February Market Update and Outlook

Hey traders!

This month I've been spending travelling to South Africa and Holland, speaking with some of the most successful people in property and business. However, I'm now back in town for a while and present to you February's market update as well as a few trades I'm currently looking at. Enjoy :)

This month on whole, saw markets reverse any gains made in the January rally. The first week of the month started the short covering on the back of key economic central bank announcements. After a slightly better than expected US Non-Farm Payroll the week before, the Euro ended on a 12 month high. However, with key interest rate decisions and central bank outlooks, profits were booked and the markets retraced recent trends. The first announcement from the Reserve Bank of Australia led the Australian Dollar to tumble over 200pips in a few days. Whilst the Bank kept rates steady at 3.0% they signalled further easing was possible, even though their Trade Balance data came in better than expected (-0.43B actual vs -0.81 expected). The next key announcement was from new Bank of England Governor elect Mark Carney and his policy measures. The British Pound rallied across most of its counterparts as he set the bar high for any changes given the success of Canada's and the UK's flexible inflation targeting. However, the European Central Bank disappointed as President Mario Draghi’s comments disappointed markets with more talk and no change.

The second week of February started off fairly range bound with the Greenback trading in an un-correlated market. The Euro ended lower on the week after an initial rally faded on the back of comments from ECB President Mario Draghi. His February 11 statement started the initial rally with comments stating that Spain had made enormous progress since November 2011. However, with no new real news announcements, traders looked to bank profits after weeks of strong rallies. The British Pound was the victim this week as it continued its move lower started at the beginning of January. UK Retail Sales came out worse than expected (-0.6% actual vs 0.5% expected). GBPUSD fell over 80 pips in less than an hour, increasing its weakness against other currencies. This was the catalyst in what has been a strong de-leveraging in the British Pound.

The markets opened up quietly in the third week as traders awaited the US Federal Reserve FOMC statement on Wednesday night. As Monday was also a US Public Holiday, President's Day, the market was held in a fairly tight range with Euro held in a 60pip range. However, volatility increased on the FOMC statement. The S&P500 fell from its 5 year highs and booked in its biggest decline since November. Investors came out of risky based assets and fled to the safe haven US Dollar. The uncertainty between each member and the ongoing debate on the pace of long-term asset purchases led to a bout of profit taking after recent risk rallies. The British Pound continued its de-leveraging since January highs. UK Claimant Count Change came in better than expected at -12.5k actual vs -5.3k actual. However, all eyes were on the Bank of England meeting minutes and the reaction to the aggressive sell off in the British Pound. The BOE members were split 6-3 over more bond purchases which unexpectedly revised the prospect of additional quantitative easing. The markets did not like this and the British Pound fell 120pips in less than an hour.

However, the main event of the month was the UK losing its AAA credit rating status and being downgraded to Aa1. This, along with central bank policy measures that are having the opposite effect in helping economic growth, split Bank of England members and the ongoing political pressure of a Euro exit have weighed heavily on the British Pound. At the beginning of the year 1GBP bought $1.6340, now only two months later 1GBP buys $1.5100. 

CURRENT TRADING OPPORTUNITIES

USDCHF – Currently trading at the upper end of its downward trend channel, we could easily see a move to 0.9000, the reward to risk is in our favour. 

CRUDE OIL – The main theme right now is Oil as we come into a typically seasonally bullish quarter. Price action also suggests a move higher as we into support at 92.80. Continuation divergence confirms a potential move higher as does the daily low test bar/hammer candle. Initial target of $100. 

Trade update, cut your losses and seasonals...

Hi traders!

Whilst I've been in South Africa for the past two weeks, the markets haven't really done much but has still yielded some trading opportunities.

The Sterling crosses rebounded slightly and GBPAUD was the best performer although that has now been stopped out at breakeven. Hopefully, you managed to kill the GBPNZD trade as price action struggled to bounce of that level - shown by 4 high test/hanging man candles and a doji. Hardly the sign of strong buyers coming into the market! Let your winners ride and cut your losses short as they say. You may get it wrong sometimes but the effect of compounding is on your side.

The JPY pairs have still been great to trade on an intra-day basis but rather difficult end of day. As they saying goes 'trade the trend until the bend at the end'.

A few pairs I'm looking at now are EURAUD and AUDCHF. Historically, February is the worst performing month for EURAUD and the best performing for AUDUSD.

Whilst EURAUD has broken a bullish head and shoulders pattern it has run into resistance at the 1.32 handle. The divergence also suggests a pullback.

AUDCHF is essentially the opposite trade because of the Euro peg, however, it is also at the lower support level of its 6 month trading range.

