US Real Estate Market
This week saw the release of the latest the US real estate market figures, which show that the number of new constructions increased by 9% from July to August. The negative data from June and July made analysts uncertain about the future outlook of the real estate market, however, the latest data gives cause for optimism. Those not confident in the market still found reason to worry due to the number of issued building permits falling short of expectations. In fact, it was the lowest number of permits since May 2017. The largest decline was in single-family homes, where 6% less permits were issued compared to last month. This also implies that the number of ventures and projects could decline in the coming months.
Minor Setback
Following the upwards trend of the past two-three days, Asian markets seem to be slowing down to take a breather. It’s not so much a decline as a stalemate, considering only the Shanghai Composite and Australian indices were in the negative. Even the case of Shanghai it was a mere 0.06% drop. On the other hand South Korea’s KOSPI increased by 0.65%, due to the recent cooperation agreement with North Korea and the US Secretary of State’s optimism concerning the peninsula’s nuclear disarmament. Meanwhile the USD continues to weaken, giving the commodities market a powerful boost, which in turn resulted in price corrections for both precious metals and agricultural products.
WTI
The US Energy Administration’s (EIA) oil inventory report has been in the negative for the fifth consecutive week. Although this week’s 2 million barrel decline was not as severe as last week’s 5 million, it was still enough for buyers to dominate the oil markets. Price could further increase based on the August oil export figures, which suggest Iran’s oil exports declined to 67.7 million barrels, the lowest figure since April 2017. In theory Iran’s exports should be zero if all countries were to adhere to US sanctions, although the declining trend since April shows there may be a drop in Chinese demand.
WTI reacted to the news with a predictable price increase. This was the third occasion the 71.31 line stopped an upwards price surge, showing there there are a considerable number of offers to sell at this price level. The two MACD lines intersect at these peak prices, which is usually interpreted as an indicator to sell. The significant fundamentals driving price upwards have to face both a powerful resistance line and the MACD signalling to sell. Today, signs point towards a price correction. The first such indicator would be the red trendline, which could turn price around and give way to another increase and subsequent attempt to breach the 71.31 resistance line. In addition to the red trendline, there is another, steeper long term trend marked by the purple line. This could be considered a secondary support line, meaning if the red trendline breaks, the purple line has a chance at stopping the fall.
EURCHF
The Swiss National Bank is expected to leave its current -0.75% base interest rate (effective since January 2015) unchanged. Normally the currency of a country with a negative base rate would presumably weaken over time, due to the daily costs to purchasing and holding it potentially eating up any profits. Investors are aware of this fundamental truth as evidenced by the charts, which show the euro’s strengthening to be the defining long term trend. In spite of that, recent changes in US trade policy made the purchase of safe haven currencies a more attractive option, causing he Swiss franc to strengthen considerably.
Price found its low at 1.1180, forming an inverse head and shoulders pattern, which suggests a future price increase. What may prevent this potential increase is the downwards trendline, which together with the 200-period moving average has defined price direction since early July. That said, currency markets are still showing some signs of a reversal, including the dollar’s strengthening and a rising willingness among investors to take risks. A combination of these two factors could lower demand for the Swiss franc, thus causing the EURCHF pair to rise. The head and shoulders pattern as a classic technical indicator of a reversal could lend additional credibility to such a turnout.
Sincerely,
Laszlo | Market Analyst
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