Weekly Review and Outlook 8th February 2016

Mark Nugent2016 H1, February 2016, Trading Plan


Video below.

Review of Week Commencing 1st February 2016

Monday – US core PCE (the Fed’s preferred measure of inflation) missed target. Draghi reiterates his view that there will be a need for a major revision in monetary policy at the March meeting.

Tuesday – Governor Glenn Stevens of the RBA keeps rate unchanged but allows for future rate cuts if necessary. UK Construction PMI sees badly. New Zealand’s global dairy trade (GDT) misses for the sixth time in the last eight prints.

Wednesday – New Zealand unemployment delights at 5.3% versus an expectation of 6.1%. RBNZ governor Wheeler says there may be need for further policy easing. BoJ Governor Kuroda states that he is worried about inflation.

Thursday – Super Thursday for the Bank of England. UK rates and QE remain unchanged but voting moved to 9-0 from 8-1 as McCafferty changes his mind on the need for a rate hike. The quarterly inflation report downgrades GDP, CPI and wage growth forecasts yet Governor Carney is hawkish. This makes no sense and I will come back to this. Draghi says “no doubt we need to adopt a more expansionary policy.”

Friday – Non-farm payroll misses but wages grow by 0.5% versus expectation of 0.3%. The dollar seems unperturbed. RBA Governor Stevens produces his quarterly monetary policy report – essentially no change from previous narratives.

Review of Trades
  1. EURUSD exits at breakeven on Monday.
  2. USDCAD stopped out for a loss of 1% on Thursday.

I will produce a performance report for January but so far year-to-date we have two closed trades for a total of -0.5%.

Outlook for the Week Commencing 8th February 2016

The major focus for the week is Janet Yellen’s semi-annual testimony to the House Financial Services Committee on Wednesday and Thursday. This should give us some insight into the Fed’s view of the rate hike profile throughout the year.

On Friday we have German GDP and US Core Retail Sales.

As discussed in the video, the markets do not seem to believe the view of the Fed and the Bank of England when it comes to their respective views on likely interest rate hikes. Any expectation of interest rate increases should result in bond prices going down/yields going up. The market is showing the exact opposite, indicating that the market has no faith in either central bank’s statements ragarding monetary policy.

Major Themes and Trading Opportunities
  1. Oil price and impact on CAD.
  2. EUR weakness due to more accommodation in March.
  3. GBP weakness based on Thursday’s downgrading of economic forecast and impact on rate hike profile.
  4. USD uncertainty on rate hike profile.

The trading opportunities that arise from these themes are discussed in the video.

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You can download the presentation slides HERE