The day ahead 26 May 2016

Good morning,

Asia stocks were mixed on Thursday following a rally during the previous session, but energy firms were mostly up after oil surged past $50 a barrel for the first time this year. Investors seemed to brush off another strong lead from Wall Street and Europe, treading softly as the Group of Seven leaders' summit kicked off in Japan, where the sputtering global economy is likely to top the agenda. The Nikkei is up 0.5%, the ASX +0.3% with Shanghai and the Hang Seng down 0.97% and 0.41% respectively.

The yen surged on Thursday, taking some of the wind out of the sails of the recently buoyant dollar and prompting investors to cover positions against a backdrop of potential event risks, including a speech by Federal Reserve chief Janet Yellen. A sudden spike in the yen in relatively illiquid conditions triggered stop-loss orders and brought the Japanese currency as low as 109.42 against the US dollar from a session high of 110.235. Japanese Finance Minister Taro Aso said on Wednesday that he told his G7 counterparts at a finance leaders' meeting last week that Japan will raise the tax as planned. But he did not say whether that meant Japan has officially pledged to the international community that it will go ahead with the increase.

The Aussie dollar was also a mover overnight as Q1 capex came in well below expectations (-5.2% v -3.2% exp), the initial move lower on the headline (0.7162 vs US dollar) then saw the Aussie rally back through the 0.72 handle as the full details were digested. Elsewhere the US dollar has been on the back foot throughout the session as risk trades are again prominent.

Having bottomed out near $1218 region during Wednesdays trading, gold staged a solid comeback overnight on the back of profit-taking after the recent weakness. The bullion finally brought an end to its six-day losing streak rising to highs of $1234.35 before consolidating around the $1230 handle.

Brent crude passed $50 a barrel for the first time in 2016 on Thursday after data showed a fall in US crude inventories, adding to expectations of a tightening global market. Markets are now eyeing a June 2 meeting of the Organization of the Petroleum Exporting Countries in Vienna where it is hoped a deal on reducing production can be reached. WTI currently sits at $49.88 and Brent $50.10.

So to the day ahead and first up we have UK Second Estimate GDP (0900 BST). The markets had their first look at GDP figures for Q1 with the release of Preliminary GDP in April, which showed a gain of 0.3%. This was short of the estimate of 0.5%. Little change is expected in the Second Estimate GDP release, with a forecast of 0.4% which is in line with the macroeconomic figures released lately.

US: Durable Goods Orders (1330 BST) Manufacturing appears to be recovering from its recent recession, but the preliminary numbers for May via survey data suggest otherwise. Markit’s purchasing managers’ index revealed that output fell this month for the first time more than six years. The hard data for April, however, is expected to deliver brighter news, albeit in terms of a one-month lag relative to the latest PMI update with headline orders for durable goods rising for a second month in a row, which hasn’t happened since last summer.

US: Initial Jobless Claims (1330 BST) New filings for unemployment benefits fell a hefty 16,000 to a seasonally adjusted 278,000 for the second week of May. The decline is the first weekly slide since mid-April. The question is whether the recent surge in claims will continue in today’s release. Although last week’s report offered an encouraging change of pace, it’s always risky to reason from one number with the volatile claims data. A second weekly decline, however, will offer a more reassuring message. The crowd will be looking at today’s claims data to help decide if the PMI warning is noise or an early sign of trouble for the labour market.

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 Day Ahead 23 May 2016

Good morning,

Asian shares rose on Monday following Friday’s solid session on Wall Street, while the dollar moved away from recent highs though remained supported as investors bet that the U.S. Federal Reserve was on track to raise rates sooner rather than later. However, the  Nikkei extended losses, slipping 0.6% on worrying economic data and reports that Japan's sales tax increase would proceed as planned. Data released before the open showed Japan's exports tumbled 10.% in April from a year earlier, in line with expectations but down for a seventh straight month, reflecting sluggish demand from China and emerging markets. Imports also fell sharply, which in turn boosted the country's trade surplus above expectations. On top of this  Japan’s Flash Manufacturing PMI showed activity contracted at the fastest pace in more than three years in May as new orders  slumped.  China’s Shanghai is up 0.5%, The Hang Seng 0.66%, whilst the ASX trades 0.19% lower.

