23 / 04 / 2018 | Market News

Fundamental Analysis 23.04.2018 – Market Outlook

Market Recap

US Treasury Secretary Steven Mnuchin said he’s considering going to China to discuss trade and said he’s “cautiously optimistic” of reaching an agreement. China’s Ministry of Commerce Zhong Shan on Sunday 22nd of April 2018 said it’s aware that the US is considering a visit and welcomes such a move. Steven Mnuchin is considered more of a free-trade proponent than many others in the administration, so the fact that he would be involved in the negotiations indicates a more conciliatory approach. 

USD may also be getting some support from higher US Treasury yields. Yields were higher by 3-5bp across the curve despite the selloff in stocks as the strong correlation between rising equities and rising yields in the first two weeks of April 2018 has started to weaken. The 2yr, 5yr and 10yr yields all hit new 2018 highs on Friday 20th of April 2018. As a result, the US 10-year Treasury spreads vs Bunds and Gilts hit their widest levels in at least 25 years.

  

Markets remains convinced that that Treasury yields will continue to rise faster than yields in other markets, because US growth and inflation will outpace other countries and the Federal Reserve System (Fed) will be more aggressive than other central banks as a result. It’s notable that the Fed has dismissed the recent weakening of global Purchasing Manager Index (PMIs) (see below) and likely softer growth in Q1 as transitory, while the European Central Bank (ECB) and Bank of England have expressed concern that the growth cycle may have peaked at the same time as inflation has disappointed in both countries. Compounding the issue is the fact that the widening US budget deficit is expected to push up the supply of Treasuries even as the administration admonishes foreign central banks not to buy them!

Let us look at how the CAD is doing. After getting hit earlier this week when the Bank of Canada revised up its estimate of potential growth, Friday’s 20th of April 2018 economic indicators retail sales and core Consumer Price Index (CPI) came in weaker than expected. Positioning in CAD isn’t yet extreme so there’s plenty more room for this to run if the news continues negative. Watch out for tonight’s testimony by Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins to the House of Commons’ Standing Committee on Finance (see below).

Commitment of Traders report

Speculators increased their long EUR positions, long GBP and long NZD. Meanwhile, they went even shorter USD overall. They are now the longest they’ve been in EUR and shortest they’ve been in USD for at least five years. 

The “long inflation trade” also got longer as speculators added to WTI longs and UST shorts. 

Speculators added to their short CHF positions, but there’s still a lot of room to go there before they are anywhere near full.

On the other hand, speculators did start to reverse their gold and silver positions. They aren’t yet shorting gold and buying silver instead, but they are buying more silver than gold. As a result the gold/silver ratio fell to 80.83 from 81.37. Over the last five years, the average ratio has been more like 70.8, which at the current price of gold would means silver at $18.87 an ounce instead of around $17.12. 

Today’s market

The big event today will be the preliminary purchasing managers’ indices (PMIs) for France, Germany, the EU as a whole and the US.

Looking at last month’s PMIs, the overwhelming impression globally is one of decelerating expansion. Most countries are in the fourth quadrant, which is for PMIs above 50 (hence showing expansion) but lower than three months ago. It may also be significant that the only countries in contraction were in Asia, and both have seen significant appreciation of their currency in recent months. This may be a harbinger of what the new US trade policies are going to bring to the world.

This month’s figures are expected to be similar. All the PMIs coming out today are expected to be lower, with the exception of the US service-sector PMI, which is forecast to be one tic higher. That would be depressing except that they are at such high levels already, particularly the German and EU-wide manufacturing PMIs.

That might suggest that the market should be indifferent to a decline in the PMIs, particularly in Europe. And yet we must remember that the ECB repeats at every meeting that “Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand.”

The Chicago Federal Reserve System (Fed) national activity index (CFNAI) is different from the other regional fed indices. It’s designed to gauge overall economic activity and related inflationary pressure on a national basis, not regional. It’s comprised of 85 existing monthly indicators of national economic activity. A positive index reading corresponds to growth above trend and a negative index reading corresponds to growth below trend. Although the components have all been previously announced, the indicator is one of the more closely watched among those issued by the various regional Feds.

The index is expected to slow a bit in March 2018. This would be consistent with what the market expects for Friday’s 27th of April 2018 1Q GDP figure:  2.0% SAAR, down from 2.9% in Q4 2017. If the forecast for today’s figure is correct, the CFNAI will slow to an average of 0.39 in Q1 from 0.46 in Q4, indicating a continued expansion but just not quite as strong a one as in the previous quarter. This should be neutral for USD.

US existing home sales rebounded in February 2018 after two months of large declines. The market expects a further recovery for March 2018, especially as pending home sales were up in the previous month. Nonetheless, another month of increase could be positive for the dollar.

Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins testify on monetary policy to the House of Commons’ Standing Committee on Finance. They will be grilled on last Wednesday’s 18th of April 2018 Monetary Policy Report. The Bank was more optimistic on the prospects for the global economy, but is naturally still cautious about the possible impact of trade conflicts (aka NAFTA negotiations) and geopolitical risks. The aspect that gripped the market the most however was the upgrade to the Bank’s estimate of Canada’s potential economic growth rate (0.4 ppt over the next two years). That implies the economy has more room to grow than previously thought before inflationary pressures emerge. Hence less need to raise rates early = lower CAD.

Overnight Australia announces its consumer price index (CPI). The weighted median is expected to fall back from 2.0% to 1.9%, below the target range. In other words, core inflation is outside the bottom of the RBA’s target band. Meanwhile, housing price are expected to moderate during the year and there’s still downward pressure on consumer goods, meaning there’s little impending pressure on core inflation either. The result could be further negative about the RBA ever raising rates again (the market prices in only a 32% chance of a rate hike this year) and some AUD weakness, depending of course on what happens with metal prices – that’s probably a more important near-term factor.



The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance

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23 / 04 / 2018 | Market News

3 mistakes to avoid when stock markets fall

The stock market or else the equity market refers to the collection of markets and exchanges in which stocks, bonds and other types of securities are issued and traded through formal exchanges or over-the-counter markets. The stock market is the place where investors and firms meet. Investors scan the market for new investing opportunities while companies put an effort to become more attractive in order to gain access to new capital to be used in business. 

The equity market has its good periods and bad periods, nicknamed by traders “bullish” and “bearish” respectively. When the stock market is “bullish” stock, bond and other securities’ prices increase, while the exact opposite happens when the stock market is “bearish”. The transition between these periods takes time which can be months or years. The market itself goes through phases which, according to economists, are cyclical. 

For sure, everyone would prefer to invest in a “bullish” stock market. Some investors, who like the adrenaline and taking risks, buy securities in times that the market is down, trying to make a profit from a potential stock market move upwards. However, there are some mistakes that should be avoided by investors when the market is losing value. 

Fixation

Investors are buying shares in a certain price. The purchase of shares has as a goal to make profit when their prices increase. In the case of a market that moves against the investor’s plans, it is probable that the price of a share will go lower, erasing the profit achieved in the previous time period. This is the point that fixation on a share’s price starts to cause problem. 

Investors tend to fixate on a price because they want to believe that their stock purchases were done in the right and realistic price in terms of market standards. However, this is not always accurate as the price of a stock may not reflect the fair value of the share. Investors should be ready to examine why the price of the stock they own falls without staying fixated on their vision. This way, investors can plan their moves and change their strategies accordingly. 

Ignoring Market Updates

One of the big mistakes that investors do sometimes is not being well informed about the market updates and the global political and economic developments. Other times, although investors are getting the information, they prefer to ignore it because they think it’s not accurate or because of being over confident. 

Investors should be seeking to get all the news updates that could prove useful when arranging their investment strategies. While the influx of information may be puzzling for some of them, the ability to filter it and use it in the right way could transform a strategy. The financial media such as Bloomberg, CNBC and the Financial Times provide thorough information on investments and firms across the world. Staying updated regarding news from the financial world can be an asset and not a disadvantage.

Overdiversifying Your Portfolio

Diversification of your portfolio is used as a countermeasure in case of potential market downturns. This method works since the existence of shares, bonds and other types of securities in an investment portfolio helps investors minimise the risk of losing all their invested funds when the market starts to fall. 

A common mistake for investors occurs when they diversify their portfolio by buying shares of various firms belonging, however, in the same financial sector. For example, buying shares from 4 firms of the tech sector is not the correct way to diversify a portfolio because there have been times in recent stock market history that prices of shares in specific sectors collapsed, as for example during the Dot Com crash in 2001.

STO and Investo

Our consolidated experience in portfolio management helped us develop a specific investment strategy for STO clients called “Investo”. “Investo” is designed to accommodate the needs of every potential investor, seeking to bring more possibilities for positive returns. 

Trading Forex and CFDs (Contracts For Difference), which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.
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20 / 04 / 2018 | Market News

3 common problems that beginner traders should overcome

Trading has evolved in recent years as technological developments have made a great impact, changing radically the way markets and traders operate. Traders have access to markets across the world by using their mobile devices and broadband connections while new, more complex, financial products have been invented and have taken a share of the global daily trading. 

Although the modern trader has many more tools at his disposal to design and execute the desired trading strategy than a trader, for example in the 1980s, things have not changed that much in the core of trading. Trading remains an activity that involves money and requires from the trader to analyze the available options and proceed in doing the right moves to multiply profits. Although the available trading options are increasing, the difficulties around trading remain, especially when new traders are involved. In this article you will read about some of the difficulties that traders face in their first steps.

Confusion 

Most new traders are getting confused about which financial instruments they should trade. The overwhelming amount of information that traders are receiving daily from their brokers or media could be a double-edged sword. Learning about the developments in global markets regarding foreign exchange (forex), indices, commodities keep traders updated, but it could also work the other way around as they may not be able to process the quantity of information, and this is leading to confusion.

