Markets Matter

USDJPY - Let Battle Commence!

2014-01-20T11:12:00.000+00:00

There's an battle going on between the bulls and the bears on this currency as we are reading completely different stories depending on which time frame you're looking at.

The ST & MT charts paint a pretty bullish picture which still has a valid target of 109.00 yet to be reached, formed from a breakout of a symmetrical chart pattern on the daily candle sticks close to the apex (See more from previous blog post on 10/12/13). However if take a step back and look further out on the LT chart, we have a (potential) downtrend line being tested from the peaks in 1998 and 2007. We have already satisfied the 38.2% retracement on this chart, which now brings the 50% level into play at 111.20.

I think the fundamental picture will most likely dictate the overall winner of this battle, with the Yen weakening further (i.e. the bulls wining) but thats not to say it will be straight forward. We could be install for some increased volatility round these levels still to come.

If I didn't carry any position in this currency at this point in time, I would need some reassurance that this recent up move is not overdone for now and would like to see a break above the recent highs of 105.40 before buying into it. I would also add that the 50Day SMA also appears to be working well on this chart when trending, so as long as it maintains with its upward move, any pullback/sell off back to this line could present good opportunities to buy dips in the market.

Charts sourced from ig.com

AUDUSD - Broken below the 2013 low already

2014-01-20T09:54:00.001+00:00

China's underperformance persists and with economic analysts starting to revise their growth forecast down to levels only seen back in 2005, it doesn't look like this outlook will turn around anytime soon. Lagging Australian economic results also continue to disappoint weighing further on this currency and with calls that further RBA cuts are required to simulate this heavily commodity driven currency, it might be a case of 'things are going to get worse before it gets better' so to speak.

This currency pairing has recently broken below the 88.48 low made back on the 5th August 2013 and there are only a few established support levels below which might concern the bulls. Looking to the downside, there are fibo price projections of 138.2% and 161.8% (of the April-August move) at 81.78 and 77.67 respectively. On the long term chart the next significant low that I can see is at 80.86 which was established all the way back on 8th June 2010, and given our current traded level is a long way off.

The 20Day SMA has been working well of late as a good support/resistance when this market is trending and we have some already trend lines that can be used to trade around, offering some potentially good selling opportunities. The RSI is also worth keeping an eye on to help avoid being caught out by an relief rallies that may occur, given that this could be quite a crowded trade so short squeezes will be aggressive.

Charts sourced from ig.com

GBPUSD - Coming under first real sign of pressure

2014-01-13T19:33:00.001+00:00

The GBPUSD is testing the trend support line from the July13 rally. We shall see whether there is further impetus in the next couple of days and drive the currency through this support line. Disappointing economic data in the new year is making investors wary of whether the markets can sustain their recent record highs in the short term, and seeking comfort in 'safe haven' currencies as of late.

The first significant support level on the downside is 1.6215 as indicated on the chart, after which the next targets are quite some way off given the extent of the Jul 13 - Jan 14 rally. We have the 38.2%, 50% and 61.8% Fibo retracements at 1.5920, 1.5710 and 1.5493 respectively.

If however we have a strong rally off the trend line and the first level that we should pay attention to on the upside is today's Maribuzo line at 1.6427. Given the strength of the Maribuzo from the 2nd Jan down move, this implies that it could definitely be worth noting. This level also coincides with the 20Day SMA at 1.6436 offering potentially further resistance, after which we have the 1.6500 and 1.6603 levels slightly higher up.

Charts sourced from ig.com

Brent - Still trading in a sideways range

2014-01-02T12:20:00.001+00:00

Brent 2014 forecasts range from around $98 - $110, with the main variance of forecasts being derived from the supply risk associated with Opec production. Some analysts think that the supply disruptions that we've seen over the past couple of year should persist whereas others are more optimistic around the supply side leading to lower estimates. The deteriorating political situation in Venezuela and the Libyan militants blocking some of the main ports disrupting exports are causing the most concern at the moment. We should however continue to see strong demand coming from the emerging markets and Non-opec production driven from US and Canadian shale.

