial instruments for protection against a further drop of crude oil is very expensive. Thus, in recent months there has a closure of many oil fields, especially smaller ones.

And what's the outcome of all these posts?

An excellent trading week.
The forum is a great help.
Which you all a nice weekend.

This morning EUR/USD broke out below support, after USD rallied on better than expected GDP data.

At the macroeconomic level, household consumption increased to 0.50% in January, exceeding the forecast of 0.30%, supported by rising wages which boost household spending. The increase in house prices also contributed to an improvement in consumer confidence. The approach of the preferred measure of inflation from the Fed to 2% raised some concern in many investors but the money markets, which are an excellent barometer of the reference rates, assign a probability of 57% to a rise in interest rates in 2016. The US GDP for the 4th quarter was revised upwards from 0.70% to 1%, against economists’ forecasts of an increase of only 0.40%. In addition there has been a minor fall in investment and a decrease in the trade deficit. Domestic consumption, which represents 70% of the economy, was less dynamic than expected (2% vs 2.20%) due to lower sales (in value) of fuels (due to falling prices) and clothing as a result of mild weather in November and December. The trade deficit increased from 61500 M.USD in December to 62200 M.USD in January. This was the highest level since June. The confidence index of consumers, as measured by the University of Michigan, reached 91.7, above the first reading (90.7) but lower than the 92.0 recorded in January. From a technical point of view, today’s session and probably also tomorrow will be particularly relevant. If these days, the S & P can not be located convincingly above the zone of 1940/1950 then is increased the possibility of a short-term correction.