Reading and learning about complicated trading techniques, chart patterns and trends may be interesting as pieces of information but could disorientate a trader and make him lose his target. The solution to this problem is to prioritise which aspects of trading a trader would like to master and find the suitable educational courses. Then, the trader will be able to expand his knowledge on specific trading sectors that could help him increase the possibilities of making the right trading moves.

Great Expectations

One of the most common misconceptions is that traders become very rich quickly. Media have played a role in that by promoting the “rich and successful trader” concept which might not be correct. However, reality differs from the way that media depict the world of trading. A lot of people who start to trade are under the impression that every trading move may be successful and that they might increase their income very quickly. 

Beginner traders will find out that reality doesn’t meet their expectations. They should know that, in the beginning, it’s quite unlikely that their first trading moves will prove fruitful and they should be prepared to take losses without being discouraged. Unfortunately, the image of the trader who becomes rich in his first days at work isn’t consistent with reality. One piece of advice that experienced traders share in their interviews is that beginners should take small steps and try at first just to apply their prepared trading strategy without setting their goals too high. 

Wrong Actions In A Trade

Trading requires speed, instinct as well as relative experience when it’s available. Experience is one of those things that can’t be bought. Especially in the world of trading, gaining experience may come with a cost as every mistake could result to a loss of funds. The lack of experience leads beginners to take the wrong decisions, although they may be well prepared, from an educational perspective, to enter the trading markets. 

Traders should be ready to take immediate action when an opportunity presents itself. When this happens, the stress increases as an inexperienced trader may have second thoughts delaying an action or may act faster than needed. Knowing when to close a trade, placing a stop-loss order and other similar actions can be puzzling for new traders, leading to stressful situations and influencing their behavior.  

STO Trading Educational Courses

For traders who would like to avoid getting themselves in problematic situations, STO has prepared comprehensive educational courses for all levels of traders. Courses are divided into 3 major categories which are Beginner, Advanced and Masters. Thanks to STO’s educational courses, the trader is able to design the strategy which he finds suitable and overcome the various challenges he encounters while trading.

Trading Forex and CFDs (Contracts For Difference), which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.

 
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19 / 04 / 2018 | Market News

Fundamental Analysis 19.04.2018 – Market Outlook

Market Recap

AUD continued to gain. Aluminum and nickel jumped as the market worried about the impact of US sanctions against United Company Rusal, a major Russian exporter. Australia is seen as benefiting from the sanctions as it’s an alternative source of these metals. As the graph shows, the correlation between AUD/USD and base metals prices is long-standing and close. 

Also, iron ore soared 5.3% after BHP Billiton lowered its annual output target because of some technical issues with equipment. That may have helped AUD as well.

On the other hand, GBP fell after UK inflation missed estimates. Consumer Price Index (CPI) growth slowed to 2.5% yoy from 2.7% (it was expected to remain at 2.7%) while core CPI slowed to 2.3% yoy from 2.4%. Coming after Tuesday’s 17th of April 2018 slower-than-expected rise in average earnings, the figure cemented the view that the Bank of England is likely to hike rates only once this year. Politics is also conspiring against GBP after the House of Lords defeated the government in a key Brexit vote by insisting that ministers negotiate a new customs union with the EU, something that Prime Minister Theresa May has refused to do. They also went against the government by voting to limit the government’s ability to unilaterally change employment, consumers and environmental rules after Brexit. Having hit a post-Brexit high recently on optimism about Brexit and a focus on monetary policy --- maybe the path isn’t going to be a smooth as some in the market had thought. This could be negative for GBP.

CAD also came under pressure as the market interpreted the Bank of Canada’s (BOC) statement and BoC Governor Stephen Poloz’ comments to be more dovish than expected. Comments like “escalating geopolitical and trade conflicts risk undermining the global expansion” and mention of “upward revisions to estimates of potential output growth” made people think that the BoC wasn’t likely to hike as much as had previously been expected. The probability of three hikes this year diminished and two increased (slightly). 

Today’s market

UK retail sales come in two sizes:  with and without gasoline (petrol). Both are expected to be lower this month. In fact, the figure including gasoline is expected to be low, down again for the third month out of four, partly because of bad weather. The yoy rate is expected to accelerate slightly, but still remain far below what it was a year ago. Sluggish retail sales in Britain probably reflects the continued pressure on household incomes as real pay gets squeezed. As you may have noticed this week, the 2.8% yoy rise in pay is only slightly higher than the 2.5% yoy rise in consumer prices, meaning that real incomes are hardly rising at all. Combined with tightening on consumer credit, this is starting to have a negative effect on consumption. This could be negative for GBP. 

There are three Federal Reserve System (Fed) speakers today.

