Weekly Review and Outlook 11th April 2016

Mark Nugent2016 H1, April 2016, Trading Plan

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Video below
Review of Last Week – week commencing 4th April
Fundamentals and Sentiment – New Information (Economic Calendar)

Monday – Australian Retail Sales missed (0.0%; 0.4%; 0.3%). In the UK, Construction PMI was on track (54.2; 54.3; 54.2).

TuesdayOvernight, continued Japanese gloominess as BoJ Governor Kuroda said it is technically possible to cut rates further into negative territory if required, but also added they are not placing particular focus on negative rates. BoJ is considering downgrading inflation outlook in its economic outlook report later this month amid lower expectations from households and businesses. In Australia, the Trade Balance was disappointing (-3.41B; -2.55B; -3.16B). Also in Australia, the RBA rate decision was as expected (2.00%; 2.00%; 2.00%) and the central bank did not make any dovish comments. UK Services PMI was on track (53.7; 53.9; 52.7). In the US, ISM Non-Manufacturing PMI beat expectation (54.5; 54.1; 53.4). In NZ, Global Dairy came in at 2.1% growth which is positive for the NZ economy.

Wednesday – US Crude Oil Inventory shrinks rather than grows (-4.9m; 3.1m; 2.3m).

FOMC Minutes

• Several members argued against a rate-hike in April while some members were in favour of it
• There was general agreement among members that the US has been resilient during the current global economic environment. However, many also stated that it would be prudent to wait before additional tightening
• Overall, markets saw some minor volatility with the USD fluctuating between gains and losses. The release cemented the view amongst market participants that the FOMC remain upbeat but maintain their cautious outlook

Thursday – BoJ Governor Kuroda says the BoJ will add stimulus if required and states that the economy is expected to expand moderately. ECB’s Draghi says the euro area recovery is proceeding at a moderate pace.

Friday – UK Manufacturing Production m/m misses (-1.1%; -0.2%; 0.5% revised down from 0.7%).

Fundamentals and Sentiment – Market Reaction

US, UK and German 2 year and 10 year treasuries show reduced yields over the last week. This indicates risk off as capital flows into bonds and prices rise, and as such a risk-off sentiment around the world. All global equity indices are down on the week except the FTSE100. The commodities basket is up but that is due to oil. Looking more specifically, copper, iron and coal are all down on the week. In the FX indices, the USD dropped; the JPY rose significantly; Euro dropped marginally; GBP dropped significantly; the CAD was flat on the week, with the negative sentiment on commodities counter-acted by oil rising across the week; without this counter-balancing force, the AUD and NZD dropped significantly.

Trades

Three trades closed this week.

#19: GBPNZD

Entered on 29th March, this short based on GBP weakness on Brexit coupled with NZD offering the best technical setup worked well, with a gain of 0.67% on a risk of 0.5%.

#20: GBPAUD

Entered this week, weak GBP coupled with AUD (offering the best technical setup this week) gave a short which reversed quite rapidly on risk-off sentiment for a breakeven trade.

#21: GBPAUD

A second bite at GBPAUD. A continuation of risk-off sentiment deprived this trade of any significant downwards momentum and I exited just before market close on Friday night for a tiny loss of 4 pips.

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Outlook for This Week – week commencing 11th April
Fundamentals and Sentiment – New Information (Economic Calendar)

Monday – Chinese CPI and PPI. US: Possible Fed announcement.

Tuesday – UK CPI.

Wednesday – China Trade Balance. US Core Retail Sales and PPI. Canadian Rate Statement and Monetary Policy Report.

Thursday – UK Official Bank Rate and Monetary Policy Summary. US Core CPI.

Friday – China GDP and Industrial Production.

Fundamentals and Sentiment – Financial Media

http://www.bloomberg.com/news/articles/2016-04-11/hedge-funds-place-record-bullish-yen-bets-amid-volatility-surge

http://bloomberg.com/news/articles/2016-04-09/the-yen-s-puzzling-surge-explained-in-one-morgan-stanley-theory

http://www.bloomberg.com/gadfly/articles/2016-04-10/saudi-arabia-oil-gambit-moves-to-phase-two

Themes and Trading Ideas

All trading ideas assume USD strength unless stated.

1. JPY strength

Sell USDJPY due to “new” fundamentals. Very speculative. Keep risk low. Assess sell options at Monday close.

2. GBP weakness

CPI on Tuesday and rate annoncement on Thursday may make the environment too volatile. Some GBP pairs are near good setups but not there yet. Must continue to monitor. Of course, the sentiment of the GBP counter currencies must be taken into account before entering any trades.

3. OPEC Meeting – 17th April

I can see nothing but disappointment for those wishing higher oil prices. USDCAD is in a tight triangle. I am looking to trade a break to the upside. USD sentiment must be taken into account.

4. USD

Weakness or strength? Who knows. I will monitor the news flow and the 6 USD pairs.

5. EUR weakness

I cannot see anything of interest.

Monday Morning Sentiment

Stock markets are mixed and the JPY is flat. It’s a quiet start to the week.

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