The Day Ahead 25/05/2016

Good morning,

Asian shares fell to near 10-week lows on Tuesday as a stubbornly strong yen dragged Tokyo into the red while falling oil prices deflated energy shares.  With few fresh catalysts to drive sentiment, investors eye the start of Thursdays G7 summit in Japan with the sputtering global economy a key topic on the agenda during the 2 day meeting, while worries over a possible US interest rate hike by the Federal Reserve as early as next month again took hold.  Adding to the US central bank's hawkish signals last week that a June US rate raise could be on the cards, a prominent Fed board member weighed in with comments that suggested markets could be behind the curve on the Fed's intentions. Since raising rates in December for the first time in nine years, the US central bank in March forecast essentially two rate rises for this year, but markets have had much lower expectations amid a batch of lack lustre US economic data. However, James Bullard, president of the St. Louis Fed and a voting member of the policy-setting Federal Open Market Committee, said in a speech on Monday in Beijing that US labour market and inflation data suggested the Fed's projection "may be more nearly correct".  The Nikkei trades down 0.73%, Shanghai  -0.77%, Hang Seng -0.55% and the ASX -0.1%.

In the FX space the Aussie dollar extended loses below the 0.7200 handle against the US dollar as RBA Governor Stevens reinforced his pledge to combat lower inflation levels by deploying appropriate monetary policy framework, and thereby justifying his May rate cut stance. The kiwi dollar also fell overnight as the bears took control as a classic risk-off sentiment gripped the markets with the US dollar paring some of its recent loses and the yen holding onto gains.

Gold extends its losing streak into a fifth-day this Tuesday as US dollar strength weighs on the yellow metal capping any effort to the upside. Having posted session highs of $1252.35 it quickly fell to lows of $1244 and has looked vulnerable since. Oil dipped for a second day as comments from Iranian officials vowing to keep production up did little to dispel worries about global oversupply. WTI and Brent trade $47.90 and $48.11 respectively.

So to the day ahead and this week’s first tier data release is German ZEW Economic Sentiment Indicator (1000 BST).  Economic activity accelerated in Europe’s biggest economy in May, according to yesterday’s survey data from Markit Economics. The firm’s composite purchasing managers’ index for Germany ticked up to 54.7 in this month’s flash estimate – a five-month high and the first improvement so for in 2016. Whilst the PMI data is encouraging a closer look still leaves room for caution. Today’s update in Germany’s financial sector will provide more context for assessing the May macro profile. The last two reports reveal a modest rebound in expectations, but the firmer outlook for the future was accompanied by an ongoing slide in the current reading of economic conditions.

UK Inflation Report Hearing (1000 BST)  With exactly one month left to go before the UK holds a referendum that will decide whether or not it stays in the European Union, the British pound has generally remained resilient in the face of substantial downside risk to the currency that would very likely result from a successful “Brexit” vote. Aside from the Brexit issue, last week saw mixed data out of the UK, including a lower-than-expected inflation reading in the form of the Consumer Price Index, and better-than-expected numbers for average earnings, unemployment claims, and retail sales. Expect plenty of trading opportunities from todays lengthy hearing.

US New Home Sales (1500 BST) The combination of job growth and low interest rates have dispensed a bullish edge for the housing market so far this year. Some indicators have been choppy at times, but sentiment in the home building industry remains upbeat. Last week’s numbers on existing home sales look promising too. Transactions edged higher in April for the third month in a row, sticking close to the highest level since the recession ended. Today’s update on newly built houses is expected to bring good news as well as the market looking for a gain that will push sales up to 523,000 for April (seasonally adjusted annual rate).