Federal Reserve System (Fed) Governor Lael Brainard will speak on regulatory reform at the 2018 Global Finance Forum in Washington. Brainard recently raised the idea of using the countercyclical capital buffer (CCyB), a new, as-yet unused policy tool in the Fed’s toolbox, to restrain bank lending. If the Fed did decide to do so, it would mean less need to raise interest rates to tighten financial conditions. That would be negative for the dollar. Fed Governor Randal Quarles, Vice Chairman for Banking Supervision, doesn’t seem to have mentioned the idea.

Fed Governor Randal Quarles speaks again, his third speech in a row.

Cleveland Fed President Loretta Mester will discuss the outlook for the economy and policy. She’s on the hawkish side, but her most recent statement could have been made by almost any Federal Open Market Committee (FOMC) member. She said at the end of March 2018 that “If the economy evolves as I anticipate, I believe further gradual increases in interest rates will be appropriate this year and next year.” One thing to watch out for:  her research department recently put out a report on the countercyclical capital buffer that Governor Brainard has been talking about.

The Philadelphia Fed index is expected to be slightly lower but still at a level signifying substantial expansion. It’s expected to fall to 21.0 from 22.3, but considering that the average over the last 20 years has been 6.83, that still indicates a healthy economy. By comparison, Monday’s 16th of April 2018 Empire State index missed expectations, falling to 15.8 from 22.5 (18.4 expected). If today’s Philadelphia Fed index comes in as expected and falls only modestly, that could be positive for USD.

Overnight we get Japan’s national Consumer Price Index CPI. This month the headline rate of inflation is expected to slow notably, in line with the Tokyo headline CPI, but the core measure is forecast to remain at the same yoy rate of increase. No change in core inflation, no change in policy. This could be neutral for JPY.

 
The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.

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19 / 04 / 2018 | Market News

Traders and price action trading

Trading involves the transfer of goods and services from one person or entity to another. Trading has changed a lot in the course of history. The first trades, according to archaeologists, happened in prehistoric times as people tried to cover their needs with exchanging goods. The invention of currency later made trading easier and changed the trading environment forever. 

In recent years, the quantity of offered financial products has significantly increased. Their nature also has become more complex. Products such as derivatives, which are financial securities with values that are reliant upon an underlying asset or group of assets, have become popular among traders who believe that they might make a profit from them. However, trading leveraged financial products involves risks which every trader should be informed about. 

Although trading has become a speedy procedure with the evolution of technology and the introduction of the internet, some of the tactics and strategies that traders use to execute their strategies have stayed, more or less, the same for centuries. While this may sound an exaggeration to you, this article will give you some basic information on price action trading which was recorded for the first time back in the 18th century. 

Price action trading

Price action trading is a method for speculating on financial markets which consists of the analysis of price movement across time. Traders are using analysis based on price action data in order to forecast the future movement of a financial product’s price. Traders base their plans on these predictions and execute their strategies accordingly. Price action trading is one of the most popular strategies used in the markets, despite the fact that is rather old when compared to other ones.

How does it differentiate from other trading strategies?

Price action trading has a vital difference when compared with other trading strategies. Price action traders look primarily at the market’s price history while ignoring the fundamental factors that could alter a price movement. Economists suggest that price action trading includes one of the purest forms of technical analysis because it focuses on the correlation of a market price with its history, remaining unaffected by other available economic data. 

Most times, price action traders are keen on studying the prices of a security or a currency for the last 3 to 6 months to forecast its future movement. Sometimes analysts are referring to price action trading as “clean chart trading” as decisions are made based on simple price charts. Traders who prefer price action trading note that price action reflects all the factors that could affect a market which means that there is no use in analyzing every factor separately, losing time and creating confusion. 

The history of price action trading

The first record of price action trading that we have comes from the 18th century Japan. The pioneer was Munehisa Homma, a rice trader who traded in the Dojima rice market in Osaka. Homma had the idea of recording the price movements in the rice market. Everyday he was recording the price of rice in the beginning of the day, the highest and the lowest level during the day and the closing price at night. 

Studying the price movements, Munehisa Homma discovered that there were patterns and signals that were repeated on price charts. In order to categorise them, he gave them names and that’s how some of the most popular Japanese candlestick patterns that traders still use today were named. Making accurate forecasts based on the patterns that he discovered, Munehisa Homma was successful in taking the right decisions and made vast profits from trading in the rice market, making him one of the richest people in Japan. 

Trading with STO

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Trading Forex and CFDs (Contracts For Difference), which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.
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18 / 04 / 2018 | Market News

Fundamental Analysis 18.04.2018 – Market Outlook

Market Recap

CHF was the outlier over the last 24 hours. The two “safe haven” currencies seem to be responding assymetricaly to risk:  the “risk off” environment pushed JPY up more than CHF, but the “risk on” seems to be pushing CHF down more than JPY. Following the news that CIA Director Mike Pompeo secretly met with North Korea's leader Kim Jong Un, which should lower the tension in Asia considerably and therefore affect JPY more than CHF. 