US oil prices will continue to be heavily influenced by the shale production and with limited export infrastructure currently in place, WTI's discount to Brent should persist on the short term. The development of the Iranian nuclear program / lifting of international sanctions, this production has not been included in this years price forecast because of the time delay (6 - 9 months) of ramp up of production back up to 2m bpd from the current levels of 1m bpd so shouldn't be affected by this even after a firm deal has been agreed.

Taking a look at the charts, Brent's volatility has been significantly reduced over the past 8 months (other than the Syrian airstrike scare in early September). It has found a range of which it seems very comfortable in $104 - $112. As of late, it has been running out of momentum and given the position in the range, short term targets will be more on the downside at $109.10 and $108.00 (38.2% and 50% fibo retracements of Nov/Dec rally), below that, we would watch $106.50 for further support. On the upside, a break above $113.00 would give a projection target of $119.05.

Charts sourced from ig.com

USDJPY - Keep a eye on the long term chart

2013-12-10T10:37:00.001+00:00

The BoJ's ultra loose monetary policy continues to weaken the Yen and risk appetite across the board is increasing off the back of positive global economic sentiment economic as well as improving job market data, reducing the demand for 'safe haven' currencies.

The positive job data will also inevitably bring us back to the FED tapering debate and when the market expects this to happen but most analysts aren't forecasting this to happen till March time though some are erring on the earlier side, potentially even in Jan or Feb. This should lead to strength coming back into the USD, though we also have to bear in mind that the Republicans & Democrats still have to thrash out a Debt ceiling deal in February which is always a bit of a pantomime so might see some volatility around these upcoming months.

Taking a look at the charts, we've seen some positive price action recently, with a breakout of the Symmetrical Triangle chart pattern in mid-November which started forming back in May, giving us an upside target of 109.00. Before we can get too excited about this, we still need to negotiate the previous significant high of 103.73 reached back in 22nd May of this year. In such a steeply trending market we need to be prepared for some aggressive consolidation / pullbacks and so the RSI and 20day SMA are very useful trading tools in these cases, and will help going forward.

The long term chart however paints quite a different picture. We still are in a downtrend and approaching some heavy resistance from the top of the down trend channel, previous support-turned resistance area (102.00/103.00) and 38.2% Fib retracement of the down move started back in 1998 at 102.96. On a break through on the upside, the next key levels are 109.00 (as mentioned earlier) and 50% Fib retracement level at 111.27.

Charts sourced from ig.com

AUDUSD - Chinese data is not helping the bulls

2013-12-09T10:03:00.003+00:00

We had some interesting Chinese data overnight with YoY exports gaining 12.7%, smashing the 7.1% forecast which was mainly driven by stronger shipments to the US and EU. Imports however were only up 5.3%, failing to reach the estimate of 7.6%, which could put the AUD under further pressure. Weaker global commodities prices are also continuing to wane on this currency and more work might be required from the RBA in order to turn the local economy around as well.

The bearish momentum of the USD might also be turning a corner from with the positive data emerging in the economic and job markets, which will inevitably bring us back to the tapering debate / expectations. Most analysts aren't forecasting this not to happen till March time though. We also have to bear in mind that the Republicans & Democrats still have to thrash out a Debt ceiling deal in February however which is always a bit of a pantomime, so they're not quite out of the woods just yet.

Taking a look at the charts, we've had a good bear run from the 50% Fib retracement level and are now hovering around the 0.9050/0.9100 support area. This proved to be a relatively tough level to break back in July, only having done so twice in August, neither being sustained for a significant period of time.

The 20 day SMA has offered a good resistance/support level in the previously trending market, as well as the much stronger 100 day which is also sitting at the 0.9300 level which just so happens to be the head-and-shoulders neckline of the previous chart pattern, both of which can be used effectively in your trading strategies. This definitely still feels like a market where the rallies are good opportunities to short the market. A break below the 0.9050 level, the next downside target is 0.8850.

