- EURUSD may consolidate post Draghi losses at 1,2358/1,2415
- Deflationary fears in commodity markets should keep pressures tight on AUD
- Chinese data boosted dovish bets after PBoC confirmed liquidity injection in 3Q
- USDJPY may go down on expectations Abe would proceed with second round of tax hike in 2Q
The USD made a soft start to the week amid Friday’s job report failed to boost Fed hawks. The US economy added 214K new nonfarm jobs (vs. 235K expected, September figures were revised up from 248K to 256K). The unemployment rate improved from 5.9% to 5.8% for a slightly better participation rate of 62.8% (vs 62.7% last). The average earnings remained soft, in line with expectations. The US 10-year yields remained capped at 2.40%, the DXY index made a comeback from 88.190, fresh four year high. All G10 and EM currencies traded higher at first trading hours of the week. We have light US data flow this week, traders will monitor retail sales on Friday. We expect consolidation in USD.
In Australia, home loans retraced by 0.7% on month to September, investment lending expanded by 3.7%, the owner-occupied home value increased by 1.4%. AUD/USD remained capped at 0.8683 on soft Chinese data. The PM Abbott said AUD is at “more comfortable” levels after the recent fall and added that “the iron ore prices can go down, it can go up as well […] shouldn’t assume the price is stuck at $75 a ton”. The iron core delivered to China is heading towards $75 for the first time since 2009 amid largest weekly decline in five months over the last week. Deflationary fears in commodity markets should keep the pressures tight on AUD.
China’s trade surplus increased from 30.94 to 45.41 billion dollars in October, yet exports grew at slower pace of 11.6% on year to October (vs. 15.3% a month ago), the CPI remained unchanged at 1.6%, the PPI decelerated at faster pace of 2.2% (vs -2.0% exp. & -1.8% last) mostly due to falling oil prices. Data boosted dovish bets especially after the PBoC confirmed liquidity injection in 3Q in a report released last week. The Chinese stocks kick-started the week (Hang Seng +1.40, Shanghai’s Composite +2.30%), USD/CNY trades range-bound with offers trailing below 6.1250/6.1264 (optionality / Fib 38.2% on January-April rally). Bids abound at 6.10+.
USD/JPY opened at 114.52 and legged down to 113.87 on expectations that the PM Abe would proceed with the second round of sales tax hike in 2015. We see resistance at 114.90/115.00 (30d upper Bollinger band / psychological level), large vanilla bids dominate above 115.00 for today expiry.
EUR/USD consolidates post-Draghi losses below 1.2500 this Monday. Trend and momentum indicators are comfortably bearish, option barriers sit at 1.2475/1.2500/1.2550 for today expiry. Support zone has shifted to 1.2358/1.2415 (post-Draghi reaction low / 30-day lower Bollinger band). EUR/GBP offers remain solid at 0.7885/0.7925 (21&50-dma & option barriers).
The economic calendar of the day: Norwegian October CPI and PPI m/m & y/y, Italian September Industrial Production m/m & y/y, Canadian October Housing Starts, US October Labor Market Conditions Index.
Peter Rosenstreich – Head of Market Strategy:
“With major central banks still pushing to keep liquidity loose through balance sheet expansions, risky assets should remained buoyant in the near term. Yes, global growth faces challenges, as the US and China, both engine of expansion, face headwinds. Yet there is growth and despite warnings of geopolitical risk derailing the fragile recovery, this has not occurred. USD and US asset will remain in demand but don’t expected high-beta currencies to collapse. Investors are yield starved and will increasingly take an extra risk for a speck of return. In addition, should the US and UK backtrack from the urgency of tighten we could see a sudden reversal of capital flow back the much maligned EM FX segment.”
“In addition, in China, reports over the weekend showed solid export growth at 11.6% in October, illustrating that the negative sentiment around Chinese growth could change.”
Ipek Ozkardeskaya – Market Analyst:
“Soft Chinese CPI and PPI, combined to developing bear market in oil clearly hints at more easing from the PBoC. The PBoC has no reason to refrain from more liquidity injection given its macro fundamental situation. The USD/CNY trades soft above 6.10 support, we expect a bounce back toward 6.15 (Fib 50% on January – April rally) as the divergence between Fed/PBoC deepens.”
Luc Luyet, CIIA – Senior Market Analyst:
“Gold rose sharply on 7 November. Given the recent overextended decline, a short-term rebound seems likely. However, the longer term technical picture continues to favour further weakness towards the May 2010 low at $1045. Resistances to monitor for a resumption of the underlying decline can likely be found at $1194 (50% retracement of the October-November decline) and $1217 (30/10/2014 high).”
For the full Daily Snapshot report please visit: http://en.swissquote.com/fx/news-and-live-signals/daily-forex-analysis/2014/11/10
How has the online trading landscape changed in 2020?
By Dáire Ferguson, CEO, AvaTrade
This year has been all about change following the outbreak of coronavirus and the subsequent global economic downturn which has impacted nearly every aspect of personal and business life. The online trading world has been no exception to this change as volatility in the financial markets has soared.