Meanwhile, it’s likely that the Swiss National Bank (SNB) will wait until well after the European Central Bank (ECB) has moved rates before it decides to go along too. “We don’t want to provoke an appreciation of the Swiss Franc,” said SNB President Thomas Jordan last Saturday 14th of April. EUR/CHF hit a high of 1.1975 overnight, almost returning to the 1.20 floor that the SNB had set for the pair. However, remember that this is the minimum that the SNB wanted to see. Indeed, Jordan said that normalization of monetary policy elsewhere “would be advantageous for Switzerland and the SNB and open a certain room for maneuver. 

The SNB is no longer intervening heavily to depreciate the CHF, as you can see from the lack of any major intervention recently (the green line). Thus the recent decline in CHF is probably attributable to market factors, not market manipulation.

GBP was slightly weaker after yesterday’s Tuesday 18th of April disappointing average earnings figure – it was expected to accelerate to +3.0% yoy from +2.8% yoy, but instead remained at +2.8%. -- regular pay growth (excluding bonuses) did accelerate as expected to 2.8% yoy from 2.6%, meaning pay is finally rising faster than inflation (+2.7% yoy), while the unemployment rate fell to a new 40-year low and indeed below the Bank of England’s estimate of equilibrium unemployment (4.25%). Nevertheless, the odds of two rate hikes this year decreased and the odds of just one rose, leading to a weaker pound. Today’s Consumer Price Index (CPI) figures however could change the outlook (see below). 

Today’s market

Two big events today:  the Bank of Canada interest rate decision, and the press conference following Japan Prime Ministers Shinzo Abe’s second day of meetings with US President Donald Trump.

Not much is expected out of the Bank of Canada meeting. There hasn’t been any major change since the last one, which was just a little over a month ago. The North American Free Trade Agreement (NAFTA) outlook has improved somewhat, but not enough to make them change their assessment that “trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks.” The market view has remained fairly steady, that there may be a rate hike at the July 2018 meeting and probably one by September 2018.

The key for the markets will be what if anything President Trump has to say about Japan’s $69bn-a-year surplus in trade in goods with the US. The US Treasury Friday 13th of April 2018, released its biannual report on “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States,” in which it acknowledged that “…Japan has not intervened in the foreign exchange market in over six years.” It called on Japan to make some unspecified structural reforms to help reduce trade imbalances.

One major question is whether they discuss the idea of the US joining the Trans-Pacific Partnership. Earlier, President Trump had suggested he’d be willing to consider joining it with some changes, but last night he tweeted that “I don’t like the deal for the United States. Too many contingencies and no way to get out if it doesn’t work.” He said he preferred “bilateral deals.”

The indicators

Today’s indicators start out with UK Consumer Price Index (CPI).

Today’s figures are expected to show headline CPI still rising at an above-target rate and core CPI, which is probably the more important one, not only above target but also accelerating. 

During the US day, the Federal Reserve System (Fed) releases the “Summary of Commentary on Current Economic Conditions,” aka The Beige Book, as always two weeks before the next FOMC meeting. It’s significant for the market because the first paragraph of the statement following each FOMC meeting tends to mirror the tone of the Beige Book's characterization of the economy. 

The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.
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18 / 04 / 2018 | Market News

All you need to know about commodity currencies

Commodities are physical products that underpin the global economy. Gold, oil, silver and rare metals such as platinum and palladium are among the most known and valuable commodities. Trading can involve the purchase or the sale of several different kinds of financial products with commodity trading being one of the lesser known types of trade for most people.

Primary commodities are extracted from natural resources and secondary commodities are produced by primary ones to satisfy consumers’ needs. A Goldman Sachs report, titled “Investment Commentary” and published in December 2017, said that it is expecting the commodities’ sector to generate returns of almost 10% more than other assets during 2018.  Countries across the world based their economies on exporting commodities.

Since the economies of those countries are based on commodity trading, it’s logical that their currencies’ values could be affected by the prices of commodities and the market’s fluctuations. These currencies are called “commodity currencies” and traders should be aware that their exchange rates depend heavily on the commodity prices in the financial markets. In this article, you will find some basic information regarding three of the most important commodity currencies, the Australian, the New Zealand and the Canadian Dollar.

Australian Dollar

The Australian Dollar (AUD) is the currency of the Commonwealth of Australia. The Australian Dollar is commonly referred to by foreign exchange (forex) traders as the “Aussie Dollar.” According to the “Triennial Central Bank Survey Foreign Exchange turnover in April 2016”, which was published in December 2016, the Australian Dollar was the fifth most traded currency in the world enjoying a 6.9% share of the global forex market turnover. The US Dollar/Australian Dollar (USD/AUD) currency pair is one of the most traded. 

In April 2001, the Australian Dollar hit a record low against the US Dollar, trading at $0.47. In the decade that followed, the Australian Dollar gained ground against its competitor from the US and managed to hit a record high exchange rate in the end of July 2011, when it was trading at $1.10. Some economists suggested that the Australian currency took advantage of the Eurozone’s sovereign debt crisis and the fall of the Euro to strengthen. The prices of commodities that Australia exports such as metals may have an impact on the value of the Australian Dollar. The trade relationship between Australia and China also makes the “Aussie” sensitive to any financial news coming from this country.

