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Market analyst predictions for May 2015

by City Index

Each month, we collate expert and analyst opinion for a short to medium-term snapshot of the financial markets. Gain valuable insight and shape your trading strategy with our monthly predictions.

Analyst Market Bias 1st target 2nd target
Ashraf Laidi GBP/USD Bullish $1.5370 $1.5600

On May 7, Britain is at risk of seeing its first minority administration since the 1970s. There will be prolonged talks to form a government, during which the pound will experience heightened volatility. Read my full article here.

Analyst Market Bias 1st target 2nd target
Joshua Raymond HSBC Bearish 625p 590p

I think the upward move is overdone, and given the fact that we are now entering the month of May, which can be typically be the start of a short term bearish move in UK stocks as investors minimise portfolios for the summer lull, HSBC shares could now be due a correction. Read my full article here.

Analyst Market Bias 1st target 2nd target
James Chen EUR/USD Bearish $1.0500 $1.0200

If the euro continues its longstanding weakness as expected and the dollar resumes its previous bullishness, EUR/USD should continue its bearish trend towards lower lows. Read my full article here.

Analyst Market Bias 1st target 2nd target
Ken Odeluga UK 100 Bearish 6860 6750

The FTSE remains susceptible to a correction later in May and this potential comedown will be more of a logical postscript to three consecutive monthly record highs than a reaction to any election result. Read my full article here.

Analyst Market Bias 1st target 2nd target
Kelvin Wong Hong Kong 40 Bullish 30,150 30,500

Intermediate term mathematical indicators (Bollinger Bandwidth & RSI oscillator) highlights the risk of a pull-back towards 27300/26900 before further upside could be seen. Read my full article here.

Analyst Market Bias 1st target 2nd target
Kara Ordway AUD/NZD Bullish $1.0340 $1.0410

Positioning in this pair looks like it does favour more upside pressure in the coming days. Read my full article here.

Ashraf Laidi – GBP could enjoy post-election relief rally

Forecasting GBP/USD ahead of the 7th May UK election faces increased challenges thanks to the likelihood of another hung parliament, mixed UK economic data and conflicting signals from the US Federal Reserve.

According to recent opinion polls, it is increasingly assumed that none of the major political parties will win the minimum 326 seats required to gain an outright majority in parliament. This means another coalition government led by either Labour or the Conservative Party is the most likely scenario. On 8th May, Britain is at risk of seeing its first minority administration since the 1970s. There will be prolonged talks to form a government, during which the pound will experience heightened volatility.

The downside risks for GBP are associated with a Labour-SNP coalition (fiscal tightening for businesses, more taxation for the wealthy and the likelihood of undershooting budget targets). However, a Conservative-led coalition, which pushes for a referendum on the UK’s EU status is also a risk, though this has been widely discussed among traders already to the extent that it may no longer cast such a negative spell on the market and the pound.

I expect the most likely scenario to be a Conservative-led minority government, formed by Conservatives, Liberal Democrats and the Democratic Unionists Party accumulating about 305-315 seats, which would be insufficient to attain the 326-seat majority but would bring Tories ahead of Labour by a five-to-eight seat margin. This would combine the benefits of incumbent and market-friendly party victory, while eliminating the risk of EU referendum due to Lib Dem opposition to any referendum bill.

ashraf-gbp-usd

Joshua Raymond - HSBC rally may have been overdone

The recent 20% rally in HSBC shares from the March low was extremely strong and one based on some fundamentals but otherwise optimistic and relief style issues.

Much has been made in the press of HSBC’s AGM announcement that it would re-consider its HQ location in London following aggressive corporate taxation and regulatory oversight. This to many saw it open up the door to a move of its headquarters to Hong Kong and received a positive reaction from investors who bet that a move to the financial capital of Asia would see tax savings that could be returned to investors in the forms of greater dividends. It is speculated that moving HQ to Hong Kong could save the banking giant as much as £3bn

The stock also reacted to press speculation that HSBC could be looking to sell its retail arm, which could be part of a £20bn deal. The firm has to separate its domestic retail banking division by 2019 thanks to a new law and this loss of control is making the HSBC executive board uneasy.