Good luck

Anish S. Lal – VP Sales

FX & Precious Metals, Atom8 Financial Services LLP

2nd Floor, Centenary House, Palliser Road, London W14 9EQ, UK

T: +44(0)20 3405 3910 | M: +44 (0)7983701816 | anish.lal@atom8.com | www.atom8.com

Risk Warning

Trading on margin (spread betting, CFDs and FX) carries a high level of risk and may not be suitable for all investors.  The high degree of leverage can work against you as well as for you.  Before deciding to trade your live account, you should carefully consider your investment objectives, level of experience and risk appetite.  You could lose more than your initial investment and should not trade with funds you cannot afford to lose.  You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

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

The Future Is Bright - The Future Is Silver!

Ladies & Gentlemen, 

As we tick closer to "Lift-Off" from the FED, the Precious Metals continue to remain cursed by the USD bulls. But what will happen after the initial FED fiasco? Will the Markets quickly learn to appreciate reality of US Debt? Will investors flock into the Metals?... I'm not too sure, but I do make a good case to stay long Silver (XAGUSD) for the next 5-10 years. 

Commissioned from Mr. Hague (SocGen), he has created a propriety model on measuring a move in the commodities in relation to Macro factors, the Strength of the USD, Interest Rates & Market Fundamental (Variables) & from his analysis, it is clear that Fundamentals have taken a back-seat over the past 12 months. The Macro variables are the driving force behind the Markets, covering the environment for Risk Attitude, the Volatility Index & Equities.... This is what (according to Mr. Hague) is moving Silver (chart below): 

Over the past 2-3 years, Silver has been trading more like Gold & recent moves have been primarily driven by the strong USD and all-round been a strong head-wind for the Metals.  With Silver being 60% Demand driven, more for Industrial uses (mainly Electronics).. we begin to see Silver evolve from a Precious Metal to a Base Metal. 

The long-term outlook for Silver is bright, and a big part could be due to the anticipated exponential use of Solar. According to the IEA's growth forecasts (on a mass scale) over the next 5-years, they would be using nearly 1 Billion ounces of Silver! 

This bodes very well for Investors looking at today's chart, as you finally have (after 12-13 years) Silver Supply declining, especially when you think about the 2011 peak. The longer term Demand sets to pick up and it looks to be setting itself up for a Constructive move. 

Silver is absolutely everywhere! In your computers, in your phones... & as Emerging Market demand picks up over the next 10 years for Electronics, only naturally should this Market increase in value. 

So Anish, how do you see the Market shaping for the end of the year?... Well there is not much left for this year as we remain merciful to the FED's hiking plans but I do expect Fundamentals adding more promise to the Metals market in the Longer term & hope to prove the doubters wrong, as I am personally a big fan of Silver. 

Best of Luck

Anish8FX @ Atom8.Com 

How To Make A Camel Vomit Gold

Ladies and Gentlemen, 

Has Gold lost it's shine? Gold traded near a 5-year low as investors continued to short bullion-backed equities pricing in expectations for the US to increase interest rates this year, further Rusting the Metals Market. 

Gold is heading for a thirds year on year decline as investors now brace themselves for a first interest rate increase since 2006 and according to the "theory" - Higher Rates = Less competitive metals. But Why? It is simple, as the Metals offer no dividend, hence investors naturally flock to other assets that pay interest or offer dividends.

Can we head below $1000?
(Figure Below) Source : CNBC

What is now known as the "Vomiting Camel" (from the formation of the two humps [yearly highs]) - we now have the camel resting on a rhombus, indicating that a break below current levels =  free-fall! 

The Splat Zone indicated on the char signals towards the $700-$800 for possible areas that Gold could fall into post December hikes. 

But what about Central Banks, The Russians & Chinese - are they still buying? - Yes! Gold purchasing (And Demand) is at record highs, as both Russia and China still maintain a policy to hedge against their currency & they will probably remain net buyers. China for example, added an extra 14 tons in October. 

So what happened to Economics? Well, we have to remember that XAU is backed by the USD and experts point to a "Bear-Market" cycle driven by the FED. But in my view, if we do see a hit of $700-$800 we could see a spark in the bulls.

