Friday wrap...

The market was expected to be range based at the start of the week. Traders and investors alike waited for key news announcements from central banks released after the US public holiday. They were not disappointed as near-simultaneous easing from Europe, the UK and China fuelled volatility around the markets. The ECB cut the main refinancing rate 25bps to 0.75%, the BOE increased QE by 50bln to 375 billion and the PBOC, more surprisingly, cut their 1 year lending rate by 31 basis points to 6% from 6.31%. The ECB also cut the deposit rate to 0% which should encourage more lending on the inter-bank market to help generate more growth. Positive ADP Employment data from the US fuelled further risk off, as the US added another 176,000 jobs to the market. Whilst this news was taken positively, all eyes will be on the Non-Farm Payroll today. If this turns out to be better than expected, then the chances of QE3 diminish slightly and the Greenback will most likely rally on the announcement. The macro-economic picture does not bode well for global growth after the coordinated interest rate cuts. However, the search for yield is on and the commodity currencies had a mixed reaction to the week's news announcements. Many money managers are looking to the AUD for a safe haven due to the positive carry and an upturn in exports to China. However, the PBOC interest rate cut could be another sign (among many others) that their economy is slowing, which would have ramifications in an overheated Australian economy. EURAUD was the main victim this week as funds come out of EUR denominated assets and park them in Australia. 


Trading will be cautious up until the NFP economic number. However, given the events of this week one has to look a the macro picture of what the global economy is doing. For the time being it looks as is if safe haven flows are the name of the game but within trading we have to be adaptable and flexible. Look for price action as a leading indicator as well as the commodity pairs and the Stock market. The most important trait of a trader is to be patient and wait for the right opportunity to present itself. The beginning of the quarter may start of slowly but we have the time to wait for a prevalent theme to present itself as we are at the start of the month.