Whyte Hot Trader

The Week Ahead

2011-03-27T11:12:00.000-07:00

Last week saw the biggest weekly gain in the US stock market for 2 months despite geopolitical uncertainty in the Middle East. Crude oil continued to increase as unrest spread to Yemen and Syria. Gold reached a new all-time high at 1447.5 but quickly pulled back in to its recent range. Let’s have a look at some of the developments happening this week.

Investor Focus

Investor focus could be spread over a few factors this week as the debt levels of peripheral Eurozone countries come to the fore once again, ongoing tension in the Middle East, a nuclear reactor in Japan yet to be fully safeguarded and the latest employment data from the US all jostle for the headlines. These developments are likely to have a large impact on the euro, crude oil, stock markets and stock markets respectively.

Economic Releases

There will be relatively few economic releases for investors again this week but there are some high impact releases:

9.30 Tuesday, UK GDP (final). And a host of other economic numbers will be released for the UK which is likely to cause some volatility in the pound.
1:30 Friday, Non-farm Payrolls. The super bowl of economic releases on the first Friday of every month. Expect volatility in the US dollar and stocks. Some good figures are expected for this week which should show lots of jobs have been created in the world’s largest economy. After such a good week in equities last week, this could be another good week in anticipation of this event.

Currency Focus

Euro: the euro performed well last week and reached a high of 1.4248 against the US dollar. The euro has been torn lately rallying on speculation the ECB will raise interest rates in April but falling on concern that Portugal and the 4th largest economy of the Eurozone Spain are struggling to treat their debt. The euro could pull back this week to test support around 1.3880 as the latter comes into focus. If the ECB decides not to raise interest rates in April this could also lead to a big sell off for the euro.

Aussie Dollar: the Aussie dollar had a great week last week and finished strongly against most currencies especially the US dollar. The Aussie dollar has benefitted recently due to the surge in commodity prices and the close proximity of Australia to China which has huge demand for raw materials. A much larger gain in the Aussie dollar will certainly curb demand for it’s exports and pull backs are expected at these high levels.

Watch List

AUD/USD Daily Chart

AUD/USD: Overbought on the daily chart and at historically high levels. I will be looking for a daily reversal set-up or for announcements which may effect the Aussie dollar badly such as reports of a slowdown in China to enter this pair short back down to the moving average or to the magnetic 1.0000 level.

Crude Oil: I am continuing to watch the price of crude oil closely and developments in Saudi Arabia are pivotal. Syria and Yemen are minor exporters of oil but any significant threat to oil supply from Saudi Arabia could send crude oil through the roof. Whilst this remains fairly unlikely it is still a distinct possibility.

Thanks for reading this weeks “The Week Ahead”.

The Week Ahead

2011-03-20T16:21:00.000-07:00

Last week was certainly an eventful week with stocks tumbling, yen surging and lots of volatility in general. The Japanese Nikkei225 index was down over 17% at one point last week and the full extent of the crisis and costs to companies is still unclear.

Investor Focus

There were major developments in Libya over the weekend as French fighter jets launched attacks against Col Gaddafi’s forces to enforce a no-fly zone over the country. This course of action has the backing from the UN council but risks destabilising the country for longer. The on going strife in the region added to other concerns such as developed nations debt levels could weigh on investor sentiment over the next few weeks.

Economic Releases

This week will be a light week in terms of economic releases but there are a couple of events traders should be particularly aware of:

14.30 Wednesday, Change in EIA Oil Inventories. If crude oil climbs to around previous resistance levels due to developments in Libya this event could provide an opportunity to go short.
12:30 Friday, US GDP Price Index. The latest US GDP figures could provide some end of week volatility especially if they surprise to the downside. Stocks in particular may get choppy around this time.

Currency Focus

Japanese Yen: Last week the yen surged triggering some brokers to stop all trading on the yen. The G7 nations announced that they would be stepping in to intervene in the currency markets for the first time for over 10 years to try to devalue the yen to reasonable levels. Intervention in currency by central banks usually leads to failure but when there is coordinated action as in this case it is much more likely to work. The USD/JPY pair is important as Japan exports a lot of goods to the US. On this pair the 80 level is the key price that central banks will try to defend. I will be looking out for signs of further intervention if the rate returns to this level.