In FX Space the US dollar fell against the safe haven yen after Tokyo's threat to intervene to tame its resurgent currency faced criticism at the G7 ministers' meeting. Japan last intervened in currency markets around November 2011, when it tried to stem the yen's rise against the greenback to keep an economic recovery on track after the quake-tsunami disaster earlier that year. In a statement which presented a clear rebuff to Tokyo, the G7 group "underscored the importance of all countries refraining from competitive devaluation". A stronger yen hurts Japanese exporters, a key driver of the world's third largest economy, by making their products relatively more expensive overseas. Elsewhere the start of the week brought a session of consolidation for currencies with pairs trading within tight ranges as the market awaits fresh inspiration.

Gold has halted a 3 day slide and trades higher at $1255 whilst Oil slipped on both sides of the Atlantic as investors locked in profits after a second week of gains. WTI currently sits at $48.15 and Brent $48.53.

So to the day ahead and the week kicks off with a host of PMI reading from the Eurozone. Manufacturing and Services PMIs (0900 BST) Sentiment data for manufacturing has been firming in recent months while the comparable numbers for services remains steady, albeit modestly below levels in 2015. Taken together, these results suggest that Europe will hold on to a growth bias in the second quarter. The trend may tick lower relative to the first quarter's relatively robust 0.5% rise in GDP (quarter over quarter rate). But for the moment, the economic outlook for Europe in the second quarter remains in the plus column. Yet there’s also hints that the trend is slowing so today’s flash data on PMIs for May will provide fresh guidance on Europe’s macro trend at the mid-point for the second quarter.

US Manufacturing PMI (1445 BST) Manufacturing activity in the US expanded in April, but just barely, according to two national sentiment benchmarks. In a rare case of unity, both the ISM Manufacturing Index and Markit’s PMI settled at 50.8 in April — just above the neutral 50 mark that separates growth from contraction. Two early clues for May, via last week’s releases from regional Fed banks, point to weakness for this month. The New York Fed’s Empire State index fell sharply for the May reading, sliding to negative 9 — a dramatic reversal after April’s positive 9 value. The Philly Fed’s regional benchmark for manufacturing in May was also in negative territory. The market consensus calls for a rise in the Manufacturing PMI to 51.0 for May vs. 50.8 in the previous month. Better, but a reminder that the manufacturing trend remains shaky at best.

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.

CALLS FROM THE TRADING FLOOR - BUY GOLD!

Ladies & Gentlemen

After a four-year slide, the price of Gold has nowhere to go but higher and many investors are starting to agree. The case for the "safe-haven" was further assured today, as China's manufacturing data showed a contraction.

For the majority of the Commodity markets, January was another bad month in a long bear-market cycle - apart from Gold. Gold rallied 5% in Jan, the best monthly gain in a year.  

Turmoil in Chinese markets (with the view of a potential Global Sell-Off), Oil price uncertainties and a slowing US growth has tickled Investors demand for the traditional safe-haven asset. Again, their remains a high chance the FED will hold off on further interest rate rises this year adds to the attraction for the yellow metal. 

There is really no sign of a re-surge in inflation and this has also been a large factor to Golds rise and this relationship goes back to the 1980's. However, what is interesting is that through the last 12 month Gold slide, we have had China, Russia and India continuing to purchase Gold (about 55% more in 2015) - but then why did not this affect the Price? It seems investors are more focused on Financial Assets & The state of the US Economy rather than Countries Gold holdings. 

James Cordier, CEO of a US based Options firm said "With stock markets looking to crash all over the worlds and the US economy growing slowly, nothing is pointing to rate hikes and that is why Gold will continue to rally" . 

However, as mentioned in posts prior - it is important to note that Gold does not pay a coupon like other competing assets, although the price elasticity (over the last 5 years) seems to have drawn Investors (especially Central Banks, like China, Russia and India) towards the Bullion. 

For the coming weeks, months / Central bankers like Kuroda and Draghi have key speeches scheduled (as well as NFP this week) which could further spur the rally in Gold as the consensus is for further tightening and talks of Negative interest rates and more uncertainty.  

As always, Trade Smarter

Anish @Anish8Fx 

This Amazing Week So Far...

