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.