It is also worth mentioning that having rallied strongly on these two factors, the base level from which the 20% rally emanated from was a two and a half year low at 550p.

I think the upward move is overdone, and given the fact that we are now entering the month of May, which can be typically be the start of a short term bearish move in UK stocks as investors minimise portfolios for the summer lull, HSBC shares could now be due a correction. Normally, I would wait until the month of June, which has seen HSBC shares finish the month lower on 8 of the last 9 years for the month. However, the recent bull move higher in the firms shares, I feel there is the potential to make the most of any downward move over the coming two months, and not purely just May.

Key findings:

  • HSBC shares rose 11.6% in April following 5-monthly declines
  • Share prices hit resistance levels of 660p
  • Consolidation channel trend remains of 540p – 660p
  • Shares have finished lower in June 8 of last 9 years.
josh-may-hsbc

James Chen – A continuation of EUR/USD bearish trend is expected

EUR/USD spent most of April in a choppy trading range consolidation above its new 12-year low of 1.0461 that was established during the prior month of March.

The currency pair opened the month of April around the 1.0740 level, on a rebound from March’s noted 12-year low.

From April’s open, EUR/USD quickly rose to a high of 1.1035 in early April, where it then turned abruptly back to the downside from the key 50-day moving average, which had long acted as major resistance.

In making this downturn, price action also formed a large triangle consolidation pattern, providing some indication of a potential downward continuation of the entrenched bearish trend.

This triangle pattern was quickly broken to the downside in early April as expected, with a simultaneous breakdown below the key 1.0800 support level. The drop continued towards its 1.0500 bearish target until it bottomed out around 1.0520 in mid-April, just short of reaching its downside price objective.

That low was then followed by another rise back up to 1.0800 resistance, after which the currency pair has continued to fluctuate above and below this level up to the time of this writing in late April.

Also as of the time of this writing, EUR/USD has tentatively emerged above the noted 50-day moving average, a sign of a potential further rebound from the currency pair’s lows. This rebound, however, should be limited on the upside by a strong and persisting bearish trend.

This downtrend goes back almost a year to the May 2014 high near 1.4000 and continues to be clearly intact, despite recent rebounds from its lows. Furthermore, the euro remains exceptionally weak against all other major currencies.

Going into May, if the euro continues its longstanding weakness as expected and the dollar resumes its previous bullishness, EUR/USD should continue its bearish trend towards lower lows.

As of late April, major resistance continues to reside around the key 1.1100 level to potentially limit a larger rebound. If EUR/USD continues to trade under that major resistance area, the currency pair should likely re-target the 1.0500 level to the downside once again. On any breakdown below 1.0500, which would confirm a continuation of the current downtrend, the next major downside objective continues to reside around the 1.0200 level.

james-eur-usd

Ken Odeluga – May correction looms for the FTSE 100

My reading of UK stock market sentiment is largely the same as it was in late March.

I moderately downplay the capability of the run-up to the UK election to seriously spook investors in FTSE 100 companies, partly due to the strong multinational character of the UK benchmark.

But the UK blue-chip market isn’t entirely immune to British currents.

Sterling has a visible impact.

However even the main exchange rate with the pound has provided a largely positive input to the UK stock market so far this year.

Cable tacked on about 4% in April, but remained short of highs of February and nowhere near cycle highs of July 2014.

This implied a tailwind for exporters and an additional fillip for consumption amid ‘zero’ UK inflation in March and April.

I agree that sterling will remain the main arena in which election-related market caution is reflected, underlining the balanced case for blue-chip stocks in May.

Essentially, sterling has not recently hindered the FTSE 100’s room on the upside.

However, there were signs that a correction had started as May got underway on Friday 1st.

