Oil Crisis? Should We Now Buy Gold?

Ladies and Gentlemen

With a 17% fall in Oil since the start of 2016, the possibility of $20 oil becomes a real target for Investors, as we see major Hedge Funds exit the commodity.

Gold since August has been swung around in a tug of war, with Chinese equities on one side and a strong USD on the other. This pendulum has been relentless in the recent months, however with new lows in Oil prices, Gold continues to hold well in retaining it's safe haven status.

Gold has climbed 3.4% already in 2016 and investors risk aversion does not seem to be letting up. Geopolitical tensions persist in the Middle East and North Korea, as well as concerns about China's growth forecasts.  However, with a persistent strength in the USD forecasted for 2016, some analysts still call for sub $1,000 (per oz) Gold... as a "Competition for Gold" increases.

With Oil prices reeling from oversupply and Gold getting a small boost, Brent crude is now at the cheapest relative price in almost a generation.

Gold Vs Oil

But what is a "Safe-Haven"?   By Economic definition (as pointed out by James Steel, of HSBC) The Safe-haven inspired demand for Gold (and other precious metals) rests on the interconnection between  the state of the Gold Market and the Financial Markets of countries with long-term structural arguments for Gold accumulation (i.e. China and India) - and with this being said, HSBC forecast average Gold prices of $1,205 this year.

Mr Steel is looking more with a long-term view, as accumulations continue to rise. We always tend to think about Gold being a hedge on safety, however recently Gold has been more about uncertainty and a reflection of anxiety. Gold in a deflationary environment, may actually be likely to continue it's slide down.  2016 could well be the story of Central Bank delivery, especially as we are now risk-off as we strength in the Yen for example... but we hear nothing about the BOJ pushing back.

So Is Gold still a mark of uncertainty? Well the recent shocks coming from China did Send Gold immediately higher, which is reassuring to see.

I personally am long Gold, as I think it's safe-haven status will be the trend for 2016 but in the short-term we may remain bearish. I wish you all the best of luck with your Metals trading and as we all stay tuned to this theater of events in the World markets, I wish you safer trading.

Anish8Fx @ Atom8.com

The Day Ahead...

Good morning

The safe-havens were back in demand as the sentiment on the Asian markets remained soured, despite stabilizing China stock markets (currently holding small gains across the board). While lower oil prices and persistent Chinese economic slowdown worries continued to weigh on the commodities-currencies. The People's Bank of China continued to act on its intention to calm the yuan market today, squeezing offshore yuan shorts and keeping a steady fix, confounding those looking for further Yuan devaluation. Overnight Yuan HIBOR (Hong Kong Interbank Offered Rate - Offshore yuan borrowing rates) has jumped to a new record high of 66.82% from 13.4%.

The Japanese Yen has again benefited with USD/JPY despite a brief move towards 118.00 it has since reversed and is pushing towards 117.30 as I type. The Nikkei has been trading heavy as Japan return to work from their extended weekend, currently down -2.70% on the day.

Oil has been hit hard again as Asia sends Brent to a 12 year low and sees Hedge Funds starting to exit the commodity. Morgan Stanley warn that a strong US Dollar may send Brent down to as low as $20 a barrel.

The day ahead brings risk events for the British Pound. We have MoM Manufacturing and industrial production at 09:30 GMT followed by BOE’s Carney speaking this afternoon, although whether he can add any gems is to be seen. BoJ Governor Kuroda is also speaking at 10:30 GMT. But as ever this year the main focus will be all things China and the subsequent fallout.

Good luck.

First NFP of 2016.... "Risk On"!

Ladies and Gentlemen,

It has been a very busy start to the financial year, the stock markets have had a rough ride, the DAX is down 7% YTD and the S&P is below the pivotal 1990 level.

Risk off has been the theme in the FX market, until the correction overnight, has the sentiment turned ahead of the Non-Farm Payrolls?

The Non-Farm Payroll number will be announced at 13:30 GMT the consensus is for a 200k number following on from 211k in December, keep a keen eye out for the unemployment rate which is currently 5% and the average earnings increase, which is released at the same time. Reference to wage inflation and levels of employment where mentioned at the ‘Lift off’ press conference.

