Netflix smashed through the 2011 all-time high overnight to close at $324.62. While a bit tongue-in- cheek, if you’re looking for a way to play the US government shut-down, then Netflix could be it. The stock rallied 5% in US trade and looking at the daily stochastics, you could say the stock is due a pullback, however given the strong trend, pullbacks should be bought by traders.
We highlighted gold last week in our ‘one to watch’, with a target of $1278. The low in the US session traded $4 shy of this target, but with the MACD now firmly below zero and gold closing below the 50% retracement of the $1180 to $1433 rally at $1307.16, lower levels should be on the cards. Given the break, we feel gold could trade as low as $1185 (the June 28 low) over time. In US trade we get speeches from Eric Rosengren, James Bullard and Ben Bernanke and traders will be keen to see if they mention anything on a December tapering exercise, especially in light of the shutdown and strong overnight data in the US.
With EUR/USD above 1.3500, traders will be watching out for the ECB decision at 21:45, ahead of the all-important speech from Mario Draghi at 22:30. Given recent rhetoric from the ECB president and other ECB members, we expect Mr Draghi will talk about liquidity measures. Our own belief is that the chance of a new LTRO (long-term refinancing operation) is low given the European banks are currently repaying previously borrowed funds, and at the same time the yields on offer on Italian and Spanish bonds are no way nearly as compelling as they were a couple of years ago. What is also likely is narrative that sets the stage for an interest rate cut, perhaps as early as November. Traders should also look out for the Italian confidence vote in European trade (we don’t have a time). The market is seeing positive signs that the current Italian government will survive, despite Silvio Berlusconi’s best efforts to bring it down. Still, it’s hard being long EUR at current levels given the risk of action from the ECB.
At 11:30 we get trade balance (expected to narrow to a deficit of $400 million), while we also get August building approvals (anticipated to decline 0.5% month-on-month). Yesterday’s RBA statement was slightly more hawkish from the September meeting and gives absolutely no indications of future rate cuts or hikes. Stronger-than-forecast numbers today could see the overnight highs of 0.9435 come back into play, with traders eyeing key resistance at 0.9510 (the 38.2% retracement of the 16.4% decline from April to August).
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