Daily Alert: For Wednesday 17th February 2016

Mark Nugent 2016 H1, Daily Alert, February 2016

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Fundamentals and Sentiment

On Monday, the Chinese trade balance was better than expected but the underlying figures are quite interesting. Chinese exports dropped by 11.2% against an expectation of a drop of 1.8%. But the real killer is imports. Imports dropped by 18.8% against an expectation of a drop of 3.6%. These are dramatic numbers and indicate the real decline in the Chinese economy.

Also on Monday Draghi said that progress on the economy is reasonable but inflation is “less satisfactory.”

Today the Australian Monetary Policy Meeting minutes came out and the view was that “low inflation could provide scope to ease.”

In the UK, year-on-year CPI increased to 0.3% as per expectation.

New Zealand Global Dairy Trade dropped by 2.8% making seven of the last nine prints negative for the economy.

A subset of OPEC met today and declared an output freeze which is not really what the oil industry needs if they wish to increase price. They need a cut in production. It looks as if the freeze will not hold anyway as one member of the meeting said that they would only freeze if everyone else, including those not of the meeting, also agreed to freeze. Typical OPEC nonsense.

The pound was hit today as Brexit fears came to the surface. One of my trading ideas for this week was to look at GBP strength as Prime Minister Cameron was expected to announce an agreement with the EU partners on his re-negotiation. However, it looks like the market has gone straight into worry mode about Brexit. I will talk later about the implication this has for my GBP strengthening strategy.

The Vix is around 25. WTI was up on the “freeze” news but soon fell back down. Stockmarkets are mixed with no global sell off indicative of risk-off. Bond yields are flat (a uniform move down in yields would say we are risk-off.) The Yen index shows a bit of strength

Overall, based on the critical stock market and bond movements, we are risk-on.

Trades

EURUSD – just entered as the price moved below yesterday’s low. Currently slightly negative.

USDSGD – approaching the top of the consolidation zone. A close at or above the top would be a good buy entry signal.

USDJPY – the Yen strengthened today giving us a resistance zone. This is an area for entering long as money flows out of the Yen safe haven. There are two ways to trade this. Firstly you can wait for a close at or above the zone at NY close (10pm UK GMT) and then place a pending buy order a few pips above the close. Alternatively, you could simply just place a pending buy order somewhere in the resistance zone, with no need to wait for a close which means you will be entered into the trade should the pair move fast up through the top of the zone. The first approach is less risky than the second approach but the second approach has the merit of getting you in earlier should there be a big move up.

Watchlist

USDCAD – we are still in the consolidation zone with the bottom wick touching the bottom to the pip. We await a move to the top of the zone before thinking about going along.

My GBP strength idea from Monday (based on a positive outcome to Cameron’s EU negotiations) has been knocked on the head by today’s market reaction which is about fear of Brexit. So I am now looking at Pound weakness. I will look at the GBPUSD pair as the USD is strong (supposedly). I see that we are just at the bottom of a support so I will look at this again tonight at MY close and if the candle closes around the support line I will place a pending sell order on a further move down, with my stop above the top trendline.

Tomorrow

UK Average Earnings.

US FOMC Meeting minutes.

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