Why is this number so important? The market is trying to work out the pace of rate hikes in 2016, it is important to remember that the FED only has 8 meeting in a year. Will the hiking cycle be gradual or more aggressive? Fed Chair Yellen mentioned at her press conference that ‘future policy actions will obviously depend on how the economy evolves’ stressing that unemployment and inflation figures are factors that guide the Fed in arriving at rate hike decisions.

The Federal Reserve official publish their forecasts for the central bank’s key interest rate on a chart known as the ‘dot plot’. The dots has 4 hikes whereas Fed funds only has 3 who will be correct?

This year has already been touted as the year of ‘Doom Gloom and lack of Boom’, and i am looking forward to more positive 2016.

Good Luck

The FX Stories of 2015

Ladies and Gentlemen,

As the year comes to a close here, I would like to reflect on the performance of all the major currencies.

This is a good opportunity to look at the best and worst performers of 2015 against the USD.

Returns ag $	2015
Brazilian Real	-31.22%
South African Rand	-24.95%
Canadian Dollar	-16.21%
Norwegian Krone	-14.86%
Mexican Peso	-14.70%
New Zealand Dollar	-12.01%
Australian Dollar	-10.91%
Euro	-9.64%
British Pound	-4.89%
Japanese Yen	-0.57%
Swiss Franc	0.30%

The worst performer has been the Brazilian Real, will this change as Rio hosts the Olympics in 2016?

The best performer has been CHF, is this desired by the SNB?

There is a lot to think about and I  would like to take this opportunity to thank you for your business and wish you a healthy, happy and prosperous 2016.

Kind regards

 Anish S. Lal 

The 2015 FED Finale!

Ladies and Gentlemen,

Countdown to ‘Lift Off’ begins.

Tomorrow interest rates are going to rise in the US for the first time since June 2006.

To put this into perspective a high percentage of my esteemed colleagues have never seen a US rate rise in their careers, sadly I have.

In recent weeks the term ‘Dovish Tightening’ has been talked about in the media. The US economy is close to full employment, the time is right for a quarter-point rise and has been telegraphed to the market. The Fed does not want to shock the market and undermine it credibility. The impact on the economy, the dollar and the markets will be closely monitored.

Investors we will be paying particular attention to the communique trying to ascertain when the next hike will come after this month’s increase. How many hikes will there be in 2016, the range is anywhere from 2-4 and 67 basis points is priced into the one year market. This is in stark contrast to the other major central banks of the world. Will the message be ‘gradualism’ or ‘commitment’ to future rate hikes? Commitment is a very hawkish signal whilst gradualism is more of the data dependant approach. The gradualism camp will be looking for language suggesting that rates will remain below normal levels for some time to come. Any reference to ‘Equilibrium real rate’ the rate of interest compatible with full employment and stable inflation underpins the gradual approach.

The $ index has been under pressure during December, the gradualist approach is believed to be favoured by Janet Yellen, we opened the month above 100 and are now close to the 100 day and 200 day moving average at 96.90 and 96.72 respectively, going into this major event risk these support levels are very pivotal.

No matter what the outcome there is going to be a lot of activity into the year end and believe the festive period will be busier than normal.

It is not the holiday season yet.

Good Luck

Commodities Decay Boosting The USD - How Do I Trade This?

Ladies & Gentlemen,

This Commodity bloodbath continues with Oil falling below $40 and Iron Ore posting 2009 lows- The Mining Sector is feeling the heat today, with $BHP and $RIO posting losses of 5-6%.

Investors are now questioning how long could this slump actually last for? Will we be able to pick a bottom? Will Geo-Politics & Inflationary pressure continue to threaten the Economy? Will Chinese Demand pick up?... We edge closer to the FED meeting on December 17th for the next Market Correction/Continuation?

