Weekly Review and Outlook 22nd February 2016

Mark Nugent2016 H1, February 2016, Trading Plan

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Video below
Review of Last Week – week commencing 15th February
Fundamentals and Sentiment – New Information (Economic Calendar)

Monday saw the Chinese Trade Balance revealing an 11% decline in exports and an almost 19% decline in imports; Draghi said in ECB minutes that inflation is not satisfactory.
Tuesday saw RBA say that “low inflation could provide scope to ease.”; UK CPI on track; NZ GDT misses again; subset of OPEC freeze production, Iran later saying “them not us, we will increase”.
Wednesday saw UK Average Earnings hit target; Fed minutes don’t reveal anything new.
Thursday had Chinese CPI missing target and ECB saying they will be “pre-emptive” in dealing with under-target inflation.
Friday had UK Retail Sales at +2.3% vs expectation of +0.8%; Canadian Core CPI doing well but Core Retail Sales missing and finally US CPI and Core CPI both exceeded expectation.

Fundamentals and Sentiment – Market Reaction

This is the first solid risk-on week of the year. The Vix dropped; Oil and other commodities remained within their current consolidation channel at multi-year lows; all stock markets were up on the week; price rises in bonds halted; the JPY index strengthened a bit on the week as did CAD, NZD and AUD.

Fundamentals and Sentiment – Financial Media

Dominated by Brexit fears (agreement between Cameron and the EU reached late Friday), OPEC oil discussions and banking sector fears.

Trades

EURUSD essentially breakeven as of Friday’s close.

Outlook for This Week – week commencing 22nd of February 2016
Fundamentals and Sentiment – New Information (Economic Calendar)

It’s a light news week. The major news items are UK Inflation Report Hearing on Tuesday; UK second estimate of GDP on Thursday and on Friday we have US preliminary GDP.

Fundamentals and Sentiment – Financial Media

Over the weekend the major issues are seen to be Brexit, particularly Boris coming down on the side of the leavers. Germany not investing at previous rates is causing some concern and HSBC making a Q4 2015 loss of USD858m vs an expected profit of USD1.9b. Now that’s a miss. It’s down to bad debt write-downs.

Themes and Trading Ideas

Overarching theme is USD strength based on fundamentals.

1. GBP weakness – the idea is to sell the FTSE100 as an alternative to a GBP pair as the likelihood is that the forex pairs will be very volatile.
2. EUR weakness – I am in EURUSD and for those not in the technicals do not look attractive for entering at the moment. An alternative is EURAUD. You could consider selling at short-term support around 1.5265.
3. JPY weakness – our old friend the USDJPY long. Entering at market is a reasonable trade but I will wait for a close above short term resistance at 114.65.

Monday Morning Sentiment

This is a quick assessment of risk appetite. A look at global stock markets tells us all we need to know. They are all up so there is no evidence of a move to risk so I assume a continuation of last week’s risk-on sentiment. Therefore I feel comfortable in trading my plan which is predicated on such sentiment.
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You can download the presentation slides HERE