Charts sourced from ig.com

AUDUSD - Bounced off strong support

2013-11-19T13:50:00.002+00:00

The AUDUSD had a good attempt on the 0.9300 level but it proved too strong to break moving our focus back on the upside resistances which are at 0.9425, 0.9525 and 0.9700 currently.

I'm still in a bearish mindset on this and see as these levels as opportunities to short the currency however. Looking at the fundamentals, there is growing concern over tightening financial conditions in China, Australia's largest exporter, as the chinese repo rate hit 5.45% on 15th Nov, fuelling some speculation that the worlds second largest economy's growth could be cooling.

Not only that, but Australia's own domestic problems don't look too rosy either with unemployment at 5.7% with a record low interest rate of 2.5%, but the RBA hinted that there is still room for movement on this. As for the USD, the FED tapering expectations continue to drive the relative strength of this.

Looking on the downside the supports are at 0.9300, 0.9200, 0.9050 and 0.8850. I will also add that the MACD is still in bearish mode as it is still in negative territory and yet to cross back up.

Charts sourced from ig.com

GBPUSD - Broken neckline, but waiting for BoE inflation data

2013-11-13T09:11:00.003+00:00

Following on from my last post on the 23Oct, we have seen a confirmed rejection of the 1.6250 level, making a 2 month low yesterday, breaking the neckline of the double top chart formation. I would expect this weakness to persist on the short term and for the pairing to trade back down towards the 1.5700/1.5750 support area, from a technical point of view.

The quarterly BoE inflation is due later today so the market will be very much subdued before this publication at 10.30am GMT.

On a break below the 1.5700 level, it would give us the green light for the 50% Fibo retracement level from the recent rally at 1.5540. The MACD confirms this as it dropped below the 0 mark recently and implying and downtrend direction. However if the situation does change the key resistances to pay attention to are the high made on the 7th Nov at 1.6114 and September & October highs of 1.6250, the later beginning a much strong level of the two.

Charts sourced from ig.com

EURGBP - Bear channel still intact

2013-11-12T12:09:00.000+00:00

Given that I haven't yet commented on the EURGBP I'll start off with the long term charts and increase granularity as I go along.

On the LT charts we can see that we are in a corrective wave pattern from the aggressive price action from the end of 2007-2008. The Fibo levels have proven to be good support levels along the way at 38.2% (0.8537), 50% (0.8159) and at 61.8% (0.7781) which have all now been met.

We still however remain in a bear trend channel so until this is broken this should continue to dictate our trading strategies. The Gann fan has also been working relatively well so could also be worth considering.

Taking a closer look, the contract managed to break through the trend support line from the Aug12-Aug13 rally, at the beginning of september looks like it could be under more pressure for the remainder of the year. Especially given its orientation to the 100&200day SMA which have proven to be good indicators for the past couple of years and which also ties in with the longer term chart. I might expect some strength come back in temporarily as the stochastic has flipped back to positive and potentially a retest of these moving averages and previous resistances, but then to fail and start to trading lower subsequently.

Important support levels to pay attention to are the recent significant low at 0.8300 but then also 0.8257 and 0.8140 indicated on the chart, which is very close to the 50% retracement from LT chart move at 0.8159 (mentioned in 2n paragraph). Key resistances are the 100&200day SMA as discussed before but also the high made on the 29th October at 0.8585

Charts sourced from ig.com

AUDUSD - Gann Fan proving too much for the bulls

2013-11-10T22:56:00.002+00:00

The currency pairing has had a very good recovery since its August low and managed to reach the 50% Fibo retracement of the April-August down move. Bearish comments from RBA members and tightening Chinese financial conditions are putting a downer on the recent strength. We are also starting to see some USD strength back as well as the US job data is improving once again and the expectations of the FED tapering are starting to build. The next RBA meeting is on the 19th November which may suggest what is in store for the AUD.