There is really no let-up in the onslaught of Commodities and these fears have been fairly priced into the FX landscape. The current commodity collapse we are seeing around the world is a big factor for FX Traders, especially when we focus on the "Commodity-Block" currencies : AUDUSD, NZDUSD, CADUSD & NOKSEK.

The Aussie Dollar short is an extremely interesting trade to look at, especially as Iron Ore is the biggest export from Australia - we find the AUDUSD trading above 72 cents and some could look at this level as being overvalued, especially against a resurgent USD.  This is my top trade for this month :

Will we ever see what the Real Economy looks like? What about the inflation story? .. As a start, we have to look at the FED & the BOE, both expecting to hike and Investors through the course of 2015 have been continuously disappointed waiting for the hike. However, we are now getting clearer guidance of a December Hike from FED members and I don't think it will derail the FED tightening cycle but what it may do now... is put more pressure on other Central Banks to ease further, like the ECB & the "Commodity Block" Banks, like the RBA, RBC...etc.

The USD dynamics are dominating other currencies and Policy divergences created from easing derived from the FED disappointment... The USD only looks to further drive the next few years and investors are slowly migrating towards this train of thought, rather than trading the Euro or Yen weakness as a primary mover.

So will the USD continue to rally? - Yes... Certainly, yes! I think we will see parity by Q3 2016. Will there be more from Draghi? Well, potentially also yes! He will probably look to work his way through his monetary policy toolbook - battling inflation. Eurozone growth is actually ok, but inflation is the key problem and if Inflation expectations continue to remain low (helped by lower Oil prices) this will put more pressure on Draghi to do something more.

Best of luck guys!

Anish8FX@Atom8.com

Draghi's ECB Dilemma

Ladies and Gentlemen,

Tomorrow, Thursday 3^rd December at 12.45 GMT the ECB make a rate announcement and then at 13:30 GMT hold a press conference.

These events are eagerly anticipated as changes to both ECB policy and the Inflation outlook are expected.

On the Policy front the changes that could take place to interest rates are outlined below:-

(Source Bloomberg)

	Consensus	Prior	Low	High
Deposit Finance Rate	-0.30%	-0.20%	-0.45%	-0.20%
Refinancing Rate	0.05%	0.05%	0.00%	0.05%
Marginal Lending facility	0.30%	0.30%	0.10%	0.40%

On the Quantitative Easing front the options are:-

• 1)      Size extension, a larger amount each month.
• 2)      Time extension, buying the same amount for a longer period.
• 3)      Both of the above

Now that the Policy options have been set out, let’s look at the inflation outlook. Presently 11 member countries have negative CPI inflation these are Cyprus, Estonia, Finland, Germany, Greece, Ireland, Latvia, Lithuania, Slovakia, Slovenia, and Spain. We would like to draw your attention to a recent Mario Draghi Statement “we will do what we must to raise inflation as quickly as possible.” Recent concerns are that households have started to adopt a disinflationary mind-set and this is clearly something that policymakers want to avoid.

As you can see there are a lot of possibility and there has been a lot of speculation. Reuters put out an article on the 25^th November detailing a “two tiered” depo rate as a policy option. At the October Meeting Mario Draghi made it very clear that the degree of monetary policy accommodation would need to be reassessed in December, this statement was further backed up in a speech he made on 20^th November “If the General Council conclude that the balance of risks to our medium term price stability objective is skewed to the downside we will act by using all the instruments available within our mandate”. Reiterating that the asset purchase programme is powerful and flexible instrument that can be adjusted in terms of size, composition or duration to achieve a more expansionary stance.

In the Q&A session Draghi indicated that a further cut to the depo rate was one of the measures for consideration.

I continue to believe that Mario Draghi will maintain his bearish stance and the there is a possibility of further forward guidance and the distinct possibility of a rate cut and more QE, we prefer to sell rallies in EUR/USD and would like to highlight the divergence in rhetoric from the ECB compared to the Federal Reserve. Other recent bearish EUR stories include the reduction in weightings that EUR holds in the new IMF Special Drawing Requirements (SDR). This is a session that should be closely watched.

Good Luck 

Anish8FX