Absolutely a fascinating time to be watching the markets. 

Trade Smarter,

Anish8FX@Atom8.com

Will 2016 Mark The Fall Of The Emerging Markets?

Ladies & Gentlemen, 

Brace yourself for a complete change in dynamics for 2016 and of course, the FED hiking cycle will become the catalyst. 

So should I still stay long the USD in 2016? Well in theory - Yes! In practice however, as the FED raises interest rates the USD will strengthen but these persistent increases (during the proposed cycle) will worry investors - especially for companies with Overseas Investment & for Industrial corporates (with the continued decline of commodities). It could be very expensive! 

A stronger USD now becomes a touchy situation. Mainly because the majority of Emerging Market Countries hold USD debt and this puts a stranglehold on the USD rallies. The probabilities of larger outflows from Countries like China, India is likely and will be the epicentre of pressure. It will be interesting to see how these Push/Pull Economic factors react next year.. Will it help their continued debt? 

The stage for 2016 has been set. 

China is an almost perfect author to this story. With recent trade numbers declining (6.9% yoy) and a staggering 18.8% decline in imports - Other Asian nations who once so heavily relied on China could now look elsewhere.  As the commodity boom slows, the GDP growth required for China to maintain its growth pattern could also fall off the charts! Instead we see a Global Deflationary Threat.

How will the USD react to each FED Rate Hike? - Looking at the past 11 Rate Cycles and in particular more recently when the FED moved from neutral to tightening, the USD fell 7% and to tell the way the USD could react now - one would have to look at the yield curves. Whenever it has been steep (and right now it is steep) it falls over double digits! But again, that would also depend on the forecasted tightening cycle... but really how long could it be? 

What about the Equity Markets? You want to be really focusing on Industrial, Tech & Energy stocks, because they will benefit from the inflationary cycle of the US Economy. But really does the public trust equities anymore? There are currently huge disparities in the major US indexes as during the past 5 years the Public have not really put any money into the equities, it has all been primarily driven by the FED & a lot of these position builders could effectively price in the first hike. 

Next stop... December 17. 

Trade Smarter
Anish8FX @ Atom8.com 

The "Long $" Play Over The Medium Term

Ladies and Gentlemen,

Tomorrow at 13:30 GMT we get the October Non-Farm Payroll number, the September figure was a disappointing 142k. A bounce to 182k is the Bloomberg survey consensus.

The FOMC members believe the chance of ‘lift off’ in December is still ‘live’, needing a reason not to hike is the new sentiment.

Tomorrow will give us further insight into the decision making process on 16^th December.

The Fed has maintained that the appropriate time to raise rates is when the sustained improvement in the labour market is attained, combined with confidence that inflation will move back to its 2% target over the medium term. These are the exact words from the press on 28^th October ‘the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate’. The dual mandate of Fed has been talked about in previous Event Risk updates.

I see the divergence in Central Bank policy as an opportunity to express ‘Long $’ plays over the medium term.

$/Jpy sits above the 200 day moving average at 121.10 and just below the 100 day moving average at 121.70, a daily close above 122 will see momentum accounts add to existing long positions. The first Friday of the month is always interesting.

Good Luck

Anish8FX @Atom8.Com

Could Monetary Policy Divergence cause EURUSD to hit parity by December?

Ladies & Gentlemen, 

We have heard it over and over again & now it is crunch time, where Economic theories come into practice and the Markets click to the tune of the Central Bank Announcements. 

Here is what ING predicted at the start of 2015 and low & behold how the year has turned out to map  the below 

Over the last 12 months the Markets have remained bearish and the EURUSD has fallen from 1.40 to 1.05.. but why?  And the concept is pretty simple to understand, as the FED stop QE at the same time of the ECB continuing their QE policies. This is known in the Markets as a "Divergence in Monetary Policy" and as the Markets price in their expectations of a FED non-hike, the divergence is set to continue... Implicating parity and if not parity, then sub 1.00. 