The AUDUSD is sitting just below the 38.2% retracement from the August-October rally but other important supports are 0.9320 and 0.9300 as indicated on the chart. The 50day SMA has historically been a good support line but on Friday managed to penetrate through this, next up is the 100day so might want to watch out for this as well. Key resistances are 0.9425 and 0.9528.

The Gann fan is working well on the weekly chart which may keep a lid on thing but interestingly the MACD on the daily chart and the weekly are indicating conflicting stories.

Charts sourced from ig.com

DowJones - Are we poised for a move higher

2013-11-10T21:57:00.000+00:00

It was a strong day for US equities on Friday and we could be on course for a breakout. Financial stocks led the way after bullish job market data gave rise to expectations that the economic recovery is back on track and that interest rates may rise sooner than previously thought. I must add that we do need a follow through at the beginning of next week to confirm this move however.

The last couple of week's sideways price action and period of low volatility could result in a bollinger band squeeze which means that we could be install for some much more aggressive price action ahead. Key supports are 15650, 15520 and then a break of these 14800 would be back in play. Upside targets are 138.2% Fibb projection of the Dec12-May13 rally gives us a target of 17430 and top of the channel around the 16250/16300 area to watch out for.

Charts sourced from ig.com

EURUSD - Rethink after yesterday's surprise cut

2013-11-08T09:22:00.002+00:00

Yesterdays surprise rate cut from the ECB to a record 0.25% caught a fair few out, shown with a viscous sell off immediately after the announcement, but did it manage to recover later in the day to settle back above the 1.3400 mark.

We have convincingly broken out of the trend channel but now seeing some support from the 100day SMA and 38.2% Fibb retracement level / previous high at 1.3420 level. Given the combination of these, this could prove to be a strong support so needs to be watched closely.

The technical indicators are confirming the move south as the MACD < 0 and heading in a downward projection. We may see an attempt to take the EURUSD back up if the bulls manage to try to gain control back, but I would imagine this will be short lived, before we attack the 1.3420 level again. Upside resistances to look out for are 1.3470 and 1.3520. Downside supports to bear in mind are 1.3300, 1.3170 and 1.3100.

The bears cannot get overly excited and I must air a word of caution by this price action on the daily chart, because taking a step back and looking at the weekly chart we are still in a very long forming symmetrical triangle chart pattern so will need to break the next support level at 1.3000 to really excited!

Charts sourced from ig.com

EURUSD - Under pressure

2013-11-01T15:35:00.000+00:00

Its been a heavy week for the Euro after an very impressive recent run. After lower than expected inflation data released earlier this week, it has promoted people's view that the ECB could be about to loosen their monetary policy and cut interest rates next week in their meeting on the 7th November, in order to stimulate the eurozone growth.

We are approaching some key supports however after free falling 300 points this week down from highs of 1.3800. Important levels to watch on the downside are 1.3470, 1.3400 as well as the bottom of the uptrend channel. I would expect some sort of recovery given the speed of which the currency has sold off over the last couple of days, but whether it will be sustainable for any significant period of time remains to be seen.

Looking to the upside, resistance levels will be the top of a previously formed sideways range at 1.3580 and the high made on 25th October at 1.3832. The other level that should be noted is the Maribuzo line on this week's weekly chart which is at 1.3649.

Charts sourced from ig.com

USDJPY - Rangebound

2013-10-30T10:17:00.004+00:00

Symmetrical triangle continues to form on the USDJPY, with the range tightening so a breakout of the chart pattern is looking more likely as it approaches the apex. Bystanders are patiently waiting for further action from the BOJ mentioned in the post on 13/08/13. Range trading is the best option for now whilst waiting for a breakout. On a breakout of the chart pattern on the upside would give it a projection of 108.00

There is still a lot of uncertainty on the short term as recent candlestick bodies have been reducing with more dojis occurring. From the bulls perspective, the first resistance area of note is 98.60/99.00 which is the 50% retracement from the recent down move and October high. Then the down trendline and September high of 100.60 are back in the picture.

