We’d like to wish all our readers a very Happy Christmas. We hope you all have a fantastic festive season!
2017 is likely to end with the bull market in global stocks intact and with US stocks either at or near to all-time highs. Multiple markets across all the asset classes look poised to make some decent moves over the coming weeks with key breakouts potentially imminent in multiple currency, commodity, and interest rate futures markets. 2018 is likely to be a very good year for traders as volatility continues to expand.
The Santa Claus rally, which usually brings a respectable rally during the last five trading days of the year and the first two of the New Year started on Thursday 21st but has so far seen little action. The bullish period continues through this week and the first two trading days of January.
The energy markets continued their recovery from support the prior week, which keeps the long-term uptrend intact. The sole exception is Natural Gas, which printed its lowest level since November 2016.
Precious metals are correcting higher after recent weakness with Gold rallying sufficiently to test its 50 and 200-day moving averages. Silver has made a similar move. Copper has also seen strength and could breakout to new highs this week.
Cotton has made a decisive breakout and has rallied to its highest level since May, whilst London Cocoa and Coffee remain weak.
The Dollar Index continues to trade within a narrow range, just below its 50-day moving average. This important range spans between support around 92.00 and resistance around 94.70. A break of either level should yield a decent move. For now, the long-term trend remains against the Dollar Index.
With narrow trading action being seen in the EUR/USD as well, the previously discussed tendency for the Euro to make its high or low for the year in January could result from the next breakout. We’ll have more to say on this in the coming weeks as we look for the same pattern in 2018, but note that EUR/USD did make its low for the year in 2017 on the 3rd January.
Interest rate futures
From last week: “This week, the 10 Year T-Note tested support almost to the tick but found support. We could see support tested again this week.” The 10 Year T-Note tested and broke support as expected, and the RSI broke the 40 level. Also, volatility is expanding within the trending zone. There is room for further weakness, with the next support level coming in around 122.35.
The long bond remains the strongest in the sector and did test short-term resistance this week as we suggested may happen in last week’s update but was unable to break through and a steep 3-day sell-off ensued, taking the long bond below both its 50 and 200-day MAs. As we’ve mentioned in previous weeks, there is a huge head and shoulders top pattern forming which could result in sharply lower prices. The trend for interest rates is now higher, which means prices are set to fall.