Vamvakidis, head of G10 Strategy at Bank Of America calls for EURUSD to hit parity by December 15 and also the USDJPY to hit 125. 

What needs to happen for EUR parity? Well, in order for this prediction to hold - the divergence needs to move further. If we get more QE by the ECB in December and the FED does not hike (which is very ikely) we could easily see parity. But the FED hike is a matter of time and could be as early as Jan 2016. The equilibrium of the EURUSD cross is around 1.15, however, the Euro zone still has a significantly large Output Gap compared to the US & if the ECB announces an "open ended" (or Infinity based QE) - that could stir up a recipe for disaster - as the Bears would then look to push down to 0.75. 

How do I trade these markets? Volatility remains high and it is mainly the bears driving the markets, supported by the facts pushed from Central Bank data this month. Looking at the bigger picture, the FED will eventually look to hike rates but more than likely, it will not be until next year - even though Domestic data has improved in the US, I would not expect anything significant this week. Keep your eyes on the data A balance between Domestic Developments & External Developments is key for the FEDs decision & once we do see the hike... the bad news will hit hard & remain bad news! 

Can I Jump on The Karoda Vs Draghi Trade? The international expectation is for more BOJ easing and if you look at the currently inflation rate in Japan, the BOJ should actually be doing more. The USDJPY currently is not that strong, either not that weak. However, it would be ideal to remain long the volatility as no matter what happens USDJPY will move! 

I wish you the best of luck with your Trades & hope you keep your fingers on the right side of your mouse triggers! 

Anish @ Atom8.com 

Gold : A Mastermind of the "Break-Out" - $1300 by 2016?

Ladies and Gentlemen

The precious yellow metal is back in the spot light after forming a pretty dull range so far this year between $1200.00 / $1100.00 and the outlook has remained bearish. However, this has all changed in the past few days as the October Bull awakens to the more uncertain Economic landscape, especially breathing from the US & from increased Geo-political action (The Ruski's in particular)!

Gold (XAUUSD.v) is showing strength above 1170 (formed yesterday) and all my indicators are pointing towards a further bull offensive. The commodity must continue to trade & hold above it's broker resistance (turned support) at 1170 to really create more scope for strength heading into the final months of 2016.  On the other click, if you remain a bear in this market - support comes in more at the 1165 level, where a break down to 1150.00 will really slam the brakes again on the metal. Me personally, I am hoping for a break of 1200 as I really do miss the days of huge Gold daily volume.

fig: Atom8 MT4 Terminal

How high could we go?  After breaking a "key resistance" level, the investor sentiment is more positive and will probably attempt to push it to a high for year-end. Gold is now trading above it's 200-day MA for the first time since May & prices could be further buoyed by (what is now expected to be) weaker US data & that the FED are now looking to raise rates next year.

A call for above 1200.00 could be realistic by December and I would not be surprised if we even saw a move to the $1,300 mark - as volume for Metals expect to be double by next year (source : mining.com).

Best of luck Traders,

Anish @ Atom8.com

The FOMC Countdown To Take-Off!

Ladies and Gentlemen,

Today the Federal Open Markets Committee begins a two day meeting in Washington, concluding with an announcement at 19:00 on 17^th September, followed by a press conference chaired by Janet Yellen. The stakes are high and the global financial markets wait with bated breath.

The members have a tough decision to make, should they raise rates for the first time since June 2006?

Larry Summer, the 71^st Secretary of the Treasury for President Clinton and Director of the National Economic Council for President Obama has stated in his blog that in the last 20 years the Fed has never tightened without guiding the futures market to at least a 70 percent chance of a tightening. Right now the Fed Funds futures market is assigning only a 28 percent chance of a September tightening.

There is a more centrist view, held by John Williams the San Francisco Fed President that low interest rates are sending out the wrong signal. They indicate that a crisis going on, when reality is very different. The labour markets have improved the economy is getting back on track and the correct signal is to raise rates. However the recent turbulence may make the members cautious.