US Dollar: The US dollar has been getting hammered recently but the cycle could be about to change. It is looking like a decent bargain at these historically low prices. GDP numbers released on Friday could be the trigger for a reversal in sentiment.

Watch List

USD/CHF: Oversold on the daily charts and looks ripe for a reversal. I will look out for signs of a change in sentiment or a reversal pattern to go long up to the 0.9250 level.

Crude Oil: The pattern in oil at the moment is to rally on Middle East tension and to fall on evidence of excess supply in the inventory numbers. I shall be looking to short oil on this weeks US oil inventory release.

Thanks for reading this weeks “The Week Ahead”.

The Week Ahead

2011-03-13T13:46:00.000-07:00

Welcome to week 2 of my “The Week Ahead” blog. Last week proved to be quite profitable largely due to the BOE interest rate decision. For this week my currency focus has switched from the pound and the US dollar to the Euro and Japanese Yen. Please note that clocks have been moved forward in the US today for daylight saving time. Clocks are not moved forward in the UK for BST until the 27th of March and so economic data from the US will be announced one hour earlier than usual for the next 2 weeks. Here are my thoughts on the week ahead and the opportunities that may arise.

Investor Focus

Investor focus at the start of this week will be on Japan and the aftermath caused by it’s worst crisis since WW2. Japan’s largest earthquake on record and the following tsunami may not be the most costly natural disaster for Japan as the epicentre was not near any major cities, yet it has come at a particularly bad time for Japanese businesses which have been struggling lately. Particular attention should be paid to the Nikkei225 index on the open on Sunday evening through to Monday for a round of panic selling. A melt down at Tokyo Electric Power Co.’s Fukushima Daiichi No. 1 reactor could also cause further panic across global equities.

Economic Releases

There are a few interesting economic releases this week which could provide active investors with opportunities. Here are a few of the biggest:

18:15 Tuesday, FED interest rate decision. This is likely to be a none event with the FED very likely to keep interest rates at 0.25 with no indication of when this might change but is something to be aware of nonetheless.
12:30 Wednesday, US PPI numbers. This measure of inflation is usually seen in a historical context these days and doesn’t hold as much importance as the CPI numbers due to the switch of reliance in the US economy from manufacturing to consumerism.
12:30 Thursday, US CPI numbers. This event could cause market volatility as it will give investors an indication of the current inflation in the US which has been low until now but is projected to go higher. Gold in particular, being the classic hedge against inflation, may be volatile around this time. I will be looking to sell gold if this number is much lower than expected.

Currency Focus

Euro: The euro looks set to be the first major currency to start increasing interest rates since the economic crisis and this could have profound affects on it’s value and on the other currencies too. Worries over the debt levels in the periphery countries have kept pressure on the euro recently but early on Saturday European leaders widened the scope of the euro’s rescue fund, authorised it to buy government bonds and eased the terms of Greek bailout loans. This will pave the way for further euro gains over the coming months as the increasing interest rates take priority over debt levels. A strong euro could certainly lead to more problems for periphery countries as their competitiveness is further undermined but for now it should be a case of all aboard the euro express.

USD/JPY approaching resistance

Japanese Yen: Despite the wide spread damage caused by the earthquake last week the Japanese Yen actually went up against most currencies. This could prove to be short lived however, as the strong Yen is doing severe damage to Japan’s exports. The Yen has been increasing for some time now even though the fundamentals surrounding the currency and the economy are deteriorating. There has been talk over the weekend that the BOJ is preparing a massive round of monetary easing which will surely decrease the value of the Yen at long last. This could be a huge opportunity to sell Yen.

Watch List

EUR/JPY chart over 4 months

EUR/JPY: I will look to buy this pair as soon as I can hopefully around 114. I will place my stop loss at Friday’s low around 13.10 and will target the 116 level initially. This pair could go to 120 over the next month or two I believe.

USD/JPY, GBP/JPY: I will look to buy both of these pairs on a daily reversal candle or at the 81.20 and 80.40 levels for USD/JPY.

Gold: With the PPI and CPI numbers being released on Wednesday and Thursday there could be a potential chance to sell gold if inflation is less than expected as gold has been struggling after hitting all time highs last week.

Thanks for reading this weeks “The Week Ahead”.

