Daily Alert: For Wednesday 10th February 2016

Mark Nugent2016 H1, Daily Alert, February 2016

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Fundamentals and Sentiment

See video below.

We are definitely risk off. The Vix has gapped up into Monday and continues higher today. Commodities are down. Oil is down. The Nikkei is 5% down on the day and all Western stock markets are down. The JPY index is having its seventh consecutive day of strengthening. The bond markets in the US, the UK and Germany are all showing yields falling, i.e. prices are going up as money moves into these low risk assets.

There is a general concern in the marketplace about many things. Featuring in the news today has been Deutsche Bank and its exposure to derivatives to a sum equal to 20 times the annual German economy. It is said that the world is at peak debt i.e. the world has never been so indebted and it truly is a global phenomenon. It is felt that central bankers have no bullets left to deal with any major issues. Negative interest rates in Japan are causing widespread concern. An interesting statistic in the US is that although job creation as evidenced by non-farm payroll has been very good for a long time the fact is that income tax receipts are down 4½% on prior year showing that although jobs are being created they are not high quality jobs.

We do need to remember that the market is not the same thing as the economy, however there is clearly a lot of negative sentiment around today.


Theme 1 – USD CAD. We wait for this pair to hit the lower trendline before going along.

Theme 2 – Euro weakness. EURNZD looks like the most appealing pair just now. A return to the upper trendline may be an opportunity to short. However, for this and all opportunities, we must look at the real sentiment at the time we want to enter. This is because risk is moving from on to off very rapidly. We want to make sure that when we enter a trade the sentiment is where we think it is. Now is not the time for placing pending orders and walking away for extended periods.

Theme 3 – GBP weakness. As explained on Monday morning, if this pair exited the consolidation zone and closed then a continuation up was a chance to go along. That’s how I traded it and today I’ve been triggered into this trade: 1% risk; stop approximately 1.5 x ETR below the entry; stop moved to breakeven this afternoon. This is tight, but I would rather get taken out at breakeven on volatility than risk sentiment changing and the trade going significantly against me.

I will consider GBPCAD if it reaches today’s high again and risk is off and oil is sinking (weakening the CAD). His goes against the theme of GBP weakening but it is valid as a short-term trade if risk is strongly off.

Theme 4 – USD uncertainty. Await clarity from Janet Yellen over Wednesday and Thursday as she testifies in the House.


It’s all about Janet Yellen’s testimony.
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