Although the global markets have been on a rollercoaster for some time with various geopolitical tensions, the market swings that we have witnessed since March have undoubtedly been unlike anything seen before. While these are indeed challenging times, for the online trading community, the increased volatility has proven tempting for those looking to profit handsomely.
However, with the opportunity to make greater profits also comes the possibility to make a loss, so how has 2020 changed the online trading landscape and how can retail investors stay safe?
Interest rates offered by banks and other traditional forms of consumer investments have been uninspiring for some time, but with the current economic frailty, the Bank of England cut interest rates to an all-time low. This has left many people in search of more exciting and rewarding ways to grow their savings which is indeed something online trading can provide.
When the pandemic hit earlier this year, it was widely reported that user numbers for online trading rocketed due to disappointing savings rates but also because the enforced lockdown gave more people the time to learn a new skill and educate themselves on online trading.
A volatile market certainly offers great scope for profit and new sources of revenue for those that are savvy enough to put their convictions to the test. However, where people stand the chance to profit greatly from market volatility, there is also the possibility to make a loss, particularly for those that are new to online trading or who are still developing their understanding of the market.
The sharp rise in online trading over lockdown paired with this year’s unpredictable global economy has led to some financial losses, but with a number of risk management tools now available this does not necessarily have to be the case.
Protect your assets
Although not yet widely available across the retail market, risk management tools are slowly becoming more prevalent and being offered by online traders as an extra layer of security for those seeking to trade in riskier climates.
There are a range of options available for traders, but amongst the common tools are “take profit” orders in conjunction with “stop loss” orders. A take profit order is a type of limit order that specifies the exact price for traders to close out an open position for a profit, and if the price of the security does not reach the limit price, the take profit order will not be fulfilled. A stop loss order can limit the trader’s loss on a security position by buying or selling a stock when it reaches a certain price.
Take profit and stop loss orders are good for mitigating risk, but for those that are new to the game or who would prefer extra support, there are even some risk management tools, such as AvaProtect, that provide total protection against loss for a defined period. This means that if the market moves in the wrong direction than originally anticipated, traders can recoup their losses, minus the cost of taking out the protection.
Not a day has gone by this year without the news prompting a change in the financial markets. Until a cure for the coronavirus is discovered, we are unlikely to return to ‘normal’ and the global markets will continue to remain highly volatile. In addition, later this year we will witness one of the most critical US presidential elections in history and the UK’s transition period for Brexit will come to an end. The outcome of these events may well trigger further volatility.
Of course, this may also encourage more people to dip their toes into online trading for a chance to profit. As more people take an interest and sign up to online trading platforms, providers will certainly look to increase or improve the risk management tools on offer to try and keep new users on board, and this could spell a new era for the online trading world.
By Paddy Osborn, Academic Dean, London Academy of Trading
Whether you’re negotiating a business deal, playing a sport or trading financial markets, it’s vital that you have a plan. Top golfers will have a strategy to get around the course in the fewest number of shots possible, and without this plan, their score will undoubtedly be worse. It’s the same with trading. You can’t just open a trading account and trade off hunches and hopes. You need to create a structured and robust plan of attack. This will not only improve your profitability, but will also significantly reduce your stress levels during the decision-making process.
In my opinion, there are four stages to any trading strategy.
S – Set-up
T – Trigger
E – Execution
M – Management
Good trading performance STEMs from a structured trading process, so you should have one or more specific rules for each stage of this process.
Before executing any trades, you need to decide on your criteria for making your trading decisions. Should you base your trades off fundamental analysis, or maybe political news or macroeconomic data? If so, then you need to understand these subjects and how markets react to specific news events.
Alternatively, of course, there’s technical analysis, whereby you base your decisions off charts and previous price action, but again, you need a set of specific rules to enable you to trade with a consistent strategy. Many traders combine both fundamental and technical analysis to initiate their positions, which, I believe, has merit.
What needs to happen for you to say “Ah, this looks interesting! Here’s a potential trade.”? It may be a news event, a major macro data announcement (such as interest rates, employment data or inflation), or a chart level breakout. The key ingredient throughout is to fix specific and measurable rules (not rough guidelines that can be over-ridden on a whim with an emotional decision). For me, I may take a view on the potential direction of an asset (i.e. whether to be long or short) through fundamental analysis, but the actual execution of the trade is always technical, based off a very specific set of rules.
To take a simple example, let’s assume an asset has been trending higher, but has stopped at a certain price, let’s say 150. The chart is telling us that, although buyers are in long-term control, sellers are dominant at 150, willing to sell each time the price touches this level. However, the uptrend may still be in place, since each time the price pulls back from the 150 level, the selling is weaker and the price makes a higher short-term low. This clearly suggests that upward pressure remains, and there’s potential to profit from the uptrend if the price breaks higher.
Once you’ve found a potential new trade set-up, the next step is to decide when to pull the trigger on the trade. However, there are two steps to this process… finger on trigger, then pull the trigger to execute.
