Friday's Retail Numbers Showed Growth

Daily Analysis - 14/01/2018

Slow and steady trading opportunities week 3 2018

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Last week contained one important event that effected and will continue to weigh on traders thought of price movements and profits. The retail numbers for the Christmas shopping season came out of the US. They were exactly as expected:

Last week


Last week contained one important event that effected and will continue to weigh on traders thought of price movements and profits. The retail numbers for the Christmas shopping season came out of the US. They were exactly as expected: Core retail sales grew by 0.4%.  Core Retail Sales measures the change in the total value of sales at the retail level in the U.S., excluding automobiles. It is an important indicator of consumer spending and is also considered as a pace indicator for the U.S. economy.   The effect that we trade is movement in the USD.  And effect we had. At press time the USD weakened 2.26% since the release of the report. That is a significant enough movement to likely continue well into this week. There will be corrections. This is an over-reaction to a crucial report that was hardly bad. But, as these are capital markets, it is human reaction to events that we trade on. Logic does not always prevail and we often don’t perceive the total reality until after events unfold.  But, a move like this is significant and tradable. Look for the USD to remain weak throughout the week, staying above the 1.22 to the EUR. Should it break below 120 the weakening may turn into strength. The USD has been weakening from strength at1.07 first reached in March of 2015 from a weak point of 1.4 last seen in April of 2014. The Fundamentals are muddled. In 2014 the EURO was facing banking and alliance troubles. Surely no less than it does now. The US economy is strong. On the other side showing USD weakness today is a US leadership clearly without plans or thoughts of any consequence. This leaves the largest gap in world leadership since WWII. The mantle of world leadership is open to challenge. These are serious matters that will have a visible and therefore tradable opportunity.

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This week


It is a slow week coming as the industrial output in China, while important and can have an effect on the CNY, is largely considered unreliable and manipulated. US Building permits are import and we should watch that report for its effects on the USD. British Retail figures have a similar importance to their US cousins so watch the GBP’s reaction to the report on Friday. The big event this week will be the Crude Oil Inventory report that is due out Thursday at 16:00 GMT, a day later than usual due to Monday’s US close due to MLK day. Crude prices are at a three year high and the trend is building longevity. The amount of oil stored above ground in the US is still at record highs, deviating from the long term average by over 20 per cent. OPEC production cuts are reducing inventory levels, even as additional production is delivered from the shale fields. WTI at 64.30 is pretty high considering the growing availability of alternative NGas stocks. We are of the opinion that the price is unduly high and that it is likely to fall back to the mid 50’s level. The question is when?  The expectation for the Crude Inventory report is a decline in stocks of 3.9 million barrels. Should we see anything close to that amount leaving inventory and certainly if significantly more leaves, price will not fall so soon. If the inventory actually grows, or falls only slightly, it may well signal the beginning of the return to the 120 day MA price of around $50 per barrel. The high price itself defeats the OPEC cartel due to the inducement for cheating, the perennial downfall of any cartel. Too, as USD grows weaker, commodity prices tend to rise as more weak dollars are required to purchase the same amount of the commodity. It all hinges on the report out on Thursday. Trade with confidence.

 

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