Weekly Review and Outlook 30th October 2017

Mark NugentOct 2017, Trading Plan

Weekly Trading Review – Week Commencing 23rd October 2017

Over the weekend

Over the weekend, PM Abe wins re-election in Japan with a supermajority, consolidating his expansionist economic policy, i.e. more QE and paving the way for constitutional change.
Spanish PM Rajoy dissolves the Catalan parliament and plans to hold elections within 6 months.

Monday

Monday saw the USD gap up and do nothing. The “major” industrial US equity indices gapped up and moved up. Equities elsewhere were more mixed. The US 10 Year yield dropped. GOLD sank and then rose, ending slightly up. The JPY weakened and then strengthened. I’d say at the close we are slightly risk-off.

Elsewhere, I see softness in UK equities, the Japan225 remains buoyant at a 21 year high after Abe’s election win. The EUR is struggling to break out up through resistance. The GBP moves up slowly after the Brussels love-in. The NZD drops as the new Labour/NZ First coalition states its desire to reform the RBNZ.

Tuesday

In early trading today US equities are down so I’d say the risk-off tone endures.

Very quiet with no Tier I data on the economic calendar.

Spanish Senate summoned the Catalan President for 0900BST this Friday.

The ECB are divided over the wisdom of declaring an end to QE with hawks admitting that the door cannot be locked when it comes to QE but it must be clear that the door is nowhere near as open as it once was. (FT)

On the markets, the USD rose, equities were mixed with the Dow30 closing at a new all-time high. GOLD grinds down and US 10 Year yield rises. The JPY weakens very slightly with its current range. I’m saying the risk tone is neutral/on.

Wednesday
The USD weakened. US equities were down significantly intraday due to poor results from telecoms and industrials amid a slump in AT&T and Boeing shares post-earnings. Some of this drop reversed before the close.

Other global equity indices also slumped. GOLD rose slightly on the weak USD. The US 10 Year yield was up and the JPY was moderately strong. On balance I must call this as risk off.

The EUR rises and closes above short-term highs. The GBP is boosted by the good GDP number and the AUD drops on the poor CPI number. NZD grinds down on political concerns.

Thursday

The ECB kept interest rates unchanged at 0.00%. QE extended by 9 months until end Sept 2018 at EUR30b/mth (half current rate). Will re-invest maturing bonds for as long as necessary. Draghi says substantial accommodation required to drive towards inflation target. Draghi says no interest rate hike until net purchases complete. The market saw this as dovish and the EUR dropped.

Australian stocks were later spooked after the High Court ruled now-former-Deputy PM Joyce was ineligible for his parliamentary seat and would have to contest it again at a by-election, which meant the government loses its 1-seat majority.

The USD rises on report the Dovish Yellen is out of the running for Fed Chair and also on EUR weakness. US equities move up and the Nasdaq gaps up this morning after good results from Alphabet, Amazon, Intel, Microsoft and Western Digital.

Global equities rise apart from the AUS200 which drops on the Joyce story but soon recovers. GOLD grinds to a halt at support. The US 10 Year yield rises and the JPY strengthens. I’d say we are risk neutral/on.

Friday

USD Advances GDP beat expectations (3.0% vs 2.6%) and the prior number was revised up (3.1% from 2.6%).

I’d say the neutral/on risk tone endured through Friday. The USD was up and the S&P500 and Nasdaq were boosted by the good GDP result in the US. Equities elsewhere rose. The US 10 Year yield dropped and JPY and GOLD strengthened. So a mixed message but if equities are being bought, we cannot be wholly risk-off, so I’m saying neutral/on.

Over the week, the USD is up, all equities except UK equities are up, GOLD is down, the US 10 Year yield is up and the JPY strengthened. In terms of risk sentiment, the week was saved by Thursday and Friday.

Themes for the week were:

1. GBP strength after Brussels love-in.

Didn’t happen. GBP up on week but due to good GDP result on Wednesday.

2. UK Equity Breakouts.

FTSE100 broke down to the 50MA and I took a long. Currently stop at breakeven and the trade slightly positive.

3. Risk-on driving GOLD down.

GOLD continued down to support and the 200MA where I exited the trade as advertised and the price stopped moving. Gain of +1.62%.

4. Equity pullbacks in general

Other than the FTSE100, I am still waiting.

5. EUR strength returning

The start of the week was positive but Draghi on Thursday torpedoed the rally.

Weekly Forex Outlook – Week Commencing 30th October 2017

Major Events

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