Weekly Review and Outlook 7th March 2016

Mark Nugent 2016 H1, March 2016, Trading Plan

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Review of Last Week – week commencing 22nd February
Fundamentals and Sentiment – New Information (Economic Calendar)

The market was risk-off on Monday after a disappointing G20. The remainder of the week was risk-on with the Vix dropping to levels not seen since December.

Monday

European Core CPI Flash Estimate misses at 0.7% vs expectation of 0.9%.

Tuesday

Oz rate unchanged. UK Manufacturing PMI misses. US ISM Manufacturing PMI beats expectation but still below 50.

Wednesday

Australian GDP comes in at 0.6% vs forecast of 0.5%.

UK Construction PMI misses forecast of 55.5, printing at 54.2.

Thursday

UK Services PMI misses at 52.7 vs expectation of 55.1.

In the US, ISM Non-Manufacturing PMI is essentially on target at 53.4 vs expectation of 53.2.

Friday

US – Average Hourly Earnings missed but NFP came in at 242K vs expectation of 195K. The USD sold-off on the earnings number.

Fundamentals and Sentiment – Market Reaction

Vix drops to lows not seen since December, ending the week at 16.86.

S&P500 rises every day since Tuesday. FTSE100, CAC40, Hang Seng and the Nikkei all up on the week. The Dax30 is flat on week. In China, both the CSI300 and the Shanghai Composite are up on the week.

10 year US Treasury prices are well down on the week as are UK Gilts. German Bunds are also down on the week but not by so much as in the US and UK.

Commodities rise above and close just outside of the multi-year low consolidation zone. Copper turns up but no more than that seen in recent retracements. Friday sees WTI and Brent crude push through the top of the short-term consolidation zone and close.

USD Index drops all 5 days last week. JPY weakens on the week. CAD and NZD modestly up on the week. The big gainer is AUD, moving up in all 5 days.

Fundamentals and Sentiment – Financial Media

It was noteworthy that on Friday Bloomberg were reporting that the Federal Funds Rate Futures are now saying the next Fed rate hike will be in Sept.

Trades

USD Strength underpins everything and it has been absent this week.

  1. EUR Weakness.

The EURUSD trade climbs on the week. Still in profit but the price is rising to meet the entry price where current stop is. EURAUD saw two flags on the H4 chart, each of which worked well.

  1. GBP Weakness.

GBPUSD rose all week. The price is within 350 pips or so of the lowest low seen in my chart that goes back to mid 1994. The currency may not have much further to go. GBPAUD worked like a charm if you had entered on the pullback to the lower support line that we can see on Tuesday’s D1 chart. These pullbacks after exiting triangles are very common.

  1. JPY Weakness.

The USDJPY is flat on the week largely thanks to Monday’s risk-off sentiment. I shall persist with this trade.

  1. NZD Weakness.

Well the USD was down this week and the NZD up so this strategy on the NZDUSD pair simply did not work. The NZD coupled with the strong AUD didn’t make sense either.

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Outlook for This Week – week commencing 7th March
Fundamentals and Sentiment – New Information (Economic Calendar)

Tuesday

Bank of England’s Carney testifies, along with BOE Deputy Governor Jon Cunliffe, on United Kingdom’s European Union membership before the Parliamentary Committee, in London.

Wednesday

Canadian and New Zealand rate and statement.

Thursday

EuroZone – rate and press conference.

Fundamentals and Sentiment – Financial Media

Gloom from HSBC – poor corporate earnings.

Bloomberg saying there’s a desperate need for Draghi to act decisively. The “capital key” is a hindrance to taking effective action because it limits the ECB to only buying a nation’s debt at a level proportionate to the size of their economy and it is the smaller economies that need the bigger help. Mervyn King saying Germany scaring the others, i.e. the exact opposite of what the establishment of the Euro Zone was supposed to do.

China – Soros says China is facing a hard landing and causing a slowdown in global growth. The Economist has an article that shows the Chinese have huge overcapacity in many major industries and are also continuing to invest in them, exporting deflation and low growth to the rest of the world.

Themes and Trading Ideas
  1. ECB Meeting

We need to wait and see. Draghi may under-deliver again. Consider EURX50 and EURUSD.

  1. Oversold GBP

If Draghi delivers on Thursday – sell. The drivers are weak Euro and the interest rate expectation differential (Euro down, UK up).

  1. AUD watchlist

AUDUSD leaves the triangle to the upside. If it gets to resistance at around 0.75, consider selling.

AUDNZD – a pure interest rate differential strategy. The idea is to buy. I will re-assess at close tonight. If the candle closes at or near last week’s high, I will consider going long with a tight stop just below today’s low.

Monday Morning Sentiment

Quiet and thus risk-on. Shares are mixed with no strong moves in either direction.

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