The bear's key supports levels are uptrend line and then recent low of 96.60, made on 7th October.

Charts sourced from ig.com

DowJones - Retesting all time highs

2013-10-28T13:19:00.001+00:00

Disappointing US jobs data is keeping equities well bid as expectations that the tapering of the FED stimulus package is not going to happen quite as soon as people had previously expected. Combine this with an impressive earnings season for US stocks and you can understand the strength seen recently.

Were having a 3rd attempt to break the 15,700 level which is proving to be a strong resistance level with double/triple top chart formation developing. A failure on the upside will result on the focus back on the support area around 14,850/14,700 and the 2008 high of 14,167. A break on the upside could propel the index up to around the 16,825 on the 138.2% Fibonacci projection.

Mindset is still very much 'buying dips' with this index, as the MACD is confirming the uptrend and we're midrange of a bull channel. The only word of warning is that the RSI is entering into the overbought territory, so if you do not already have an existing position it might be worth sitting on your hands for now and waiting for a confirmed breakout before getting long.

Charts sourced from ig.com

Brent - Testing supports

2013-10-25T12:15:00.004+01:00

This is the 3rd consecutive day of losses on the Brent contract but we might see some support come back in around the 106.50/106.00 area. After testing the 117.00 level due to the escalation in the Syrian crisis, the risk premium has been slowly reduced as the western intervention seems less likely now. The technicals aren't giving us a clear story at the moment, but taking step back and looking at a longer term view, we are still in a slow uptrend as we still have a couple trendlines intact.

On the upside, the important levels to watch out for are the top of sideways range at 111.00 and previous highs of 117.00; then on the downside 106.00, 102.00 and 100.00. We might see a brief recovery over the next couple of days, after which I would expect the contract to being under further pressure once again. The 100-day simple moving average has acted as a good support/resistance level in the past so watch this going forward.

I will also note that like any other financial commodity contract, they are driven by the physical underlying and are subject to an unforeseen event which would throw all the technicals out the window immediately!

Charts sourced from ig.com

AUDUSD - Hitting heavy traffic

2013-10-23T15:28:00.002+01:00

Since my last post the AUDUSD as performed very well reaching the upside target of 0.9700. This is the 50% retracement of the April-August down move as well as the bottom of the sideways trend channel of 2011 / 2012. Both events could offer strong resistance to further up moves so this level should be watched closely. On a confirmed break on the upside, that would give the green light that we have re-entered the previous sideways trend just mentioned and see a swift run up back to the 1.020 level.

The technicals might make us a little wary that the push further higher might not be imminent as they imply that the currency pairing is the over bought territory, so should be careful of length being reduced from the market on a cross back down below the 80 level on the RSI. MACD still looks strong and in positive territory signalling that the trend is still in motion, but historically it doest hold onto gains >100 on the outright level which should also be noted.

I would expect the 38.2% retracement (of the Apr-Sept down move) to be retested on the downside which coincides nicely with the previous significant high on 18th Sept at 0.9500. The 38.2% retracement of the rally that we are in (Sept-Present) is at 0.9426 which may also offer support if it comes under further pressure on the short term.

Charts sourced from ig.com

GBPUSD - At a pivotal point

2013-10-23T13:06:00.001+01:00

Well today we're rejecting the 1.6200 level once again, as the currency pairing is really struggling to sustain the gains above this level. The USD has suffered severe weakness following the failure for the FED to reduce the buying back scheme, contrary to market expectations, and the palaver over the US debt ceiling and government shutdown. But this begs the question after all these recent setbacks are we due for a recovery??

You can see from the longer term chart that looking to the upside, that the next significant level is the 38.2% retracement from the 2008/09 sell off at circa 1.6550. We will need a really positive piece of news I feel to push us back there.