Good morning

The rout returned on the global stock markets, with the Asian equities mirroring the sharp declines seen on the Wall Street overnight. A classic risk-off sentiment prevailed in Asia this Thursday amid falling equities and oil prices, despite another neutral Chinese yuan fix today failing to calm markets. Safe-havens benefited the most, with the Japanese yen emerging the top performer, while the CHF, EUR and gold posted modest gains. The dollar-yen pair now attempts recovery around 117.50 levels, having found strong support near 117.30 region. While the upside in EUR/USD remains capped by 1.09 handle, and gold prices gains for the second day in a row and trades around $ 1093, unable to extend beyond 1095 levels. The Australian Dollar showed a tepid response against the US Dollar after December’s employment report crossed the wires. Australia lost 1k employees compared to the -10k forecast. This was the most amount of jobs lost over the course of one month since April 2015.

Multiple bomb and gun attacks in the Indonesian capital of Jakarta sent the rupiah and the Indonesian stock market lower.

A quiet start to the day data wise with the BOE’s ‘Super Thursday’ likely to grab a lot of attention. The BOE will publish its minutes and the asset purchase target, although no major surprises are expected from the British central bank. The policy makers are expected to vote 8-1 in favour of keeping rate unadjusted at record low of 0.50% as also the asset purchases program unchanged. While the ECB monetary policy account of the Dec 3 meeting will be also published. Moving on towards this afternoons session, Canada’s housing prices index will be on tap while from the US, unemployment claims and import prices index will be published. Initial jobless claims are expected to remain largely unchanged at 275,000 during the week ending January 9, following a figure of 277,000 booked previously. 

12:00 GMT  UK BOE Official Bank rate and minutes

13:30 GMT US Unemployment claims

Good luck

What To Expect At $20 Oil?

Ladies and Gentlemen

As we saw Oil dip below $30 per barrel yesterday, we have seen somewhat of an overnight reprieve in the Oil trading sessions of Asia and Europe. However,  it is very hard to find reasons to be optimistic in current conditions, especially with the over-supply and concerns about China growth. The pain low Oil prices has so far caused for Oil investors and Oil producing countries may just be a taste of things to come as we head to $20 per barrel. 

We are now confronting $20 Oil and the likelihood is fairly great. Clearly Oil markets cannot maintain these prices (below $30) for very long and the question is for how much longer?  The Gulf Economies as well as other Oil producing countries are suffering immensely, such as Malaysia - who are losing $68 million for every $1 decline in the price of Oil. Oil producers too.. EconocoPhillips - losing $2 billion for ever $10 decline and yesterday Petrobras announcing it is lopping $30 billion of it's 5-year spending plan... Hours late, BP announces that they would slash 4,000 jobs. 

If there is some sort of optimistic note to leave you on and that was last year China (2nd largest consumer of Oil) imported a record amount of Crude, but that was simply taking advantage of low prices... and if/when prices go up they can start taking advantage of their huge stockpiles. 

$20 oil just acts to dig an even deeper hole from where you need to be before the markets look to open up again! 

Best of luck guys! 

Anish8FX @Atom8.com

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

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

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 

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 

Still Holding My Gold Shorts

Ladies and Gentlemen, 

The Gold Market has been subject to huge downward pressures amid the timing of the FED's rate hike decisions. Gold now again hovers at 1-month lows, coming of the back of the biggest 4-day losing streak since September 2013 - falling 5 consecutive quarters. 


But even with soaring demand from Asia, why are the Markets so reliant on the FED decision? Well if the FED do increase rates, nobody wants stock hold bonds, because they will pay lower coupons than newer bonds... and turning to Gold - that asset pays no Coupon at all! The more hawkish the FED remain, the worse the impact on the Gold price. Not forgetting that Gold is still priced against USD.  

This close relationship was marked again today by this mornings rally to $1120 and was completely sold off and there are even more headwinds/failures in recent breaks to the upside. $1075 was the recent bottom and this is not far our of reach. I don't think we will see a reversal anytime soon to the upside. 