New Zealand Dollar 

The New Zealand Dollar (NZD) is the currency of New Zealand, commonly known to traders as the “Kiwi”. The nickname comes after the depiction of the famous New Zealand bird on the one New Zealand Dollar coin. The “Triennial Central Bank Survey Foreign Exchange turnover in April 2016”, released in December 2016 showed that the New Zealand’s currency is the tenth most traded currency in the world in terms of foreign exchange market turnover with 2.1% daily share. 

The New Zealand Dollar lost a lot of value against the US Dollar in the first quarter of 2009, struggling because of the global economic downturn and traders’ fears which pushed them away from trading more riskier currencies. However, it has rebounded since then on the back of New Zealand’s economic recovery. The New Zealand Dollar is a “commodity currency” since the economy of New Zealand is based on exporting dairy products, meat and fish to countries such as China. Data releases such as the dairy auction prices may affect the New Zealand Dollar on the day of publication.

Canadian Dollar 

The Canadian Dollar (CND) is the currency of Canada which is the tenth largest economy in the world, according to the World Economic Outlook database of the International Monetary Fund (IMF). Some traders call it “loonie” with the nickname coming from the image of a loon on the one Canadian Dollar coin. The “Currency Composition of Official Foreign Exchange Reserves” survey, published by the IMF in June 2015, revealed that the Canadian Dollar is the fifth most held reserve currency in the world behind the US Dollar, the Euro, the Sterling and Japanese Yen and the Sterling. 

The Canadian economy has proved to be resilient in times of financial crisis and the country’s political and legal system are not facing any destabilising problems. Canada is the world’s fourth largest exporter of petroleum and natural gas with some economists calling the country an “energy superpower”. The Canadian Dollar’s value may fluctuate according to the energy prices in the global market.

STO and commodity currencies 

The Australian Dollar, the New Zealand Dollar and the Canadian Dollar are three of the most important commodity currencies in the world. STO gives you the opportunity to trade these 3 currencies and other major currency pairs starting from 0.0 Pips. Daily technical and fundamental analyses will be available in the STO client area to keep you updated regarding the global markets.

Trading Forex and CFDs, which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.

 
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17 / 04 / 2018 | Market News

UK CPI inflation likely to have remained unchanged in March 2018

Apart from the Eurozone’s CPI inflation for March 2018 data publishing on Wednesday April 18th 2018, one more data release may affect the foreign exchange (Forex) markets. On that day, the Office for National Statistics (ONS) will publish data regarding the United Kingdom’s CPI (Consumer Price Index) inflation during March 2018. The CPI is an indicator used to measure the rate at which the prices of goods and services bought by households rise or fall, which is the rate of inflation, referred to as the CPI inflation.

A Danske Bank report, published on Monday April 16th 2018, forecast that the UK’s CPI inflation in March 2018 remained unchanged at 2.7%, on an annualised basis. Analysts at Danske Bank noted that the core CPI inflation may have risen from 2.4% recorded in February 2018 to 2.5% in March 2018. Core CPI inflation is inflation excluding the prices of seasonally volatile products such as food and energy. The Danske Bank report also said that “our base case is still that CPI inflation will move lower this year, as food price inflation has peaked, energy prices are stabilising and the impact of past British Pound depreciation is fading.” Market participants will be expecting to see if the UK’s CPI inflation remained stable or dropped further since February 2018. A drop towards the Bank of England’s (BoE) 2% target may strengthen the British Pound against its competitors. 

Data published by the ONS, on March 20th 2018, showed that inflation in February 2018 recorded a drop from 3% on January 2018 to 2.7%. The drop surprised economists since it exceeded their expectations. The 2.7% inflation rate in February 2018 was the lowest rate recorded since July 2017. The ONS report accompanying the survey’s results said that “the largest downward contributions to the change in the rate came from transport and food prices, which rose by less than a year ago. Falling prices for accommodation services also had a downward effect.” 

Economists discuss about potential BoE rate hike

On May 10th 2018, the BoE’s Monetary Policy Committee (MPC) will convene to decide on interest rates. Analysts forecast that the BoE will decide to hike interest rates. Ian McCafferty, who is one of top BoE’s policymakers, told Reuters network that the possibility of faster pay rises and the recent pick-up in the world economy could be reasons that would lead the BoE to raise borrowing costs. Ian McCafferty commented that “we shouldn’t dally when it comes to tightening monetary policy modestly,” adding that wage growth in the UK might prove stronger than expected, forcing inflation to rise. 