If not and we fail to do so, we could be forming a Double Top chart formation, so we will need to watch the 1.5900 level which would act as its neckline and potentially an area of support on the downside. The other support of note is the uptrend which was confirmed on the 17th Oct and the maribuzo line from this day at 1.6056 could also act as a support.

The technicals are implying that we might be running out of steam and due for some lower numbers given the divergence in the MACD and RSI indicators.

Charts sourced from ig.com

AUDUSD - Looks Strong but for how Long?

2013-09-12T14:38:00.002+01:00

Well the AUDUSD has seen a good recovery in the run up to, and post government elections. But is simply changing governments enough to sustain the recent gains? Change is often for the better, but there are plenty who are still sceptical of its recent run and believe that a lower exchange rate is still needed in order to rebalance the local economy, not just a change in government.

The issue is that high bond yields persist which is what is still attracting investors to the AUD and is why the currency remains strong (relatively). But whether the devaluing happens endogenously or whether its from further rate cuts from the central bank (RBA), which they certainly have scope to do at 2.50%, consensus is that something might still have to happen.

Technically there is certainly some potential on the upside as we haven't yet reached the 38.2% retracement of the April-Aug down move which is at 0.9506. If playing from the long side, trading strategies will involve riding a long position on a break (and close) of 0.9350 up to 0.9600, as noted on previous blog posts, placing a stop incase of the 'fakeout'.

Trading from the short side, you would be trading the 0.9300-0.8850 range.

Charts sourced from ig.com

Brent - Starting to fail

2013-09-10T09:59:00.001+01:00

We had strong upside rejection yesterday breaking the first trend line. This down move was pretty violent and resulted in the MACD crossing down off the back of it.

Looks like we could be forming a Double Top chart pattern, if so a break of the neckline of 112.24, would give downside target of 108.00. But till then we will have to sit on the fence as we may see a temporary recovery after yesterdays move. The Maribuzo line is worth noting as a key resistance to watch out for at 114.45. So long as this holds we should expect lower numbers yet to come. Other key levels to be aware of are indicated on the chart.

Charts sourced from ig.com

DowJones - Nice recovery but where next?

2013-09-10T09:38:00.001+01:00

Equities saw a good recovery yesterday after the prospect emerged that the western intervention in Syria could be resolved without dropping any bombs. We are seeing further follow through again today.

We are trading back above the 15000 mark on the Dow Jones Ind. Av. and more importantly above the high made on the 26th August at 15054 which should give the bulls some encouragement. On the upside, we could see some resistance however around the 100 & 50day MAs given the strength they displayed as a supports at 15161 and 15256 respectively.

The next couple of trading session closes could prove to be important in terms of indicating where we are heading next. Strong confirmation days higher could keep us pushing higher back to the previous all time highs. If we start to see some 'Doji-esque' candles print, displaying uncertainty of the validity of the rebound, and we may head back down quite quickly too.

Not sure that were out of the woods just yet however on the fundamental side, we have the impending Tapering action which we will know much more after the Fed meeting on the 17/18th of this month. There is also the 'Fiscal Cliff' issue coming up again and German elections on the 22nd of this month too.

We have yet to test the 38.2% retracement at 14445 nor bottom of the trend channel at 14200.

Charts sourced from ig.com

Brent - Preparation is Key

2013-09-03T11:43:00.002+01:00

I dont think it comes to many people's surprise that Brent looks bullish, as well yes it does, but I think it might be worth talking objectively about this commodity and pointing out target levels. Given its recent up move has been on a risk premium being priced in to the contract (Syria - Middle East contagion, Egypt - Suez canal closure), it can also be wiped out just quick as it was priced in.

Consensus from fundamental analysts place the relative fair value around $100-$105 mark claiming this move is not sustainable given the increased production levels from Saudi and US/Canada. Not to say that is where the price should be necessarily, but as people should be conscious of not being caught long incase of a swift reversal.

