Daily Alert: For Friday 11th March 2016

Mark Nugent2016 H1, Daily Alert, March 2016

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Video Below
Fundamentals and Sentiment – New Information (Economic Calendar)

Risk-on but quiet prior to ECB announcement, then very volatile thereafter.

Last night the RBNZ unexpectedly reduced the interest rate by 25 basis points to 2.25%. Governor Wheeler said that further easing may be required and that rate projections build in two further cuts. He also said that inflation will take longer to reach target than previously thought.

Today, the ECB cuts all interest rates, with the refinancing rate dropping 5 basis points to 0.00%. The asset purchase programme (QE) will be increased form Euro60b per month to Euro80b per month. The end of the programme may be continued beyond March 2017. The type of bonds that will be purchased will now include investment grade corporate bonds. Draghi says no further rate cuts are on the table as the current situation stands. Further, 2016 GDP revised down to 1.4% from 1.7%. 2016 inflation revised down to 0.1% from 1.0%.

Fundamentals and Sentiment – Market Reaction

Equities are mixed. Bond yields are up, with the German 10-year yield up 36% as of 1600 GMT. The Vix is flat. Oil remains in current sideways channel and the commodity basket is up slightly. The Euro index drops as expected for a new stimulus programme that essentially delivers on promises, but then reverses and in fact the Euro index is significantly up on the day, showing strength which would be associated with market disappointment. The JPY and all commodity currency indices weaken.

I would say we are risk on but we need to wait for the ECB decision to sink in and for a consensus view to emerge.

Fundamentals and Sentiment – Financial Media

Bloomberg says Draghi “Done for now” on rates.

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Trades
    1. ECB Meeting

EURUSD exited at breakeven.

EURO50 and DAX30 both rise and then fall. This is why we need to wait for sentiment to become clearer.

    2. Oversold GBP

Again, this idea played as per the “Draghi delivers” scenario but then reversed. We need to see sentiment become clearer.

    3. AUD Watchlist

AUDUSD – seeing consolidation just below resistance. I will short this trade below the sideways zone, around 0.7410.

AUDNZD – yesterday’s bar is up as NZD weakened on an unexpected rate cut. Today sees a reverse. This pair should continue up on interest rate differentials as RBNZ Governor Wheeler says there are two more rate cuts to come.

    4. JPY Weakness (from prior week)

The pair spikes into profitability but then slides back into negative territory.

Tomorrow

Canadian unemployment data.

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