The difference between success and failure in Forex / CFD trading is highly likely to depend mostly upon which assets you choose to trade each week and in which direction, and not on the exact methods you might use to determine trade entries and exits.
So, when starting the week, it is a good idea to look at the big picture of what is developing in the market as a whole, and how such developments and affected by macro fundamentals, technical factors, and market sentiment.
Read on to get my weekly analysis below.
Fundamental Analysis & Market Sentiment
I wrote in my previous piece on 19th November that the best trade opportunities for the week were likely to be:
- Long of the NASDAQ 100 Index. This rose by 0.93% last week.
- Long of Cocoa futures. This rose by 0.94% last week.
These trades produced an overall average win of 0.93%.
Last week was again dominated by a decline in the US Dollar, which arguably has established a new long-term bearish trend, and also a rise in US stock markets. Riskier currencies such as the Australian and New Zealand Dollars, and the British Pound, rose firmly against the greenback. The key driver of this was the lower-than-expected US and UK CPI (inflation) data releases, followed by low Canadian inflation, which suggest that the Fed is only going to be cutting rates, with markets pricing in total cuts of 0.50% by July 2024. With the Fed’s terminal rate seemingly having been reached already at 5.50%, the reversal in the monetary policy cycle from tightening to loosening is triggering bearish sentiment on the US Dollar, and it is boosting stock markets and other risky assets also.
The other major data release last week was the US FOMC Meeting Minutes, which tempered risk-on sentiment a bit as the meeting minutes showed members were remaining cautious about inflation, which was considered still overly elevated, and will not be rushing to begin cutting rates.
There were important developments concerning the AUD, EUR, and the GBP:
- The Reserve Bank of Australia’s Monetary Policy Meeting Minutes revealed unexpectedly hawkish rhetoric about demand-driven inflation, boosting the AUD.
- The ECB’s Muller stated that further rate hikes are unlikely to be required, and the likelihood of this sentiment at the ECB has been causing relative weakness in the Euro.
- Analysts expect the Bank of England to stand out as relatively hawkish going forward, with more rate hikes expected in the UK, which is boosting the Pound.
Other important data releases within last week’s thin schedule were:
- US Unemployment Claims – slightly lower than expected.
- US Revised UoM Consumer Sentiment – roughly as expected.
- Flash Services & Manufacturing PMI for USA, UK, Germany, France – mixed data.
The Week Ahead: 27th November – 1st December
The coming week in the markets is likely to see a somewhat higher level of volatility, as there will be more highly-important data releases. This week’s key data releases are, in order of importance:
- US Preliminary GDP
- US Core PCE Price Index
- German Preliminary CPI
- Spanish Flash CPI
- Australian CPI (inflation)
- RBNZ Official Cash Rate & Monetary Policy Statement
- Chinese Manufacturing PMI
- OPEC Meetings
- Canadian CPI (inflation)
- Canadian GDP
- US CB Consumer Confidence
- US Unemployment Change
- US ISM Manufacturing PMI
- Canadian Unemployment
NASDAQ 100 Index
The NASDAQ 100 Index printed a fourth successive bullish candlestick, and again briefly traded at its highest price seen since January 2022. Despite these bullish facts, the momentum slowed considerably last week, but we clearly have a bull market here, which is breaking to new highs.
The NASDAQ 100 Index has historically been a great investment on the long side, especially during a bull market, and with this latest break to a new high, we seem to have a signal saying it makes sense to be long here. This approach will be validated by the inflation and central bank outlooks, which point towards decreasing inflationary pressure and a new more dovish, rate cutting approach by the Federal Reserve.
I am happy to be long of the NASDAQ 100 Index.
Cocoa Futures
Cocoa futures have been in a strong bullish trend for over a year now and made another strong rise last week. The price chart below applies a linear regression analysis to the past 61 weeks and shows graphically what a great opportunity this has been on the long side.
The weekly candlestick was again bullish, although it is worth noting that the weekly close was below the previous week’s.
It is always a bit aggressive to enter without a pullback, especially right now with the price action above the upper band of the linear regression channel, but this is a strong trend that shows no sign of stopping on ever-increasing global demand for the superfood cocoa.
Trading commodities long on breakouts to new 6-month highs has been a very profitable strategy over recent years.
USD/MXN
The US dollar has fallen again against the Mexican peso, but it’s worth noting that it was not a very big candlestick. At this point, we are testing a major support level, which I think centers around the 17 pesos level. If we were to break down below there, then we could go looking to the 16.50 pesos level. On the upside, the 17.50 pesos level will be significant resistance, and breaking above there would be a very bullish sign. At this point, the interest rate differential still favors the Mexican peso by quite a bit.
US Oil (WTI)
The West Texas Intermediate Crude Oil market has been all over the place during the course of the trading week, as we continue to look at the $75 level as a major support level. At this point, the market is likely to continue to see a lot of uncertainty, as OPEC has a meeting coming rather soon, and it looks like we are going to see some type of volatility as a result. All things being equal, if we can turn around and break above the $80 level, then it’s possible that we could go much higher, perhaps reaching the $92 level.
BTC/USD
The bitcoin market initially felt during the course of the week, but then turned around to show signs of light. It looks like we are trying to break above the $30,000 level, opening up a move to the $40,000 level. This continues to be a bit of a “buy on the dip” type of market, and I just don’t see that changing in the short term. This will be especially true of the US dollar continues to soften overall.
Bottom Line
I see the best trading opportunities this week as:
- Long of the NASDAQ 100 Index.
- Long of Cocoa futures.
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