Economists at ING (Internationale Nederladen Groep) suggested in a report, released on April 16th 2018, that an interest rate hike in the BoE’s upcoming May 2018 meeting “looks increasingly like a done deal.” They note in their report that “signs of rising wage growth combined with recent Brexit progress now means markets have a rate rise in May 2018 virtually priced in. None of the four BoE speakers (Andie Haldane, Ian McCafferty, Ben Broadbent and Gertjan Vlieghe) last week (9/4-13/4/2018) made any attempts to rein in these expectations. Nomura’s analysts forecast in their report, published on April 13th 2018, that the BoE will raise borrowing costs twice per year in 2018 and 2019.

STO and the British Pound

The British Pound against the US Dollar, the Euro and the Japanese Yen are just some of the currency pairs you can trade with on the STO online trading platform. Traders can take advantage of the STO’s Forex variety and choose from over 30 currencies when trading. STO provides its clients with educational courses to help them encounter the various trading challenges. 

Trading Forex and CFDs, which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.




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16 / 04 / 2018 | Market News

Fundamental Analysis 16.04.2018 – Market Outlook

Market Recap 

Stocks were lower in the US on Friday 13th of April 2018. Today Monday 16th of April 2018 they’re mixed in Europe. Oil is slightly lower, which suggests the markets aren’t particuilarly concerned about the Syria situation worsening – the US attack seems to have been a limited one-off event and not likely to be the start of a continuing operation. Yet all three commodity currencies are lower.

NZD was the worst-performing G10 currency. Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr said the RBNZ “certainly won’t be moving away from our focus on prices stability” just because it now has a dual mandate that takes employment into account as well as inflation. That could be an NZD-positive statement, because investors had feared that the new mandate would make them focus less on inflation and keep rates lower for longer in order to boost employment. At the same time, Adrian Orr said that the NZ economy was “near full employment,” which means that if they were indeed focusing more on employment, they could start raising rates earlier, since they’ve achieved one of their two goals. Perhaps focusing on price stability now does mean keeping rates low for longer in NZ.

It could also be that NZD and AUD are still suffering the after-effects of last week’s China import figures, although why that would lead AUD/NZD higher isn’t clear; China accounts for 37% of Australia’s exports but only 24% of New Zealand’s, so if anything, China fears should lead AUD/NZD lower.

It could also be trimming of positions –the Commitment of Traders report showed that investors are unusually long NZD but quite neutral AUD (see below).

In any event, tonight’s China indicators are expected to show a modest acceleration of retail sales and industrial production, which could prove positive for both AUD and NZD (see below).

Note again today that JPY is up and CHF is down. The two have been less correlated recently, perhaps because Japan is suffering from a JPY-positive factor, while CHF is more tied to European Central Bank (ECB) risk, a CHF-negative factor. 

GBP gained as investors questioning the ECB’s timetable for raising rates sold EUR/GBP.

Commitment of Traders (COT) report

The weekly Commitment of Traders (COT) report showed positioning to be extreme in several currencies. Speculators increased their long EUR positions to be the longest they’ve been in five years, while total USD shorts were the shortest they’ve been in five years. GBP, NZD and MXN were also quite long.

Looking at this table, speculators could trim their EUR/USD positions, sending EUR/USD lower.  

The most surprising thing in the table is of course the net long RUB position even while the currency is plunging. 

The Long West Texas Intermediate (WTI) and short US Treasury position is a natural long inflation trade. That could also be positive for USD, which makes the short USD position look anomalous – another reason why we could see some recovery in USD.

In precious metals, the long gold position contrasts with the short silver position. We can see from the graph below that this is rather unusual. The graph shows on the one hand the net speculators’ positions in gold minus those in silver (the green line) vs the ratio of the price of gold relative to the price of silver (the purple line, inverted). When the price of silver rises relative to the price of gold (i.e., when the gold/silver ratio declines), investors tend to buy more gold relative to silver – in other words, they buy more gold when it’s cheap relative to silver, and they buy more silver when it’s cheap relative to gold. But right now, gold is very expensive relative to silver (the ratio was 81.37 oz of silver for one oz of gold at the end of the week, near the highest since 2003 of 84.52). 

When we last saw a situation like this in 2010, it rectified by silver massively outperforming gold over the next year or so. Of course, past performance is no guarantee of future performance.

Today’s market

Nothing major on the schedule today until the US day starts up. Then we get the US retail sales and Empire State manufacturing index

Retail sales is one of the major indicators for the US economy every month, because so much of the US economy – some 70% -- is private consumption, of which retail sales some 40%. That means retail sales accounts for approximately 28% of the US economy. There are four different versions of this indicator, each one more narrowly focused. The “advance,” or headline figure, which includes the most categories, is the most closely correlated with subsequent movements in the exchange rate.

The headline retail sales number is expected to bounce back after three consecutive months of declines. The driving force here is auto sales, which fell previously but rebounded in March 2018. Still, the market expects a relatively anemic rebound, with sales not even rising at a trend level. Retail sales are likely to rise further in coming months as the impact of the recent tax cuts start to trickle through the economy. This could be negative for USD. 

