- Did you dive in headfirst?
- The Fed volatility hits 24 hours later.
- Get ready for 4 rate hikes from the US Fed in 2016.
- GoldRock Insider Report may seem a little odd this week.
- In other market news.
- Aussie Dollar holds its ground amongst a global stock market sell off.
- Something’s gotta give.
- Will the markets slow down this week leading into Xmas?
- No High Impacting News for Monday.
Did you dive in headfirst?
On Friday afternoon I sent a text alert following the Bank of Japan’s decision to adjust its monetary policy program. The entry price I gave for the trade was 123.65 and when I sent the alert, price had retraced and had not traded up to or past this level. But my hunch tells me that many members of LTG GoldRock ignored the very specific price entry and just went long on the USDJPY at whatever price the market was at when you received the alert. You hit the buy market button and just got in. If that was you then you made an error. If I send an alert with a specific entry price then that is the price you enter. I advised this was not an ADBOT nor was it a CDBOT it was a fundamental based trade and if price momentum trades through 123.65 after I sent the alert the probability was that more buyers would come. This was not to be and although price had retraced on the USDJPY it did not pass through the level of 123.65 and did not fill the order. In other words those of you who did the right thing would have had a Buy Stop order that was never filled. You can remove that order now. If you are long USDJPY from simply entering at market when you received the order this is a valuable lesson in what not to do. When you receive an order with a specific price then you enter the market at this price. The reason for the volatility on the Yen Friday afternoon was because the Bank of Japan increased its purchases of exchange-traded funds and extended the maturity of bonds that it owns. The initial reaction was a sell off on the Yen as the extension of ETF’s and maturity of bonds was seen as a sign of more stimulus. Once the market figured out the stimulus wasn’t as large as it expected traders starting buying the Yen pushing the value higher. Once the US stock market pulled back traders bought even more Yen on Friday with the Japanese currency always being a benefactor when global stocks decline. The Yen and Swiss Franc will be bought in times of uncertainty and a fall of some 350 points on the Dow Jones is one heck of a fall in one day. The Fed volatility hits 24 hours later.
The markets expectations where that when the US Fed announced its interest rate decision on Thursday morning at 6am AEDT the prices around the world would immediately react with a significant amount of immediate volatility on all equity markets. In fact the opposite occurred and as Steven Dooley from Western Union pointed out on Friday’s Money Exchange on Sky News the one US Fed rate decision and statement where the market did nothing was the rate decision and statement where they actually did do something. For close to 16 hours global financial markets remained calm after the most telegraphed Central Bank decision in 100 years was digested by traders and investors around the world. It wasn’t until well into the European and US trading sessions on Friday that traders decided to exit stocks pulling the Dow Jones back lower by 350 points, which corresponded with the second highest amount of volume seen on the US stock market in a single day for 2015. Oil was once again a contributing factor dropping to $34.70 US Dollars a barrel but there was also a weaker than expected Services Purchasing Manufacturing Index number out of the US that was a lot weaker than expected. Get ready for 4 rate hikes from the US Fed in 2016.
The US Fed in its statement last Thursday indicated to the markets it has plans at this stage to raise interest rates 4 times in 2016 bringing the official cash rate to 1% or slightly higher. This means the interest rate differential between Australia’s cash rate and the US Fed’s cash rate will narrow and may even be close to the same in the next 18 months. History shows when this happens the Aussie Dollar falls dramatically. The last time the AUDUSD was 0.50c was in the year 2000 when interest rates in the USA and Australia were the same and if rates in the US rise and rates in Australia fall or stay on hold then there is every reason to expect the Aussie Dollar to continue to fall throughout 2016. On average the AUD has an 18% trading range per year and in 2015 it fell from 0.83c to a low of 0.69c. If the 18% trading range holds true and the US Fed continues to raise rates in 2016 then there is every reason to expect to see the AUD vs USD dip below 0.60c sometime next year. If the RBA was to lower the official cash rate to 1.75% or even 1.5% then a move even lower than that would not be out of the question. GoldRock Insider Report may seem a little odd this week.
You will receive your regular GoldRock Insider Report each day in the lead up to Xmas but due to the fact I am in the USA for the following few weeks it may arrive at odd times due to the significant time change between Australia and New Zealand. In other market news. - With the Dow Jones slipping by as much as 350 points we would normally expect to see a sell off on the Aussie and Kiwi Dollars. But both currencies held firm on Friday due to the fact that base metals rallied strongly.
- Something’s gotta give because I can tell you now that global stocks and oil will not continue to fall whilst commodities and the Aussie Dollar go the other way and rise. When we see such a strong sell off on US stock markets the AUD usually follows and so do base metal prices.
- Many traders ask me does the market slowdown in the week leading up to Xmas? My experience tells me no it doesn’t and I expect there will still to be plenty of volatility right up until markets close on Xmas eve. Certainly between Xmas and New Year’s Day volume on global markets drops off but we do not exit positions over Xmas in fact we maintain our position and will enter any new positions that confirm.
- No High Impacting News for Monday today.
Fundamental Directional View. - US Dollar Long
- Swiss Franc Neutral
- Japanese Yen Short
- British Pound Long
- Euro Short
- Aussie Dollar Short
- Kiwi Dollar Short
- Canadian Dollar Short
Fundamental Directional Pairs. The following pairs have a bias towards economic strength vs weakness or economic weakness vs strength. - AUDUSD Short
- EURGBP Short
- EURUSD Short
- GBPAUD Long
- GBPJPY Long
- GBPNZD Long
- GBPCAD Long
- NZDUSD Short
- USDCAD Long
- USDJPY Long
- USDSGD Long
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