GBP/USD Trade

2011-03-10T07:29:00.000-08:00

It was a big day for the pound today due to the interest rate decision announcement from the Bank of England at 12pm (GMT) which investors have been focusing on for the past few days. With the ECB hinting last week that interest rates in the Eurozone were very likely to increase in April, there was speculation in the markets that the BOE would also increase interest rates either today or next month.

How I Traded This News Event

Thursday started out with a strengthening of the US dollar and a change in sentiment towards it. The US dollar was up against most other currencies and looking to push higher still. The pound had been sliding lower over the previous few days but mustered a rally before the announcement. I was expecting the BOE to leave interest rates unchanged despite worries over inflation as the UK has recorded one quarter of negative growth already and an increase in interest rates would surely push the UK back into recession, the last thing the BOE wants on it’s hands. With the dollar strength in the market I knew this type of announcement would probably lead to a fairly big sell off on the GBP/USD pairing. I would have to wait, however, until after the announcement before entering to confirm that there was no shock increase in rates.

Let’s see how this played out:

After the announcement made it clear that there were to be no interest rate increases in the near future I sold immediately at 1.6162. I placed my stop loss 30 pips higher than this point at 1.6192 as I felt that if the rate went up to this level it would be clear that the trade idea was flawed. My first target price was at the intraday low at 1.6122 and this was hit around half an hour later. I would usually decide to take half of the position off the table here and let the other half of the position run until I see a green 15min candle. So my second price target would usually have been 1.6088 but I decided to take all my position off when it hit my first price target as it has been a very good week for me.

Eventual gain on this trade was 40 pips whilst risking 30 pips. As I risked 2% on this trade I made a final profit of 2.67%. As my premium members were also involved in this trade, this will be my first entry into the trading log.

US Oil Inventories

2011-03-08T16:00:00.000-08:00

Crude oil is the most traded non-financial commodity in the world and supplies 40% of the world’s energy needs. Today I’m going to take a look at the US oil inventories report which is the premier announcement of the week and one that oil traders across the globe look at closely.

Future Demand

The US oil inventory figures are issued by the Energy Information Administration (EIA) every Wednesday afternoon at 15.30 (or Thursday at 16.00 if there was a US bank holiday on the Monday). The figures include a summary of crude oil supply, consumer consumption and refinery utilisation but the most important figure is the headline change in inventory stocks. Despite being a US release, it gives oil traders the best idea of global demand for oil and directly affects the price of both US Crude Oil and Brent Crude Oil which is traded in Europe.

This figure is usually the one that impacts the price of oil in a relatively predictable way. If the change in inventories is positive this means that there is more oil in storage and so less pressure on demand in which case the price of oil tends to fall. If, on the other hand, the figures show that inventories have fallen, this could put pressure on supply so the price of oil tends to rise.

Expected Vs Actual

Market analysts and economists will give their view on what the change in inventories figures will be before the release. The average value of these views will form the market consensus and will be built into the price of oil before the announcement.

When the report is released and the actual change in inventories is known, it is the deviation from the expected number that is built into the price that causes the price to change. So if the actual inventories figure shows a two million decline when a 5 million decline was expected, then this would be negative for the price of oil as the inventories haven’t declined by as much as was priced into the market and so the supply pressure is not a great as thought. If the actual figure is very different from the expected figure then this is likely to cause a greater price movement than if the figures are similar. The price of oil can get extremely volatile around the time of the release so caution must be taken when trading at this time.

How I Trade The Announcement

I will sit down at my trading desk around 14.30 with a cup of coffee nearby and get the 10min, 1hr and 1day charts up of Brent Crude Oil to see if technical analysis of these charts can offer any hints as the where the announcement might take the price. A clear trend or previous day reversal candle are examples of when this might help. Then I will form an opinion on trader sentiment towards crude oil over the last week and over the last couple of days by looking at these charts and from a selection of news sources and comments. I then write down the expected figures and wait for the announcement to come. If the sentiment towards oil is good and the inventory numbers surprise to the downside I will buy confidently. If the sentiment is good but the inventory numbers surprise to the upside I will wait for a possible spike downwards and look to buy after it’s reversed or settled down a little. Vice versa for if sentiment is bad towards oil. This is obviously a simplification of my actions and my actions for any particular week will be unique to the situation but it gives an insight nonetheless.