We've seen a really nice accelerated up trend line adjustments twice already, which will be a good way to safeguard long positions. For the downside support levels, first reached will be on the steepest trend line, a break of that and 112.24 will be in focus, the low on 1st Sept; following that 109.00 and 106.00 respectively.

Granted up moves from here could be violent and quick, disregarding any technical levels / projections, but on a break above the high on the 27th Aug (117.20) the key resistances would be previous highs of 118.00 and 126.10. The rally from 24th June - 27th August, we have a Fibonacci projection of 127.90

Charts sourced from ig.com

USDJPY pushing higher

2013-09-03T09:41:00.003+01:00

On the USDJPY we broke out of the down trend channel a couple of weeks ago and tried to break out, but what might have caught people out was by retesting the previous down trend line. This held however last week and we saw a strong rejection of this level. Since then, we have rallied back pretty convincingly to back above the 99.00 level.

MACD crossed over the 0 line confirming the up move.

Next resistance is 99.96 indicated on the chart, but the one we are most interested in and potentially much stronger is 101.53. We also have a Fibonacci projection of the 12th -23rd August rally of 101.15. The key resistance levels to which out for are a previous high of 99.15 and yesterdays Marabuzo's candlestick line at 98.90, as long as these hold, we should expect higher numbers to come.

On the fundamental side, yesterday we saw data published from Japan, that their's capital spending was flat for QoQ beating an estimate of -2.00%. Again this morning we had a data release that Japanese's monetary base increase to 42.00% beating an estimate of 41.3%, weakening the currency further.

Charts sourced from ig.com

DowJones - are we heading south too?

2013-08-28T09:10:00.002+01:00

Weak close for the DowJ last night, closing below the resistance level of 14825, we need more downward pressure today however to confirm the follow through. A further move south and all eyes will be on the previous significant low at 14570 level and the Elliotticians on 38.2% Nov12-Aug13 retracement at 14440. The ultimate test would be for it to try the bottom of the trend channel support at approx. 14200 Watch for a close back above 15050 because we may start to change our tune.

RSI is flirting with the oversold territory it must be noted, but the MACD remains in bearish mode and have seen downwards crossing on the MAs. On the fundamental side, with the potential US military action in Syria, Fiscal cliff looming for mid-October and Fed Tapering next month, it is also hard to get overly bullish on the equities front right now.

Charts sourced from ig.com

'Fiscal cliff' is a dirty word once again

2013-08-27T17:53:00.002+01:00

The fiscal cliff is rearing its ugly head once again as the Obama administration has warned that the current debt cap could be reached by mid-October, rather than the mid-November originally forecast. The markets could be in for a bumpy road ahead, or the next couple of months at least, as we'll most likely watch the Democrats vs Republicans play chicken with the US economy once again!

If we looked back how the markets reacted in the run-up to the past votes both in 2011 & 2013 we might have an idea of how people might react in the run-up to the event, as well as looking at what happened straight afterwards.

August 2011

As you can see the equity markets (shown below) had a strong sell off a week or 2 before the actual event, and then took a couple of months of sideways trending market to stabilise after it. It is also noted that US treasury yields dropped as money which was previously in 'risky' assets was reallocated to 'risk-free' assets after on the 5th August S&P downgraded the US for the first time ever, but Moody's & Fitch did not follow suit.

The FX markets were slightly different in their behaviour, they were rangebound / strengthened slightly before hand but then after the news had sunk in the USD rallied pretty hard against these currency pairings.

Jan 2013

When you compare the markets to 2011, there are some similarities and some differences in how the market behaved. Unlike before, the equity markets barely had any pullback on the run up to it, I think people were lot more confident this time that the politicians wouldn't allow the situation. Despite the US actually technically defaulting before the cap was increased once again, both indices show a strong bull trend over time period.

The FX markets behaved very similarly to 2011, with a sideways consolidation and then a strong USD afterwards, unlike in the Equities. Also similar to 2011, the US was also downgraded by a credit ratings agency, this time by Fitch.

Charts sourced from ig.com