Daily Alert: For Friday 19th February 2016

Mark Nugent2016 H1, Daily Alert, February 2016


Fundamentals and Sentiment

We have our fifth consecutive day of risk-on sentiment (last Friday to today, Thursday). If tomorrow goes well we will have our first whole week of risk-on sentiment this year.

Yesterday’s Fed minutes said that there is increased downside risk to the US economy; the inflation outlook is uncertain; China is a drag on the US economy; there seems to be a solid jobs market in 2016. There was no blob diagram, indicating the feelings of the committee members as to the forward rate hike profile. My mistake – they do not provide this every month. Next one due in March.

Today’s Chinese CPI y/y missed at 1.8% vs forecast of 1.9%. The Eurozone Monetary Policy Meeting Account (similar to the Bank of England and the Fed’s meeting minutes) is a Tier II event for some unknown reason. The minutes said the ECB have a preference for a “pre-emptive act regarding countering a downside risk.” In English – we will try act first and ask questions later. This is a reference to the March meeting and Draghi’s suggestion that policy will change then.

In general the financial news is quiet today.

The Vix is down at 21.7. WTI and commodities lanquish in their respective short-term consolidation channels. Shares are mixed with Japan and Hong Kong up, China, UK and US down and the Euro Zone up. The point is – no concerted move down across the globe so we are NOT risk-off. Bonds are flat.

The Yen index shows strength and the commodity currencies are all weak.

In essence, we are more risk-off than yesterday but still fundamentally risk-on.

Trades (see video)
  1. EURUSD finally moves down and into profit.
  2. USDJPY – need to see a breakout and close above 114.70 before going long on a continuation.
Watch List (see video)
  1. USDCAD – long on bounce off bottom or breakout and close from the consolidation zone.
  2. GBP – I will not trade this now in the remainder of the week. Cameron’s EU negotiations seem to have hit some roadblocks but it could all be theatre. After all, the Eurocrats can cobble deals together. That’s what they do. I suspect there will be an announcement on Friday/Saturday and it is too risky to trade into that. I will review on Monday morning.
  • UK Retail Sales.
  • Canadian Core CPI and Core Retail Sales.
  • USD Core CPI.

See you on Monday morning with the Weekly Review and Outlook.

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