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

The Commodity Bloodbath

Ladies & Gentlemen,

As we begin to make sense of the shocking lows in Commodities across the board, we must turn our eyes onto the Macro picture to find reasoning for the short-term and also look to consider the worst-cases for the coming years.

The "Demand-Destruction" story begins in China. The Chinese Economy is slowing down and the demand for commodities forming from the Chinese manufacturing sector is also on it's way down south - with the fall led by Material/Energy companies in the Asia Pacific (falling this year circa 13%).    This Market slump has shown the World how strong the in-elasticity of demand on price from China actually is.

Key Chart 1

Copper is trading at 6-year lows (chart below) & Nickel (the biggest loser on the LME) is at 12-year lows.

Key Chart 2

$BHP & $RIO all fell yesterday to 10-year lows as producers continued to slump across the global equities amid the bloodbath. $BHP is now looking at the prospect of having its credit rating downgraded in the next 12 months in response to further possible falls in Iron Ore & Oil prices. 

Another major reason behind the Commodity-glut is due to the Market concerns about further USD strength, starting with the first hike in December. Countries who do not use the USD as their primary currency will feel further heat as their currency begins to weaken amid prospective USD rallies. This will then make is cheaper to produce and create further over-supplies!

Will OPEC do anything about the Over-Supply in Oil? Well, further to comments made by the Saudi's yesterday - they are keen to work with other OPEC countries in stabilizing the market - however the facts remain & there is no quick fix! We will find out more on Dec 4th, when the OPEC heads all get together.... Meanwhile, the Glut continues as people talk about the biggest decline since the fall of the Soviet Union.

Can we really find a bottom?.. Let's take it back a notch. If we look at some charts, we can see stability over the last few weeks. and it is important to remember that the Commodity business is extremely cash intensive and producers will not be looking to cut supply but rather costs. Major Commodity producers still need the revenue.

I personally think, the actual effect of this fall will truly depend on how fast the US Economy can accelerate & how long the FED Rate Hike cycle will last for.

Take out your 3D Glasses and watch the rest of 2015 unfold.

Best of luck

Anish8FX @Atom8.com www.atom8.com

The 2015 Oil Price Conundrum

Ladies & Gentlemen, 

Over the past year Oil has "started" its biggest price decline since the Financial Crisis. Today the price of Oil went below $40.00 and the Markets are currently sitting on this level (3 month low), to me - waiting only for the next break lower. This move lower was supported by yesterdays data from the US showing that Crude Stock Piles have been expanding for the past 8 weeks now. 

Here is where the trouble lies.. Demand is at record highs, especially from India and is expected to rise by 1 million barrels per day every year in this decade. But the issue is with Supply. The Supply-side is controlling the Market and it does not seem to be slowing! We have way too much Oil & OPEC led by Saudi Arabia have been more focused on targeting Market share, rather than price stability. 

How much Supply do we actually have? Well have a look at the Chart below and you can see from the "Surveillance Map" the Orange Line mapping out 530 km (about 3 billion barrels of oil). If you were to put these in Oil Tankers and line them up together, that is the route... From London to the south of Glasgow. 

Chart of the Day

Source : @JavierBias2

What about Geo-Politics? Well the Oil prices spiked up as an immediate reaction from the Paris attacks. To me, that could just be a panic trade and the Fundamentals are clearly running the Oil Market here. Syria, in reality is not a big Oil producer but is in the neighborhood. I think you would need to see a real Geo-political shock in a large Oil producing country to have a sustained effect on Oil Prices. 

Could we see $30? - Yes!  I think the markets will tick away to $30 during the course of 2016 and perhaps even lower into 2017. Ultimately, it is the refiners that buy the Crude Oil and if they are not making any money anymore... heading into winter... they want to keep their margins growing. They would definitely be in for a hard time for the next few years to come. 

As always, Trade smarter. 

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