Of course if these levels fail then look for breaks and retests to confirm the new direction.

Happy trading!

Sterling crosses due a rebound? Short covering and technicals suggest so....

Hi traders!

The market has been fairly range based, especially against the Greenback. After such strong moves recently the market is in a corrective mode.

However, here a few major themes I am looking at:

GBPNZD - Support is found at 1.8800 which includes third touch horizontal, 1.13 Fib extension from weekly cycle lows and completed ABCD pattern. We also have triple divergence and potentially bullish price action (depending on how today ends). Initial scale out target at 1.9000 resistance with a protective stop trailed on remainder of position.

GBPAUD - Support is found at 1.5000 which includes lower trend support line on closing prices, 78.6% Fib retracement from last major monthly low and completed ABCD pattern. Divergence and inside bar and inverted hammer supports a bullish move to at least the 1.52 handle. 

Friday wrap and trade update...

MARKET NEWS

After strong rallies against the Greenback last week, markets consolidated in a whip-saw trading week. Patience and holding your nerve was definitely necessary this week! Whilst most traders digest US earnings reports, the resurgence of EURCHF skewed currency correlations. UK CPI came in as expected at 2.7% and US Retail Sales fared a little better at 0.5% against 0.2% expected. Arguably, the key data this week was China GDP which came in as expected at 5.7%. However, this represents the slowest growth period in 10 years. Subsequently, the Australian Dollar fell due to their import/export relationship. Elsewhere in Asia, comments from BOJ and government policy makers supported the Yen as they look to work towards a 2% inflation target. The Yen depreciated against all its counterparts, continuing its 3 month rally.

TOP TRADES OF THE PAST WEEK

1. USDJPY – 16.01.2013 4hour chart – Support is found at 80.00, the 50ema and 61.8% Fib retracement. The low test bar confirmed the move higher resulting in +2%

2. NIKKEI225 – 17.01.2013 – Support is found at the daily 20ema. The morning star reversal pattern confirmed a move higher resulting in +1.5%

3. Coca Cola (KO) – 14.01.2013 – After bouncing off multi year lows t $36, the higher low was confirmed by the low test bar. This trade is still running currently up +1%

4. EURUSD - 14.01.2013 - Resistance is found at the 200 weekly MA and 1.272 Fib extension. Price action and indidcator divergence suggested a move lower. I'm still holding the trade short, even though it's spent more time in the negative than the positive! The trade is now around a break even level. Patience is key!

EFFECT OF THE NEWS LOOKING FORWARD

Next week’s Bank of Japan Monetary Policy Statement will be very key as tough talk from political leaders on a 2% inflation target will now be put to the test. Their press conference will also highlight key levels on which they will support the Yen further. German ZEW on Tuesday will also be key as traders look for hard evidence to support recent comments from ECB members that the Euro is now out of danger. The Canadian Dollar has a big week as BOC Rate Statement and CPI data is released. As always, be careful of intra-day volatility and always follow price action as a leading indicator.

Friday wrap and trades...

MARKET NEWS

Whilst last week saw a US Dollar rally on the back of a deal to avert the fiscal cliff, this week was risk on. Now that the US politicians are working out a deal before the US hits its debt ceiling on 28 February, all eyes were on central banks and the strength of the Eurozone. The beginning of the week saw little volume as Euro was held in a 3 day 150 pip range. Light volumes from the Equity markets, due to Q4 earnings announcements, clearly spilled over into FX trades. However, the market was poised for a break on Thursday as ECB President Draghi spoke. After strong Chinese data, traders were looking for a bullish tone to get long on risk trades. They were not disappointed as Draghi played down the chance of a possible rate cut, as was previously suggested in the last ECB meeting. The 'rate decision was unanimous' as the 'Eurozone has experienced strong capital inflows'. This risk carried on in the Asian session as the Japanese government approved an emergency stimulus package at their Cabinet meeting. This includes targeting a 2% inflation target and creating over 600,000 jobs. 

