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.