Continuing the example above, the trigger would be to buy if the price breaks above the resistance level at 150. This would indicate that the sellers at 150 have been exhausted, and the buyers have re-established control of the uptrend. Also, it is often the case that after pause in a trend such as this, the pent-up buying returns and the price surges higher. So the trigger for this trade is a breakout above 150.
We have a finger on the trigger, but now we need to decide when to squeeze it. What if the price touches 150.10 for 10 seconds only? Has our resistance level broken sufficiently to execute the trade? I’d say not, so you need to set rules to define exactly how far the price needs to break above 150 – or for how long it needs to stay above 150 – for you to execute the trade. You’re basically looking for sufficient evidence that the uptrend is continuing. Of course, the higher the price goes (or the longer it stays above 150), the more confident you can be that the breakout is valid, but the higher price you will need to pay. There’s no perfect solution to this decision, and it depends on many things, such as the amount of other supporting evidence that you have, your levels of aggression, and so on. The critical point here is to fix a set of specific rules and stick to those rules every time.
Good trade management can save a bad trade, while poor trade management can turn an excellent trade entry into a loser. I could talk for days about in-trade management, since there are many different methods you can use, but the essential ingredient for every trade is a stop loss. This is an order to exit your position for a loss if the market doesn’t perform as expected. By setting a stop loss, you can fix your maximum risk on a trade, which is essential to preserving your capital and managing your overall risk limits. Some traders set their stop loss and target levels and let the trade run to its conclusion, while others manage their trades more actively, trailing stop losses, taking interim profits, or even adding to winning positions. No matter how you decide to manage each trade, it must be the same every time, following a structured and robust process.
The final step in the process is to review every trade to see if you can learn anything, particularly from your losing trades. Are you sticking to your trading rules? Could you have done better? Should you have done the trade in the first place? Only by doing these reviews will you discover any patterns of errors in your trading, and hence be able to put them right. In this way, it’s possible to monitor the success of your strategy. If your trades are random and emotional, with lots of manual intervention, then there’s no fixed process for you to review. You also need to be honest with yourself, and face up to your bad decisions in order to learn from them.
In this way, using a structured and robust trading strategy, you’ll be able to develop your trading skills – and your profits – without the stress of a more random approach.
Economic recovery likely to prove a ‘stuttering’ affair
By Rupert Thompson, Chief Investment Officer at Kingswood
Equity markets continued their upward trend last week, with global equities gaining 1.2% in local currency terms. Beneath the surface, however, the recovery has been a choppy affair of late. China and the technology sector, the big outperformers year-to-date, retreated last week whereas the UK and Europe, the laggards so far this year, led the gains.
As for US equities, they have re-tested, but so far failed to break above, their post-Covid high in early June and their end-2019 level. The recent choppiness of markets is not that surprising given they are being buffeted by a whole series of conflicting forces.
Developments regarding Covid-19 as ever remain absolutely critical and it is a mixture of bad and good news at the moment. There have been reports of encouraging early trial results for a new treatment and potential vaccine but infection rates continue to climb in the US. Reopening has now been halted or reversed in states accounting for 80% of the population.
We are a long way away from a complete lockdown being re-imposed and these moves are not expected to throw the economy back into reverse. But they do emphasise that the economic recovery, not only in the US but also elsewhere, is likely to prove a ‘stuttering’ affair.
Indeed, the May GDP numbers in the UK undid some of the optimism which had been building recently. Rather than bouncing 5% m/m in May as had been expected, GDP rose a more meagre 1.8% and remains a massive 24.5% below its pre-Covid level in February.
Even in China, where the recovery is now well underway, there is room for some caution. GDP rose a larger than expected 11.5% q/q in the second quarter and regained all of its decline the previous quarter. However, the bounce back is being led by manufacturing and public sector investment, and the recovery in retail sales is proving much more hesitant.
China is not just a focus of attention at the moment because its economy is leading the global upturn but because of the increasing tensions with Hong Kong, the US and UK. UK telecoms companies have now been banned from using Huawei’s 5G equipment in the future and the US is talking of imposing restrictions on Tik Tok, the Chinese social media platform. While this escalation is not as yet a major problem, it is a potential source of market volatility and another, albeit as yet relatively small, unwelcome drag on the global economy.
Government support will be critical over coming months and longer if the global recovery is to be sustained. This week will be crucial in this respect for Europe and the US. The EU, at the time of writing, is still engaged in a marathon four-day summit, trying to reach an agreement on an economic recovery fund. As is almost always the case, a messy compromise will probably end up being hammered out.
An agreement will be positive but the difficulty in reaching it does highlight the underlying tensions in the EU which have far from gone away with the departure of the UK. Meanwhile in the US, the Democrats and Republicans will this week be engaged in their own battle over extending the government support schemes which would otherwise come to an end this month.
Most of these tensions and uncertainties are not going away any time soon. Markets face a choppy period over the summer and autumn with equities remaining at risk of a correction.
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