TOP 5 TRADES OF THE PAST WEEK

1. EURUSD - Long 07.01.2013 - Support is found at 1.3030, the 50dma and 61.8% Fib retracement. The low test bar/hammer candle confirmed the bullish bias. This trade is still running currently up +1.5%

2. USDCHF - Short 07.01.2013 - Resistance is found at 0.9270, the 50dma and 61.8% Fib retracement. The high test bar/hanging man candle confirmed the bearish bias. This trade is still running currently up 1.5%

3. NZDCAD - Long 07.01.2013 60m chart - Support is found at 0.9250, the 50ema, previous days high and 61.8% Fib retracement. The 12pm bullish engulfing bar/candle confirmed the move higher resulting in +2

4. EURNZD - Short 08.01.2013 60m chart - Resistance is found at 1.5705, the 50ema and 50% retracement level. The series of high test bars/hanging man candles over the Asian session confirmed the bearish bias resulting in +2

5. EURJPY - Long 08.01.2013 240m chart - Support is found at the double bottom 113.60. The ring low confirmed the move higher just before the Asian session open resulting in +2%

EFFECT OF THE NEWS LOOKING FORWARD

US Federal Reserve Chairman Ben Bernanke's speech on Monday may set the tone for the week as he discusses policy measures and their quantitative easing program. Q4 earnings in US equities also may have an effect on risk trades as the markets seem to have bought back the time old correlation between equities and FX.  However, all eyes are on the US debt ceiling issues up until reaching the limit on 28 February. As the negotiations will have positive and negative moments, always follow price action for a more conservative and consistent way to trade.

Weekly update...

MARKET NEWS

Financial markets were relieved, at the beginning of the week, at a deal to avert the US fiscal cliff crisis. The US Congress approved a rare tax increase on the wealthiest households to prevent the US economy falling into recession. However, it is far from over as a rocky period begins. All eyes are now on the negotiations to avert the US debt ceiling which is scheduled to hit on the 28 February. Whilst the rally held in Global Stock Indices, the FX market played a different story with a strong risk off sentiment. The main victims were the Euro, British Pound and Gold which gave back their two week gains. The US FOMC statement did not help risk trades or the soft metal as the minutes revealed that while there was support for the Fed’s bond buying program there was disagreement over how long the program would last; mainly whether it will continue through 2013 or end before the year’s end. With the ongoing fiscal cliff issues, disagreement between FOMC members and better than expected ADP Non- Farm Employment (215k actual vs 134k expected), traders looked to cover their positions and pile into the safe haven US Dollar.

EFFECT OF THE NEWS LOOKING FORWARD

This week's US Non-Farm Payroll will be widely looked at considering the disagreement between Federal Reserve policy makers. However, all eyes are on the US fiscal cliff issues up until reaching the US debt ceiling forecasted for 28 February. As the negotiations will have positive and negative moments, always follow price action for a more conservative and consistent way to trade.

Trade update

NZDCAD and Gold both were stopped out on the back of a negative FOMC statement last night. However, as we managed our stop loss this was only a 0.25% loss. Remember trading is about controlling losses and maximising winners. If you look at your best trades, they are the ones that just typically go. It took me a while to actually get to 'cut my losses short, let my winners ride' and I realised that I don't know what's is going to happen next and as Warren Buffett's Rule 1 of trading goes: 'Never Lose Money!'

Our US stock trades did relatively well, combining in over 4% on the day trading the gaps, which were closed end of day.

I'd also like to point your attention to the USDCHF chart. Seasonally, January is the best performing month for the US Dollar and it seems it has take a bit of a lift. The weekly chart points to significant divergence on RSI and Stochastics. Depending on NFP today, we may end up as an engulfing bar:

NZDCAD +3%, Trade the Gaps in US session

Happy New Year to all my readers around the world! I hope you all had a lovely festive break.

Financial markets were today relieved at a deal to avert the US fiscal cliff crisis. The US Congress approved a rare tax increase on the wealthiest households to prevent the US economy falling into recession. However, it is far from over as a rocky period begins. All eyes are now on the negotiations to avert the US debt ceiling which is scheduled to hit on the 28 February. However, we trade the chart and look at momentum and sentiment.

The risk on mode from Asia helped our NZDCAD trade which if traded on the 4hour chart is currently up 3% (assuming 1% risk). If traded on the daily chart then it is currently up +1%. The former would see stop losses moved to break even and the latter stop losses trailed to Monday's low. Our Gold trade is also currently up +1% with stop loss moved to Monday's low.

If the risk on sentiment continues we may see some gaps on stocks during the US session.

Coca Cola Long (KO) - Strong horizontal support from yearly highs and lows. RSI and MACD divergence, Ring Low setup. This is tradeable as a pure price action setup but could also be traded on the open if the market gaps higher.

Home Depot Long (HD) - Double bottom with Stocahstic and RSI divergence. This may provide further support for the market to gap open higher. 

Exxon Mobil Long (XOM) - Support is found at four touch trend line from 2011. The engulfing bar/candle and Stochastic, RSI divergence supports a bullish case. This is tradeable as pure price action but you could also wait for the intra-day gap.