Figure below from Atom8's MT4 Terminal (XAUUSD.v) - Gold Staying Down 

When will we see a reveral? Here's hoping Ms Yellen gives some more indication tonight about future direction of the Hiking Cycle. Perhaps all that is needed for the Metals is some clarity, then we can move on & up! Theoretically, the FED could continue to hike rates up to infinity and that would cause USD weakness. Given historical trends, Gold could remain the preferred safe-haven asset & may well return back to $1400-1500 in the next few years. 

Best of Luck
Anish8FX @ Atom8.com 

The Saudi Spending Phenomenon - Will It Ever Stop?

Ladies & Gentlemen,

All Market eyes have been eyeing up Oil Prices, some are calling a further slump in 2016 and others are a bit more optimistic (seeking the $50 mark). However, with these lower prices, how has the World's biggest Oil player reacted & will it really hurt the Saudi Economy?

You would of actually never of guessed there to be an Oil slump from the shine of the Saudi economy and that is no accident, it is Saudi (well-planned) policies in action. The wealth from the Oil revenues has been shared and the public have firmly supported the Al Saud family, even as turmoil beckons on the horizon.

The IMF predicts that within 5 years, the Kingdom will run out of Financial Assets... But is that really true (raised eyebrow)? In theory, if they continue to spend at the rate they are & Oil prices remain low, then yes! However, they currently stand at a (Positive) 100% net cash : GDP ratio & if you look at a Country like Japan, who's net:GDP is -200%, I begin to differ with the IMF. Saudi literally are operating with no debt.

figure : Bloomberg source

Can this be protected for the Future? What if Oil prices continue to fall? I think you will start to see Saudi Arabia slowly decrease their heavy military contracts & begin opening their Economy up to foreign investment, by way of issuing Government debt or opening investment into Saudi stocks. More recently, the Saudi government to pull in about $70bn from Equity markets to begin adding more liquidity within their own markets -  "Welcome world to the Tadawul".

We could also see (like Qatar) a higher increase in Western Property purchases... Again another indication for potentially more spending.

Saudi issuing Debt? Really? How friendly would that be? Honestly speaking (ok - be careful here Anish #whips...) The country has been caged about opening it's Markets to the World and if done, would be extremely gradual, as they drift away from traditions. Most Governments generally support their Economy, by way of tax receipts.
However, over the past 3-4 decades, Saudi has been funded with Oil receipts.

Reality Check.. Oil still costs $3 to get out of the ground and with current production levels, Saudi are still generating $300-400bn from Oil revenues alone (at least)!

It looks like the Saudi powerhouse is only going to get stronger, especially as Investors from around Asia flock in. The next 5-10 years will be critical for the Kingdom, to really impose its strength as the World's largest Economy, alongside China.

Trade Smarter & Best of Luck for the week ahead.

Best wishes
Anish @ Atom8FX

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 

Central Bank Rule on Settlement Day

Good morning,

Central bank activity will dominate the headlines today

We have the three central banks making rates decisions, will they all remain unchanged?

08:30 GMT          Swedish Riksbank Rate Decision. Rates expected unchanged at -0.35%

18:00 GMT          US FOMC Expected to keep rates on hold at +0.25%

20:00 GMT          New Zealand RBNZ expected to keep rates on hold at +2.75%

We also have the Swedish Monetary Policy report at 08:30

It is also important to note that there is no press conference following the release from the Fed

Away from central bank activity we have 

07:45 GMT          French Oct Consumer Confidence expected unchanged at 97.0

09:00 GMT          Italian Oct Consumer Confidence. Exp 112.2 after 112.7 previously

                                Italian Oct Business Confidence. Exp 103.9 after 104.2 previously

As it is spot settlement month end I expect it to be a busy day for many reasons.

Have great day

The Vicious Cycle Of Oil

Ladies & Gentlemen

Oil once more trades at a near 2-month low and as vicious as it has been, the oil price collapsing cycle does not look to be over just yet. However, large institutions and Central Banks further seek a longer period of stability, especially in the eyes of the Bond Markets.

The US are still heavily over-supplied and refineries continue to close down, due to mounting costs  from a alack of productivity. The big players are still looking at holding sub $50 and hedging their risk with the Futures Markets... These "players" may be the ones the Central Banks turn to in the near future to assist in the un-cuffing of this downward spiral.

