Ever wondered why November brings the unexpected volatility every year? From a trader’s perspective moves could be very similar to Nov-Dec 08’ moves in financial markets especially FX markets. Analysis of daily and weekly charts on Equity and FX front are not promising and indicate imminent correction. November has always been tricky month especially when approaching Thanksgiving holidays whereby hedge funds start squaring their positions.
I prefer to use Nasdaq Index as a gauge of risk appetite in equity markets. Nasdaq has broken weekly trendline and the daily bar has retested and settled below the trendline. Adding to the downside momentum its has also closed below 55 EMA(Green) as on Friday close. Encouraging data in the form of ISM Manufacturing and Housing gave a temporary push but met some heft sell off around the retest of 55 EMA at around 1689 level. A close today below 1680 shifts the momentum towards downside.
Nasdaq Daily Futures
DAX 30 daily futures
Moving towards the FX markets we could see some good Pound strength on the basis of weekly and monthly formations of GBP crosses. However market will pay close attention to BOE meeting this week to see whether the bank will expand its asset purchasing program. Below are the weekly and monthly charts of GBP/CHF.
GBP/CHF Weekly
GBP/CHF has tested 61.8% Fibonacci of the 1.5120- 1.8115 weekly bull run. The test comes in the form of a double test with the second test being a Jack Hammer kind of candlestick formation usually a good reversal sign.
A similar strong case holds on the monthlies.
GBP/CHF Monthly
A Jack Hammer formation just bounced of the 61.8% Fibonacci and closed within the previous candle.
A monthly Jack Hammer (JH) in place for GBP/CAD. Usually a bull run in GBP/CAD could be attributed to short covering in USD/CAD which in turn is highly correlated to Equities and Crude Oil.
GBP/CAD Monthly
In a similar fashion Tweezers can be noticed at 50% Fibonacci of 118.80-162.58 move for GBP/JPY. Tweezers are candlestick patterns which are good reversal points.
The Pound has recently been used as funding currency and any sneaky moves as described above on weekly and monthly charts should be always taken by caution. Noticeable how dip buying has been supported in the past few weeks for GBP/USD despite the awful GDP release. Pound has been shorted heavily against FX majors since mid year and hedge funds closing their books prior to Thanksgiving week and thin December volumes could force market participants to get filled (short cover) on every sell off occurring in GBP/USD.
The VIX index has been trading at 31.84 and rising steadily since last week which is in line with the market correction. Gold has held its gains especially against Euro indicating relative strength against Euro. Indeed the ISM Manufacturing data was highest since April 2006 and has posted a third consecutive growth in the manufacturing sector along with impressive employment component. Focus now shifts to ISM Services data which historically has high correlation with Nonfarm Payrolls.
Finally an Intra-day forecast on S&P Futures.
S&P Futures have been struggling to gain momentum since early European dealing. A failed test of 55EMA and a close below 50% Fibonacci of the 1063-1028 down move resulted in imminent selloff post ISM news release. Intra -day focus now shifts to 1041 Pivot line at first. A break of 1041 puts post-news physiological 1049 resistance to test along with R1 pivot at 1053.