Today was an usual Monday with no tier one data.
****I’ve made a mistake previously to mess up the time of the risk event, we had ECB Draghi spoke today at 6am EST instead of 6pm****
Therefore, i actually missed this risk event and but gladly had no open positions, it was really a very bad mistake of mine.
Equity markets closed down in both European and U.S market to signal a continuation of risk off sentiment.
This is mainly from the new president Donald Trump and the uncertainty of the global markets surrounding his future policies.
WTI also closed down today regardless of some positive news from oil market:
-Iraq has already but output and most oil producers are working together in the oil output curb, so far everyone is really working together to reduce the supply.
-China crude oil import volume also on the rise in 2016 which signalled a continuation of demand from the world second largest economy.
However, U.S shale oil prodders’ output are also on the risk to offset the OPEC effect.
But nevertheless, i think the oil market slipped today was mainly due to the uncertainty over U.S Donald Trump, and this sentiment will most likely to be the main player for sometime.
Dollar continued to suffer from the uncertainty and slipped to 7 week low while GBP has regained strength because traders are priced in for tomorrow’s High Court Ruling which is expected to be in favour for the Parliament.
Trump has officially pulled from TPP and also told major manufacturers in U.S on his intension to levy heavy boarder tax in imports from factories outside U.S.
As mentioned, the biggest risk for U.S economy in 2017 will be his protectionism stance and it seems to be in effect now.
Remember the buy rumour and sell fact effect, you can either get in this trade now providing if you still have good levels, or else you can try to sell it tomorrow after the High Court Ruling regardless of what the ruling is because GBP will drop most likely after hours of the result due to buy rumour and sell fact effect.
CAD also continued to suffer from low oil price and the uncertainty over NAFTA.
AUD & NZD continued to go higher on the weakness of USD although the risk off sentiment has pressured them a bit.
Right now our view for Daily and shorter timeframe trade are the followings:
We think USD will continue to be the weakest currency because of the sentiment from Donald Trump, occasionally we will have dip buyers at levels but as long as Donald Trump’s direction of protectionism is unchanged - which we expect it to be at least for the time being, as he has to fulfill the promises for his voters in the first few weeks of his office.
We also think CAD will continue to be weak because of the trading relations with USD, although it might be stronger than USD for time to time due to oil price, but the positive sentiment from OPEC can only play few lasting effect while any negative news can really sink it down.
We think GBP will be the strongest currency for now due to the new sentiment from High Court Ruling which is highly expected to be in favour for the Parliament (of course any upset result will sink GBP), also Polls from economists are expected BOE to hold interest rate until 2019. Fundamentally BOE’s hands are tight due to high inflation but low economic growth.
We think EUR will also be very strong for now due to the weakness of USD and the safe heaven effect.
JPY & CHF will also be well supported due to the risk off sentiment, but the effect might not be that large unless we have some sort of new catalyst, otherwise EUR & GBP will be a better choice for traders.
Finally AUD & NZD will continue to dominate the market for now due to high yield, stable sentiment and neutral fundamentals.
Tomorrow we will have Flash Manufacturing PMI and Service PMI from France, Germany and Eurozone, although not tradable events but if the numbers are positive then this will continue to support EUR.
The High Court Ruling is coming out tomorrow which is expected to be in favour for the Parliament. Because it’s less than 48 hours and we don’t want to price in now as it’s too late, we will wait to trade the initial reactions.
If the result is a surprise to the downside (in favour for the Government instead) we will buy EUR/GBP or sell GBP/AUD.
If the result is as expected to the upside (in favour for the Parliament), we will wait for hours to pass and find a good level to sell buy EUR/GBP or sell GBP/AUD.
So the actions are the same but first one is to trade the Surprise while the second one is to trade the extreme emotions after they die down hours after the catalyst.
We will also have AUD CPI datas tomorrow which is also tradable in both side, buy at positive surprise and sell at negative surprise. We will buy AUD against USD if it’s positive result and sell AUD against GBP if it’s negative result (but really depended on what happens after the London session)
AUD CPI q/q
AUD CPI y/y
AUD Trimmed Mean CPI q/q
AUD Trimmed Mean CPI y/y