OPEC have been heavily pressured by Venezuela (Country with the World's largest known Oil reserves) to do something about the Oil price and have been supported by one of Africa's biggest Oil producer, Algeria. Contrary to views from the Gulf who are welcoming the lower prices, seeing it as a chance to reform & these contrast of views continue to bear onto a larger Geo-Political issue. But how big is this issue?

Saudi Arabia, the world's largest Oil mover has been doing things recently, that in the last 30 years have been unimaginable ;
1. Withdrawing money from overseas;
2. Delaying contract payments; and
3. Taxing lands.

So how does the Market quantify these issues?.. Let's pause for a second and cast our mind backs to mid 2007 when the Oil price hit $145.00 per barrel and the Gulf generated more money that they knew what to do with & the fact remains that Saudi's Debt:GDP ratio is still less than 2% and in the next 10 years is estimated to stay below 7%... The main Gulf states could actually live comfortably for several years from these revenues built.  So contrary to the "Geo-Politics" - Investors are more focused on the supply-side issues and may be more keen to ignore the political nature surrounding the MENA regions.

Storage is still reaching tank-tops and if this trend continues, we may see for the first time in 20 years - oil investments declining for two consecutive years and this may be an indication for future oil markets.. as they look to continue their downward spiral.

Optimists still seek a bottoming level - looking at Iran supplies for next year to help boost $60+ for 2017 (perhaps a fascinating new dynamic for the near future), however the fundamentalists outlook is further lower to find a strong re balance in the market.

Best of luck

Anish

"Hold your Oil Shorts" Calls from the Floor

Ladies & Gentlemen 

As our eyes turn to the weekend - the volatile weekly Oil market draws to a close after a neat 10% slide on the back of further global supply gluts. 

From my post labelled "Crude Oil - A Bargain Hunt" the larger oil producing nations are looking at the $50 mark as the benchmark heading into 2016. However, the institutions & techies are looking at $50 as a perfect opportunity to remain short. 

So how are the Traders actually clicking? Well.. the more short-term clickers are looking at more downside targets, however some trading puritans would argue about the risk:retun. Although, as i Look at the chart & price action this morning, you can see that the market is heavily gripped by short covers. 

 Hence the phrase "if I can scoop a small profit I will take my money and run" in my original post. 

Looking at a first target of $46.90 and would target ever 5 cent fall beneath this level.  Tempted to leave this short open for the rest of the day heading into early next week - especially after 4 days of straight decline. WTI is set to make its steepest weekly loss in 10 weeks and Brent in 8 weeks. The Market is expected to remain heavily over-supplied heading into 2016 & sadly for the Oil companies - The Facts do not lie! 

Some Oil optimists are hoping that Shale production forecasts are on the decline, as output is geared towards a fall in November and also data from the EIA showed gasoline stocks falling by 2.6 mio barrels per week. 

Best of luck with your positions 

AnishFX @ Atom8.com 

Will the USA run out of cash by November?

Good Morning,

The overnight news was New Zealand’s inflation surprised marginally to the upside and US Treasury secretary Jacob Lew suggests  the US government will exhaust its emergency cash-management measures by November 3 and risks running out of cash if Congress doesn't raise the federal borrowing limit. Today’s data is 

10:00     Eurozone Trade Balance

                Eurozone CPI

13:30     Canadian Manufacturing Sales for August

14:15     Industrial Production for September

Capacity Utilization for September

15:00     University of Michigan Sentiment, Current Conditions and Expectations

On the speaking front we have we have BoJ’s Kuroda speaking at national Credit Union Association in Japan. BoE’s Forbes speaks at the `Brighton Chamber of Commerce on ’Growing your business in a Global Economy’ and ECB’s Coeure speaks in Berlin titled “Towards a Progressive Europe”

There are large 1.15 Eur/$ expiries and 120s in $/Jpy

Have a great week end

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

Why is the SAB Miller Merger so important?

Ladies & Gentlemen 

As a "bonus" add-on to the Roller-Coaster of the FX related piece, it is also important to note what the merger means for this now Super-Mega corporate. 

Employees of SAB Miller are bracing themselves for thousands of job losses around the world post the InBev SA takeover, with a renowned reputation for cost-cutting and apart of the deal was to shrink SAB's 69,000-strong workforce. 

The deal is valued at around £70 billion making it the fourth highest-value takeover of all time.