Last Week Wrap-up
Economic Data Today:
Last week started with a slightly upbeat UK Construction PMI report that slightly beat expectations and the Pound rallied on the news. Next day, the Market Services PMI figure at 54.0, also beating the expectations continue pushing the Pound higher.
Meanwhile, April’s Euro-zone Producer Price Index (YoY) was 2.0%, below the expected 2.4%, while the Composite PMI came at 54.0, as expected.
Then, April’s Euro-zone Retail Sales (MoM) came slightly below expectations at 0.1% but the year over Year figure kept steady at 1.7%.
What started moving the Euro up was an ECB spokesman’s announcement on June 5th’s “live” meeting discussion regarding QE, at their next June 14th meeting, sparkling the speculation about the end of massive bond purchases.
Dax and FTSE
The DAX and the FTSE 100 were having jumpy days, with gaps down that filled during the session. Investors were nervous seeing the FTSE at its near all-time highs, while German DAX suffering was caused by not so good numbers in production and factory orders in the negative territory growth (-2.5% MoM and -0.1% YoY).
June 6th woke up with the positive news about the Australian Economic Growth (YoY) soaring above analysts expectations for the first quarter, reaching 3.1% above a forecasted 2.8%, and the Aussie jumped up on the news.
What lies ahead
The G7 meeting is the real news queen of this weekend, especially exciting after the verbosity depicted by US President Donald Trump and his tweet-driven messages complaining about his close allies for treating the US unfairly.
Trump, true to his style, refused to endorse a joint G7 declaration calling for a reduction of tariffs.
PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!
— Donald J. Trump (@realDonaldTrump) June 9, 2018
The best description of the meeting came from a fake Angela Merkel tweet:
— Angela Merkel (@Queen_Europe) June 9, 2018
What seems a sure thing is that the underlying trade war is alive and well, with 25% tariff on steel and 10% on aluminium from the EU, Canada and Mexico, after the expiration of the exemptions, and the speedy retaliation by the affected nations. This also raised the question about how alive the NAFTA space remains.
It is likely that this war on tariffs will remain active at least until mid-term elections in November.
Expect the unexpected here. When two characters like these meet, the unexpected is common. Trump says he’ll know if Kim is serious in less than 60 seconds and calls the summit a “one time shot” for the North Korean leader.
Reporter: How long do you think it will take you to figure out whether Kim Jong Un is serious?
President Trump: “I think in the first minute I will know … And if I think it won't happen, I am not going to waste my time. I don’t want to waste his time.” https://t.co/syywHUMwLG pic.twitter.com/jFNm4qcWDZ
— CBS News (@CBSNews) June 9, 2018
There is almost nothing at a stake here, as Kim Jon Un has already dismantled the North Korean Nuclear Testing Installations.
FED Rate Decision
It is widely expected that FED’s rate decision next Wednesday at 18:00 GMT+2 time will be a 0.25% increase that will put the FED funds rate between 1.75%-2%.
ECB Policy Meeting
The main theme, after the comments of chief economist Peter Praet, is whether the ECB plans to end the bond purchasing program will be announced.
Bank of Japan
Friday, June 15th will see the BoJ decision on rates, which the market expects to be kept on hold. But everybody is expecting the words of BoJ governor Kuroda regarding inflation and quantitative easing.
The S&P 500 is behaving very bullishly. Friday’s close was near the high of the daily range and is heading towards its next resistance area marked in cyan. We have yet to see the effect of the news coming from the G7 meeting and Trump-Kim summit, but the overall picture is bullish.
The DAX is not that optimist, although it is close to its 2018 peak. The price looked at on a weekly chart is moving at the top of what seems to be a descending channel, and Ehlers Adaptive Cyber Cycle shows that a potential bearish leg has started.
Last Friday, the daily chart showed an opening gap that was filled during the day helped by the strength in Wall Street, but the index broke the pennant formation down and the CyberCycle oscillator also signs a possible bearish continuation.
The FTSE 100 has drawn three consecutive weekly bearish candles, but each one of them with less downward impulse than its preceding one. The price is within a triangular formation so it shows a corrective movement. The question now is whether it breaks up or down. Ehlers Adaptive Cyber Cycle points to a bearish continuation, but it has to be confirmed by price action.
The daily chart doesn’t clarify the picture much. Last Friday’s candle is bearish but with a large lower shadow, which points to the bears weren’t in control, but the price moved below the blue trend line that was supporting the minor upward leg. We have to see weakness in the other side of the Atlantic for a confirmation of this bearish continuation.
The Weekly chart of the DXI shows an Evening Star formation and the Cyber Cycle indicator has signs of a cycle change. Therefore my most probable scenario is for a bearish continuation on the Dollar. This means we will see strength in the Euro, the GBP and the JPY, and possibly in the Aussie and Kiwi as well.
The daily chart shows that the downward move is a bit oversold and it needs some days of retracement or sideways movement before a continuation. Last Friday’s price has drawn a bullish hammer and Thursday’s movement bounced off the 93.24 support.
Interesting Educational Charts from last week’s action
AUDUSD and NZDUSD 60 min Charts
This is a classic Elliott Wave 5 waves upward movement within a large Pennant formation. The break of the pattern and the 5th wave is the start of the corrective downward movement. (click ‘play’ to watch the development)
The same pattern is seen in the NZDUSD:
AUDJPY had a five-wave upward movement that went to its previous top, hitting resistance. A short setup was triggered then the price pierced the bullish trendline downwards.
For those crypto junkies may I present a classical bearish pennant on the BTCUSD that showed a kind of exhaustion to the upside. The breaking of this triangular formation was a very good short setup.