Friday August 26th 2016

Jackson Hole

Friday August 26^th  2016

Overview

A very difficult statement to interpret is what traders found themselves in front of during an otherwise boring Friday afternoon. Fed Chair Janet Yellen delivered a mixed speech on monetary policy where on one hand she did signal the serious possibility of a rate hike in September (21/09) but on the other hand she also pointed at a lower longer-run interest rate level (about 3%) and “additional options to secure a strong and resilient economy”. First market reaction was choppy and non-directional despite the high volatility though. After that late during the session we saw some good US Dollar strength all across the board. My personal opinion is that if next week job report (02/09 – Non Farm Payrolls) comes out strong she will probably hike rates from 0.50% to 0.75% in September. Nevertheless since she does not want to see again the market turmoil we had back in January 2016 (after the first rate hike in December 2015), during the meeting she will probably hint at some other policy measures designed to guarantee market stability. This in turn should create a lot of initial volatility but no real strong directional reactions. We shall see.

EUR/USD first came off to around the 1.1250 handle for then completely reverse and make new highs to 1.1341. At the moment we are back under pressure and trading on the low of day at 1.1230. The most likely scenario by looking at Fed Chair’s words is for more downside pressure for the Euro in the short term which will be reversed in the medium/long term. Anyway remember that in two weeks we will have also Mario Draghi speaking (08/09). As trading ideas would be good to sell around the 1.14 handle and buy around the 1.1050/1.11 area where should lie some support.

Metals

Base metals had a fairly volatile week despite the lack of fundamental data behind the move. Everything started from Copper which, as was called by many analysts, did head south. The move was on the back of roughly 35’000 entering the LME warehouses in Asia (Busan mainly) which exacerbated the concerns of a supply glut. Nickel followed the Copper as the Philippines story is starting to fade; just 8 small mine have been closed by the government so far. Fundamentally speaking we also had an earthquake in Myanmar which made the Tin market tick up even though epicenter was not in the producing region of the country. Finally Zinc numbers are rather controversial and not really match-up: WBMS say the first half deficit was about of 30’000 tonnes; whereas the ILZSG did find a deficit of 138’000 tonnes which is anyway lower the roughly 190’000 tonnes deficit of the first six months of 2015. In any case is really difficult to fight this market especially after Glencore said “ we will pull the trigger when it is time” speaking about the 500’000 tonnes they did idle in 2015 due to low prices.

Trading ideas

Let’s now switch to the technical side of the market with some trading ideas for next week:

Aluminium market did reach the 1630$ level this week and bounced off that support. If we break through here we will land directly to the 1590/1600$ which would be a good level to buy with a tight stop loss. For sellers I would wait a re-test of the 1700$ or at least he 1680$. Stops above 1710$.

The copper market is dangerously hovering the 4580/4630$ area which is a key support to keep the daily uptrend intact. In order to try a buy stops need to be very tight. If we firmly break through here we will see the 4550$ first and the 4480$ next. First good resistance for sellers is at 4750$.

Lead is not doing much but it is still supported due to the Zinc strength. The technical canal is still in place and shows good support at around 1700/1725$ and a good resistance around the 1950/1975$ mark.

Also on Nickel we are almost at a key support in order to see if we can keep the uptrend intact or not. Everything in the area of the 9500/9600$ should be a good buy with stops below 9300$. Seller’s first resistance is at 10200$.

Zinc proved again to be very difficult to trade. Well, best strategy so far is to close your eyes and buy any price really. But for how long? Today we tested the 2330$ resistance; if we break through here we have the 2410$ level. For buyers first good support is at 2270$.

Tin is testing a key resistance at 19000$; above here we go directly to 19600$. Difficult to say the result of it but surely short sellers need to be disciplined and have a tight stop. For buyers first support is 18100$ or even better, but probably unrealistic so far, at 17500$.

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