After the disastrous US employment numbers released last week (96k actual vs 126k expected) the market priced in a further round of quantitative easing with the US Dollar dumped across the board. As expected the market began the first part of the week in a range as all eyes were focused on the German Constitutional ruling court on the legality of the ESM. A negative decision on this would have been disastrous for the already embattled single currency. Therefore, with the market expecting a positive decision and the pricing in of QE3 due to Ben Bernanke's previous FOMC comments, the risk on sentiment for the week was relatively clear and the intra-day traders have faired very well in recent weeks. The US Federal Reserve's FOMC actions were classed as very aggressive as they introduced QE3, $40B per month on MBS with no limit, a cut in 2013 GDP forecast and potential rate hikes in 2013. Gold rallied strongly on the news as the S&P 500 reached 4 year highs of 1460 and USDCAD reached 13 month lows. EURCHF also saw some welcome movement as SNB Chairman Jordan talked up the EURCHF peg.
TOP TRADES OF THE PAST WEEK (mainly intra-day due to high news announcements)
1. AUDUSD - Pivot Bounce Long 10.09.2012 After bouncing off its daily 38.2% retracement level from June's low to August's high, this pair rallied strongly as the search for yield continued on a backdrop of a weak US Dollar. Simply trading off the daily pivot point with a stop below S1 and target just below R1 resulted in + 1.5%
2. NZDUSD - Pivot Bounce Long 11.09.2012 The commodity rally continued as inflation fears set in due to QE3. However, price action has been relatively clear and showing a very strong trend. Trading as above resulted in +1%
3. USDSGD - Consolidation Break Short 11.09.2012 Continuing with the sell off in the US Dollar, this pair trended aggressively as investors shunned a weaker dollar. This pair consolidated in a 50 pip range before breaking out in the direction of the trend. This breakout resulted in +2%
4. GBPUSD - Pivot Bounce Long 10.09.2012 As investors shun the Euro for the British Pound this pair has been trending upwards for the past four weeks. Trading pullbacks to levels of support faired well for traders, as this trade resulted in 1.5%
5. S&P500 - Fib/Divergence Long 11.09.2012 Price retraced to the 38.2% Fib level and diverged on several oscillators. Trading the inside bar as a price action confirmation resulted in +4%
EFFECT OF THE NEWS LOOKING FORWARD
With most of the key news announcements out the way, attention now turns to Greece, Spain and Italy and whether or not they will ask for a bailout and seek the aid the ECB has already put in place (the ESFS bond buying scheme). Price action will be key as markets and macro players position themselves for the last quarter of the year. Commodities will be strongly looked at as they have had the most aggressive moves in recent weeks. Seasonal patterns may also come into the forefront as demand for Gold and Oil increase as the Western hemisphere prepares for the Christmas and New Year period. Australian Dollar will be one to watch in coming weeks, as well as EURNZD and EURAUD as deleveraging takes place. Watch the volume on the rising equity markets as it could be a precursor to a potentially volatile period as US elections get more aggressive towards their primary in November. As always follow price action as a leading indicator.
Best,
Jitan
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