Other Effects

As well as affecting the price of oil itself, the inventories number is also important for oil companies. Higher demand for oil generally means more profit for oil companies and vice versa. Some oil companies are extremely large companies and when their share price moves, their respective stock indices move too. For example, the FTSE100 is made up of 100 companies yet just two, Royal Dutch Shell and BP, make up over 10% of the market capitalisation which is something to bear in mind.

All Quiet On The Forex Front

2011-03-07T14:46:00.000-08:00

Today was a fairly quiet day in the markets despite gold hitting a new record price with few economic releases to excite investors. The US dollar recovered after a bad start to the day to rise against most currencies including the Canadian dollar. The Loonie has benefited recently from high commodity prices and crude oil in particular. Sentiment could soon change if risk aversion picks up and traders look to cash in some of their speculative positions. However, I am not going long on the USD/CAD pairing just yet as the US dollar could fall further and the dynamics for a change in sentiment are not quite there yet.

The Week Ahead

2011-03-06T14:53:00.000-08:00

Welcome everybody! So this is my first blog and I am very excited. This will also be the first of the “The Week Ahead” blogs which will be posted regularly on Sunday evenings whenever I get the chance. The purpose of these blogs will be to help other traders to plan their weeks better so that they are more prepared to deal with events as they unfold, to share potential set ups that will be grabbing my attention in the week ahead or simply to provide an entertaining analysis on the markets.

Investor Focus

Focus this week will inevitably remain firmly in the direction of the Middle East and crude oil. There is now a high chance of sustained violence and unrest in Libya the 11th largest oil exporter which should support the price of crude oil for some time. Sources say exports from the country are down by 1.6 million barrels per day. However, if unrest spreads to either Algeria, Saudi Arabia or Iran the price of crude oil really could spike a lot higher. Therefore announcements concerning these countries need to be watched very closely over the next couple of weeks.

Currency Majors Round-up

US Dollar: The US dollar has been under pressure for a long time now due to market pressures. The fundamentals speak for themselves with negligible interest rates that don’t look to be increasing anytime soon, a large deficit which will get bigger and the prospect of the FED pouring more dollars into the market via quantitative easing. The US dollar index measures the strength of the dollar against a basket of other currencies weighted on their size. Let’s take a look:-

As we can see from the chart the US dollar is in a down trend and is very likely to test the major support line around 75.75 in the next few days.

EURO: The Euro had a terrific week last week as ECB President Mr Trichet announced an almost certain interest rate increase in April. I expect further but limited gains this week for the Euro against it’s major rivals as the up trends continue. Peripheral countries will feel yet more pain if the Euro appreciates much more from here due to the decrease in competitiveness that will bring. The Euro, therefore, still faces many questions on it’s sustainability that are yet to be resolved and so should enjoy in time in the sun whilst it can.

POUND: It’s a big week for the pound this week after the ECB has indicated an interest rate in April to cool inflation. Investors will be listening closely to the Bank of England rhetoric for hints as to when an interest rate hike might come given that inflation in the UK is currently much higher than in the Eurozone. The pound could strengthen in anticipation of Thursdays event but has resistance to overcome at 1.6330, 1.6500 and finally 1.7 against the dollar. The BOE is stuck in a tight spot as inflation is well above the 3% target yet any interest rate increase could hurt the fragile recovery and the housing market especially in light of the government cuts on the way in April. They therefore may like to talk down the likelihood of interest rate increases until the government cuts have been implemented which could provide an opportunity to sell pounds against the dollar late in the week.

I shall cover some of the other currencies during the week.

Watch list

Markets that are looking interesting are put onto a watch list and are then given particular attention. This could be if there is a major economic release that is likely to provide a trading opportunity or if the price is entering into an interesting area like a major support/resistance line or pulling back to the moving average during a trend. Here are the markets on the watch list at the moment:-

GBP/USD- Thursdays interest rate decision may provide an opportunity to sell this pair if the Bank of England indicates it is not ready to start raising interest rates anytime soon.
USD/CAD- Reaching historical lows near major resistance. This pair doesn’t tend to stay below 1 for very long. Look to buy on strength.
CHF/JPY- Look to sell this pair on a reversal set up due to resistance level and overbought pattern.

Thank you for reading my first blog I hope you have enjoyed. I will try to include more charts next week.