Therefore, I read the FTSE’s comedown as more of a logical postscript to three consecutive monthly record highs than a reaction to the probably inconclusive UK election.

ken-ftse-100

Key technical factors

  • Ascending wedge
  • Rising convergence tends to lead eventually to trend breaks
  • High/low trend convergence reaches ‘zero’ in mid-June
  • Percentage price oscillator may fall back toward range from late May
  • ‘Classic’ stochastic crossover
  • 7030-7090-encompassing many all-time highs seen in April, should cap gains in May
  • With February’s 6949 all-time high pierced late last month, and the trend likely to weaken further, I target 6855/6860 support sometime in May. If it breaks this support line, my next target is 6750.

Kelvin Wong – Risk of a pull-back for Hang Seng 40 above 27300/26900 before more upside

Hong Kong is the second best performing Asian stock market as her benchmark Hang Seng Index soared by 17% year to date (as at 24 April 2015) just behind the “red hot” Shanghai Composite Index (see performance chart below).

Most of the gain seen in the Hang Seng Index has been attributed in the month of April 2015 and a jump in liquidity from the Shanghai-Hong Kong Stock Connect program (a catch up play in terms of performance after lagging behind the Shanghai Composite since last year).

kelvin-ytd-returns kelvin-weekly kelvin-daily

Let us take a look at its technical elements to decipher its expected performance going forward.

Key elements

  • The Index is now testing the median line (resistance) of its long-term ascending channel (in green) in place since 26 October 2008 at 28600 (see weekly chart).
  • The long-term MACD trend indicator continues to trend upwards steadily above its centreline and it still has room before reaching its “extreme” level seen in October 2007. This observation suggests that the on-going multi-month bullish trend remains intact (see weekly chart).
  • The intermediate term RSI oscillator is overbought and has flashed a bearish divergence signal (see daily chart).
  • The intermediate term Bollinger Bandwidth indicator which measures volatility remains at a 14-month high since 05 February 2014. This observation suggests that the current uptrend from 11 March 2015 low is “overstretched” and the Index is likely to see a pull-back/consolidation (see daily chart).
  • The pull-back support of the former intermediate term ascending channel breakout (from 26 June 2013 low, in dark blue) is at 26900 (see daily chart).
  • The 26900 also coincides closely with the38.2% Fibonacci retracement (typical wave 4 target) from 11 march 2015 low to current 27 April 2015 high (see daily chart).
  • The upward sloping 20-day Moving Average (in red) is acting as support at 26670 (see daily chart).

Key levels (1 to 3 months)

Intermediate support: 27300/26900

Pivot (key support):26670

Resistance: 30150 & 30500

Next support: 25150/25000

Conclusion

Intermediate term mathematical indicators (Bollinger Bandwidth & RSI oscillator) as seen on the daily chart highlights the risk of a pull-back first towards 27300/26900.

As long as the 26670 monthly pivotal support holds, the Index is likely to see another round of potential upside movement to resume its multi-month bullish trend to target 30150 before 30500.

On the other hand, failure to hold above 26670 may damage the multi-month bullish trend for a deeper decline towards the long-term significant support at 25150/25000 (former resistance that capped the Index since October 2010).

Kara Ordway – Have we missed the boat for parity in AUD/NZD?

At the beginning of April, analyst predictions were awash with calls for parity between the Australian Dollar and the Kiwi Dollar. A low of 1.0021 was traded on 6th April, but it fell short of hitting the mark. Since then, we have bounced to trade above 1.02.

Positioning in this pair looks like it does favour more upside pressure in the coming days (I would expect to push 1.0340, even up to 1.05 before heading lower) but next week sees a big economic docket for Australia and New Zealand. This could be perfect timing to readjust that bullish outlook to one of a bearish nature.

The most likely event to cause a stir is the RBA rate decision. From the data we have seen there is STILL potential for a rate cut in May. If that’s not enough for you, employment figures, Retail sales and building approvals are also in play. It could be a week of the perfect storm, rates cuts AND poor figures. If this happens expect the parity party invites to be resent out. Whatever happens, expect volatility.

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