Weekly Review and Outlook 21st March 2016

Mark Nugent2016 H1, March 2016, Trading Plan

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Video below
Review of Last Week – week commencing 14th March
Fundamentals and Sentiment – New Information (Economic Calendar)

The most dramatic event of last week was the Fed. They kept rates unchanged at 0.25-0.50% as expected and reduced their median Fed Funds Rate forecast which now implies 2 rate hikes this year vs a previous forecast of 4 in December. The Fed also lowered their GDP forecast to 2.2% by the end of 2018 from 2.4% in December. Overall the release was interpreted as more dovish given the strong downward revisions to their forecasts which saw USD weaken across the board, while the prospect of lower rates for longer underpinned US equity markets and pushed the S&P 500 to its highest close YTD.

It’s worth reminding ourselves of the other two Central Bank announcements last week:

The Bank of England Asset Purchase Target (QE) remains at GBP375B vs expectation of GBP375B. Interest rate unchanged at 0.50% vs expectation of 0.50%. The minutes show a unanimous vote of 9-0 to hold rates and QE. The Bank stated that it is more likely than not that the bank rate will increase over the forecast period adding that they remain watchful that low inflation is having second round effects on wages.

The Bank of Japan kept QE unchanged at JPY80trillion per annum (vote 8-1). Interest rates were unchanged at -0.10% as expected (vote 7-2). The JPY has been strengthening recently and BoJ intervention is expected.

Fundamentals and Sentiment – Market Reaction

We have been risk-on all of last week. The Fed announcement caused the USD to weaken, US equities to rise, bond yields to go down, oil and commodities to go up, commodity currencies to go up and emerging market equities and currencies both rise.

Trades

1.USDCAD

The initial pro-fundamental trade was stopped out at breakeven. The move from the USD after the Fed announcement was so strong I decided to go with a pro-sentiment trade (against the fundamentals). This sell trade was closed manually on Thursday night for a gain of 1.03% on a risk of 1%.

2.AUDUSD

In a very similar manner to the USDCAD trade, the initial pro-fundamental sell trade was closed at breakeven. I placed a pro-sentiment trade which I also closed manually on Thursday night for a gain of for 0.83% on a risk of 1%.

3.USDJPY

This trade was clearly not performing as I wished so I closed it for a small loss of -0.14%.USD Strength underpins everything and it was absent last week.

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The above is the Weekly Review of last week’s trading which was based on the ideas presented to the VIP Club members in last week’s Weekly Outlook. VIP Club members are able to access the Weekly Outlook for the forthcoming week which looks at economic fundamentals and technical analysis and from that we draw up a trade plan for the week. If you would like to access this content and take your trading to the next level with like-minded individuals, you can join the VIP Club on a no-risk basis starting with a free 30 day membership. All the info you need is HERE.

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Outlook for This Week – week commencing 21st March
Fundamentals and Sentiment – New Information (Economic Calendar)

A much quieter week this week.

Tuesday – UK CPI y/y. German ZEW Economic Sentiment.

Thursday – UK Retail Sales. Japan – Tokyo Core CPI.

Friday – US Final GDP.

Fundamentals and Sentiment – Financial Media

http://www.telegraph.co.uk/business/2016/03/17/central-banks-are-already-doing-the-unthinkable—you-just-dont/
http://www.bloomberg.com/news/articles/2016-03-20/greek-bailout-talks-end-without-deal-as-migrant-challenges-grow
http://www.cnbc.com/2016/03/17/would-the-bank-of-england-support-sterling-in-a-brexit.html
http://www.bloomberg.com/news/articles/2016-03-21/u-k-tory-turmoil-worsens-as-ex-minister-questions-deficit-focus
http://www.bloomberg.com/news/articles/2016-03-21/what-productivity-gloom-means-for-the-bank-of-england

Themes and Trading Ideas

1.GBP Weakness

Brexit, low productivity, OBR downward revisions to GDP and Conservative party turmoil all point to a weak GBP. Opportunities are to short GBPUSD, GBPJPY (beware of BoJ intervention weakening the JPY) and GBPNZD (make sure commodites are not crashing and weakening the NZD).

2. JPY Weakness

The BoJ cannot allow the JPY to remain so strong. Their QE programme requires a weaker JPY. They will intervene in the market, it is simply a matter of time. The main opportunity is to long the USDJPY.

3. The FTSE100

Brexit fears. The opportunity is to short the index. I explained in the video how to manage risk when trading the FTSE100.

4. Oil

I cannot see the April Opec meeting agreeing a production freeze and even if they did it will make no difference to the over-supply situation. What is required is an agreement to cut production and there is zero chance of that happening.

Last week’s Fed-inspired USD weakening and oil strengthening is reversing. The opportunity is to go long on USDCAD on a falling oil price.

5. Watchlist

S&P500 is approaching multiple areas of resistance. Monitor for short opportunities. I explained last week in the Daily Alert for Friday how to manage risk when trading the S&P500.

Euro weakness is an attractive trade but Draghi has muddied the waters with his “no more rate cuts” statement. Plus the EURUSD chart does not show a good setup. However, continue to monitor.

Nikkei – if the BoJ intervene to weaken the JPY, this will have an impact on the Nikkei index as well as the JPY. I will continue to monitor.

Monday Morning Sentiment

We are risk-on with most equity markets up, and so we can execute the trade plan.

Video

Your video is below (the detail on last week’s trading performance starts at 4:35 and this week’s trading plan is detailed at 17:25).

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