“The Good” – Gold has rode on the weakness of the Greenback, it rose more than 15% since the beginning of 2016. It is retracing back to 1,200 on profit taking. This year could be a good year to hold a long Gold position as long as Fed remains cautious towards tightening and/or delays their next rate hike to the last quarter of 2016. “The Bad” – Crude oil has made new low again, with the WTI hitting $26 per barrel and Brent below $28 per barrel. Inaction from oil producing countries to cut production and weakening global demand favoured the bears. Global demand is unlikely to pick up soon. The only “savior” is likely to be OPEC; will they don their shiny armor and come to the rescue of the damsel in distress?
“The Ugly” – Yen has fallen more than 1,000 pips from the high of 121.60 to 111. This happened within 2 weeks after BOJ made a historical move to adopt negative interest rate. The move was not enough to overcome the fact the Yen is still being perceived as the “safest” safe-haven currency in the world. Although the USDJPY found some support and bounced off from 111 to head towards 114, there are 3 possible reasons to back the Yen Bulls:
1. Further pushing back of Fed’s next rate hike
2. Further slow down in China
3. Weakness in Japan and Euro zone
The risk to taking a long Yen position is potential intervention by BOJ. History has shown us the effect of major BOJ interventions is usually short-lived, but such move could easily take out stop levels and may even result in significant losses caused by price gaps. On 11th Feb, we saw USDJPY spiking up 180 pips in less than 3 minutes, this was highly speculated as intervention by BOJ. There were no official comments from Japan to confirm it. The spike happened after the 111 level were breached briefly, which suggested to us the 110 and 111 levels could be thresholds for BOJ to step in.
China Shanghai Composite Index fell close to 2% at the opening after a week’s break from the Lunar New Year. The market did not celebrate the better-than-expected trade balance because the surplus was due to imports dropping far more than exports. Both imports and exports dropped by 18.8% and 11.2% respectively, which translate to weakening of both domestic and global demand.
There are not many major news or data releases this week that will potential turn things around. Further drop in diary prices may weaken the Kiwi, but weakness in the greenback should limit the impact. The Aussie is holding well on the back of China’s poor trade data, good employment data towards the end of this week could provide further boost to the Aussie dollar. UK is releasing their inflation; employment and retail sales figure this week. These could provide Cable fans some good reasons and opportunities to trade the market.
Top News This Week
UK: CPI y/y. Tuesday 16th February, 5.30pm.
We expect figures to remain unchanged at 0.2% (previous figure was 0.2%).
Australia: Employment Change. Thursday 18th February, 8.30am.
We expect figures to come in around 6.8K (previous figure was -1.0K).
US: Philly Fed Manufacturing Index. Thursday 18th February, 9.30pm.
We expect figures to come in around -2.8 (previous figure was -3.9).
Fullerton Markets Research Team
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