The Empire State manufacturing index is expected to be down slightly. This may be taken as a slight negative for the dollar, but it really shouldn’t be – the index is still expected to be solidly in expansionary territory. October 2017 was the recent high for the index, and since it’s a diffusion index showing what percent of executives expect output to be higher than expect it to be lower, it doesn’t usually stay near its peak for long. And the expected outcome of 19.0 would still be historically high -- the average for this index since it began in July 2001 is 8.3.


The National Association of Homebuilders (NAHB) report is expected to remain unchanged. But here too, since December 2017 was the highest level since 1999 -- even higher than during the housing boom of 2005-2007.  The highest level during the housing boom was 72, hit for one month in June 2005, so remaining at 70 for two months in a row is no small feat. This could be positive for USD.

Atlanta Federal Reserve System (Fed) President Raphael Bostic will speak on the economy and rural market trends. “Rural market trends” may include something about China’s tariffs on agricultural imports. Bostic is a voter and a relative centrist on the Federal Open Market Committee (FOMC), so his views are particularly significant – if he’s moving one way or the other, perhaps the consensus is, too.

Overnight we get the usual three monthly updates on Chinese economic activity:  retail sales, industrial production and fixed asset investment. Retail sales and industrial production are expected to accelerate a bit, but remain well within recent ranges.



The Fundamental Analysis is provided by Marshall Gittler who is an external service provider of Claws and Horns (Cyprus) Limited, an independent analytical company. Any views and opinions expressed are explicitly those of the writer. Any information contained in the article, is believed to be reliable, and has not been verified by STO and is not guaranteed to be accurate. References to specific products, are for illustrative purposes only and are not a form of solicitation, recommendation or investment advice. Past performance is not a guarantee of future performance.

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16 / 04 / 2018 | Market News

Eurozone's CPI inflation likely to have risen in March 2018

On Wednesday April 18th 2018, Eurostat, which is the European Union’s (EU) official statistical agency, will publish data regarding the Eurozone’s CPI (Consumer Price Index) in March 2018. The CPI is an indicator used to measure the rate at which the prices of goods and services bought by households rise or fall, which is the rate of inflation, referred to as the CPI inflation. Eurostat will also include core CPI data in the release, which measures price movements excluding the ones of volatile components such as food, energy, alcohol and tobacco.

Economists anticipate that the finalised CPI inflation data will show that the Eurozone’s inflation in March 2018 stood at 1.4%, on an annualised basis. They also expect that core CPI inflation ticked lower, coming in at 0.9%, on a year-to-year basis. On April 4th 2018, Eurostat had released its flash estimates for the Euro-bloc’s CPI inflation in March 2018 which had showed that the EU’s statistical office forecast a rise of 0.3% when compared to the 1.1% figure recorded in February 2018. If the CPI inflation in the Eurozone during March 2018 has risen to 1.4%, as forecasts indicate, it is possible that the Euro may strengthen against its competitors such as the US Dollar, the British Pound and the Japanese Yen as investors and traders may feel confident that the European Central Bank’s (ECB) policies are closing in on their targets.

In their report, accompanying the CPI inflation’s flash estimate, Eurostat’s analysts had said that the reasons behind the possible rise were the increasing prices of food, alcohol, tobacco and energy. The ECB aims to keep inflation below, but close to, 2% over the medium term. However, the ECB’s monetary policy so far, despite the quantitative easing (QE) programme applied in recent years, has not succeeded yet in bringing inflation close to its target. Some of the ECB’s governing council members have spoken openly about raising interest rates and reducing the QE programme, but have met resistance from the rest of the members who believe that the Eurozone’s economy isn’t strong enough to proceed in such actions. 

ECB’s leaders talk about inflation and economic developments

Vitor Constancio, who is the ECB’s vice president, said on Monday April 9th 2018 in a speech, delivered in the European Parliament (EP), that “inflation, which is our objective, has not yet responded completely to what we wish to see. We have confidence that inflation will continue to evolve, we should be cautious in order to avoid that some early strongly restrictive policy could derail this development.” 

The head of the Eurozone’s central bank, Mario Draghi, noted in the ECB’s annual report, which was released on April 9th 2018, that the slide in stock markets, since the beginning of 2018, hasn’t impacted the Euro-bloc’s economic conditions and that policymakers remain calm regardless of the market volatility. President Mario Draghi addressed the issue of inflation by saying that “while we remain confident that inflation will converge towards our aim over medium term, there are still uncertainties about the degree of slack in the economy.” The ECB’s President added that “a patient, persistent and prudent monetary policy therefore remains necessary to ensure that inflation will return to our objective.”

STO and the Euro

The Euro to US Dollar, the Euro to British Pound and the Euro to Japanese Yen are just three of the currency pairs you can trade with on the STO platform. STO clients can select from a variety of over 30 currencies and plan the suitable trading strategy for them. STO provides traders with daily fundamental and technical analysis that aims to help them reduce the trading risks. 

Trading Forex and CFDs, which are leveraged products, are high risk investments and puts your capital at risk. You may sustain a loss of some or all of your invested capital. Only speculate with money you can afford to lose.
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