Daily Alert: For Thursday 4th February 2016

Mark Nugent2016 H1, Daily Alert, February 2016


Fundamentals and Sentiment

(Video below.)

The Vix moved up slightly to 22 as I write. Oil is up. The Nikkei and Hang Seng are both down over 2%. Chinese markets down but less than 1%. All western markets down by between 1% and 2% on concerns over European corporate profits that are being released. JPY stregthens on some safe haven flow. CAD is up on higher oil. AUD flat and NZD up on good unemployment data. So, a slight move to risk-off. Remember risk is a continuum: we are not risk-on or risk-off, it is a sliding scale. We are more risk-off than yesterday.

Economic news – last night NZ unemployment came in at 5.3% vs forecast 6.1%, causing the NZD to strengthen. Crude oil inventories in the US up dramatically but ISM non-manufacturing PMI misses at 53.5 vs forecast 55.1. ADP non-farm payroll early warning came in above target at 205K vs 193K.

RBNZ Graeme Wheeler said “If concerns deepen around the prospects for the global economy and its impact on New Zealand, some further policy easing may be needed over the coming year to ensure future average inflation settles near the middle of the target range. We will continue to monitor closely the emerging economic and financial data.” and “…there are greater uncertainties around the economic outlook than normal, and the balance of risks lies on the downside.”

BoJ Haruhiko Kuroda said his inflation concerns were twofold: a) Japanese firms failure to invest in new business and wages despite corporate profits being at a record high and b) China slowdown.

Critical Trades for this week

USDCAD – getting too near to my stop for my liking. Still the price is good to go long if the US shows a good NFP on Friday and the technical analysis at the time is attractive.

USDJPY – well down today on safe haven move. I will look to go long again on reversal.

EURUSD – Euro rises today. The Euro behaves like a safe haven currency but what is really going on is this: when risk-on, institutions borrow the Euro because it is cheap and sell it for higher risk assets so the Euro drops. When we go risk-off, the high risk assets are sold for Euros to cover the original Euro debt and this causes the Euro to rise.

USDSGD – observe.

GBP weakness – I will await Thursday’s inflation report and go short GBPUSD if the inflation outlook is poor. If you cannot watch the announcement, you can place a pending sell order but make the entry as far away from the current price as you think necessary to avoid bening triggered in before the announcement. It’s a judgement call.

Tomorrow’s Calendar

  • BoE rate and Quarterly Inflation Report
  • Draghi speaks
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