What options are available? Do they raise rates and say they will not do so again until the inflation mandate is meet or do they continue to be data dependent and give further hints as to when lift off will happen.

We believe the press conference will give us a larger clue as to the normalisation process and prefer to be long volatility as the Fed seeks to explain how it’s mandate of maximum employment, stable prices and moderate long term interest rates will be achieved.

Best of luck

Anish S. Lal @anish8fx

FX & Precious Metals, Atom8 Financial Services LLP

2nd Floor, Centenary House, Palliser Road, London W14 9EQ, UK

T: +44(0)20 3405 3910 | M: +44 (0)7983701816 | anish.lal@atom8.com | www.atom8.com

Risk Warning

Trading on margin (spread betting, CFDs and FX) carries a high level of risk and may not be suitable for all investors.  The high degree of leverage can work against you as well as for you.  Before deciding to trade your live account, you should carefully consider your investment objectives, level of experience and risk appetite.  You could lose more than your initial investment and should not trade with funds you cannot afford to lose.  You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

Event - The "Atomic" August NFP - What to expect?

Ladies and Gentlemen,

Today at 13.30 BST we have a plethora of data from the US, as we are all aware the Fed is “Data Dependent”.

13.30     Non-Farm Payrolls          

Average Hourly earnings

Unemployment Rate

Labor Force participant rate

The Non-Farm Payroll number will be where we look first. The market consensus is 225k. The barometer appears to be 200k with a weaker number suggesting that a rate rise in September will be off the table, whilst a strong number will make the voting members of the Federal Reserve do some soul searching.

Fed Funds has 19 basis points priced into the September Contract, 32 basis points priced in December Contract and a year from now it has 70 basis points,will this change?

The minutes of the last meeting teased the market with the word ‘some’, stating that the FED would like to see “some improvements” in data before raising rates

Dennis Lockhart, the Atlanta Fed President, a dove, said that it would take a significant deterioration in the data not to move in September.

We eagerly await the data dependent sequence…

Good Luck

Anish S. Lal @anish8fx

FX & Precious Metals, Atom8 Financial Services LLP

2nd Floor, Centenary House, Palliser Road, London W14 9EQ, UK

T: +44(0)20 3405 3910 | M: +44 (0)7983701816 | anish.lal@atom8.com | www.atom8.com

FED : Risk Event or Non-Risk Event?

Ladies and Gentlemen,

 Today the two day Federal Reserve meetings start. Chairwoman Janet Yellen is not holding a press conference and updated economic projections will not be released. This meeting is dismissed as a ‘non-event’, however the statement will be released at 19:00 BST and should be digested quickly just in case it is an ‘event’. Look out for the following:-

•       Rates on hold, the last rate hike was in 2006, a hint might be given by tweaking their description of the economy.

•           The Fed has a dual mandate, both employment and stable prices.  An upbeat assessment of the job market whilst energy prices have weakened could signal lift-off.

•           The last five Fed Policy Statements have been approved by a 10-0 vote, will this unanimity last forever? Jeffrey Lacker, Richmond Fed President, is seen as the possible dissenter

If this is a non-event we have to wait until September 17 for our next guidance

Good Luck

Anish S. Lal @anish8fx

FX & Precious Metals, Atom8 Financial Services LLP

2nd Floor, Centenary House, Palliser Road, London W14 9EQ, UK

T: +44(0)20 3405 3910 | M: +44 (0)7983701816 | anish.lal@atom8.com | www.atom8.com

Risk Warning

Trading on margin (spread betting, CFDs and FX) carries a high level of risk and may not be suitable for all investors.  The high degree of leverage can work against you as well as for you.  Before deciding to trade your live account, you should carefully consider your investment objectives, level of experience and risk appetite.  You could lose more than your initial investment and should not trade with funds you cannot afford to lose.  You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.