The sentiment has been increasingly negative in financial markets and, on the last day before the Christmas, we saw a quick selloff in risk assets. Crude Oil lost nearly $5, while stock markets tumbled lower. Safe havens such as GOLD and the JPY surged, as they usually do when the sentiment is negative. Gold broke above the $1,270 level on the 24th which was my birthday by the way.
That surge was a last minute dump of trades in the risk assets as the US Government shut down partially. But yesterday, we saw a sudden reversal in the market sentiment and everything was surging higher. USD/JPY climbed more than 100 pips higher, Oil surged for more than $5 and stock markets made a massive bullish turnaround with Nikkei climbing about 1,000 pips.
That looked suspicious. There was no news or other fundamental reason to drive that move. So, in my opinion, that was just a year-end move which got inflated by thin liquidity which characterizes markets at the end of the year during the Christmas holiday period. I repeat it often that we should be careful during holidays when the liquidity is thin and we remained out of the market yesterday.
But, that move was going to come to an end and it did late last night/early today. Oil turned bearish again and has lost around $2 today while stock markets are also sliding lower. We decided to pull a few trades today, especially in stocks and get some quick pips during the bearish reversal. We had two successful signals in Nikkei and Dax, making around 350 pips in both trades. So, the market offered a nice present for Christmas to forex traders and we took it – thank you very much.
The European Session
- Credit Suisse Economic Expectations – The economic expectations indicator has been negative for many months and it has been getting worse. Last month it came at -42.3 points and this month it was negative again, but at least it increased compared to last month, coming at 022.2 points.
- China and US Will Meet in January – The Chinese President Xi and the US President Trump came to an agreement on the G20 summit last month and it seems like the trade war is coming to an end. Today, the Chinese Commerce Ministry said that both parties will meet in January face to face. The spokesperson added that China and US plan to sit down and talk on trade in January and they will continue consultations through “intensive” phone calls in the meantime.
- Italian Budget Will go to Italian Parliament – La Repubblica posted a report this morning saying that the Italian Parliament will vote on the revised budget on December 29, which means on Saturday. They reduced the deficit to 2.04% as the EU asked and I don’t see any problems at the Parliament. But, the problems will arise next year when the government surpasses the deficit target.
- ECB Bulletin Looks Dovish – The European Central Bank has been hawkish or at least neutral this year, but they are starting to turn dovish as the economic data deteriorates. The ECB released their monthly bulletin today. The main comment was that significant monetary policy stimulus is still needed. The ECB sees ongoing expansion in the economy but with increased downside risks, signs of moderating momentum are emerging and global economic activity next year is expected to decelerate. So, goodbye rate hike in 2019.
The US Session
- US Unemployment Claims – The unemployment claims have been holding steady in the 220k-230k for months, although it fell to 200k in the first week of this month. Last week, it increased again to 214k which was revised higher today to 217k. Today’s number was expected to be the same as well, but it missed expectations slightly, coming at 216k.
- US House Price Index – In the report released last month, the house price index came at 0.2% for September, down from 0.4% in the previous month. Today it was expected to increase by 0.3% and it came as expected. Although, this indicator has been revised higher during the last several months, so today’s number which is for October might get revised higher as well.
- US CB Consumer Confidence – The US CB consumer confidence indicator increased to 135.7 points last month from 133 points in October. Today, this indicator is expected to cool off again and come at 137 points, although this is a pretty decent level nonetheless.
Trades in Sight
Bearish Crude Oil
- The trend has been bearish for three months
- The retrace higher is complete
- Stochastic is overbought on the H4 chart
The price couldn’t reach the 50 SMA (yellow) during the retrace higher
We didn’t sell Oil today after the huge surge yesterday but the chart setup still points to a bearish reversal. The stochastic indicator is overbought on the H4 chart, which means that the bullish retrace higher is now complete. The reversal has already began and there is still time to get in this trade, although you would have to place a wide stop loss, worth more than 200 pips from here.
We are at the end of the year now and the holiday season has dried up the liquidity in financial markets. This sort of market will continue today, tomorrow and next Monday since the big players will be in holiday until the new year. So, be careful when trading in such market conditions, otherwise you might get caught up on the wrong side of a major move like the one we saw yesterday. No one was expecting that, so take care.