Open Account Trading Carries Risk

Equities sold off yesterday in the US and the bearishness continued today in Asia. The early signs of strength turned out to be even more temporary than the bulls expected. Investors reallocated funds from stocks into cash and government bonds to seek some relative safety as market participants fear the Russia’s war against Ukraine could turn into an even more serious conflict. In addition to the more traditional risks related to China’s zero tolerance policy on corona virus and Fed rate hikes we now have Russian foreign minister Lavrov making veiled threats to the Nato. According to Reuters “Lavrov warned the West on Monday not to underestimate the elevated risks of nuclear conflict over Ukraine”. Stock markets aren’t likely to produce capital gains when investors have to integrate something as horrific as nuclear war into their risk models. By reading further, you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.

Russia leaders are known for constant bluff when it comes to their actions and intentions. Therefore, Lavrov’s comments could be taken as signs of weakness in the Russia’s war machine in Ukraine. It may well be that Russian leaders realise their goals in this war cannot be reached and they therefore try to do all they can to discourage the Nato countries from helping Ukraine. 

Traditionally stocks suffer and safe haven markets like gold do well in extreme circumstances. Now the price of gold hasn’t yet reacted to the upside as investors seem to be focusing on Fed’s rate hikes that are expected to be aggressive and yields have been rising. Gold as we know, doesn’t have a yield and as long as the Treasury bonds trade lower (yield rises) gold stays less attractive than the USD. 

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NZDUSD 30 min chart 04 27

NZDUSD dived lower without taking out the 0.6644 peak. My alternative scenario was that the market would (if it can’t rally) move to 0.6560. This target was reached in today’s trading. Yesterday’s low was breached but the nearest key support level is fairly close by. The January 28th low at 0.6529 is only 0.33% below today’s low print. Therefore, even though the market is weak it’s not likely to drop significantly without some external shock that would suddenly soften the bids significantly. The nearest key S&R level are at 0.6529, 0.6550, 0.6590 and 0.6615.

Gold 30 min chart 04 27

Gold is trading in a sideways range near to a key support level at 1889.70 but there’s a bearish element to it. The market is making lower highs inside the range suggesting that the pressure will build on the lower end of the range. If gold breaks out of the range decisively we should see the market moving at least the width of the range. On the downside this would mean gold probably moving to 1873.78 and on the upside to 1927.27. We can’t know which way the market will go but if the downward sloping channel holds then the break has to happen to the downside.

USDJPY 30 min chart 04 27

USDJPY hit my T1 level (at 127.10) before bouncing higher. Now the market is testing the rising trendline again but this time from the downside. With both the USD and JPY being safe have currencies the USDJPY pair might not stage rallies or drops and we might see further consolidation between the latest high (at 129.40) and the downward sloping channel low (currently at 126.95). The nearest key intraday levels are 127.72 and 128.20. A rally above the level could take the pair to 128.75 or so and a decisive break below the 127.72 support would probably push the market near to the 127.10 again.

Macro Drivers for the USD 

As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.

The Federal ReserveSeveral FOMC members support 0.5% rate hike in May. The Fed is prepared to taper by $60B of treasuries and $35B of mortgage back securities per month.
StimulusThe Fed is looking to scale down its bond-buying program (QE) but has signalled that it be careful with tightening due to the war in Europe. 
YieldsThe US 10-year treasury yield has risen to 2.187% as investors sell the bonds and adjust to the expected rate hikes. 
EmploymentThe March non-farm payrolls increased by 431K while the analyst consensus had predicted 492K new jobs. The unemployment rate dropped to 3.6% and average hourly earnings were in line with expectations (0.4% vs. 0.4% expected). 
InflationThe annual headline inflation reading for January  came in at 7.5% (7% prior). This was the highest CPI print in 40 years. The core CPI (all items less food and energy) was confirmed at 6.0% (5.5% previous).

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 The Next Main Risk Events

  • USD
  • EUR – ECB President Lagarde’s Speech
  • JPY – BOJ Outlook Report
  • JPY – Monetary Policy Statement
  • JPY – BOJ Press Conference
  • USD – Advance GDP q/q
  • USD – Advance GDP Price Index q/q
  • USD – Unemployment Claims
  • CHF – SNB Chairman Jordan Speaks

For more information and details see the TIOmarkets economic calendar here.

Trade Safe!

Janne Muta

Chief Market Analyst
TIOmarkets.com

Open a VIP Black account now at www.TIOmarkets.com. We want you to be able to exploit trading opportunities in financial markets with 0 commission and tight spreads. Take advantage of the best trading account in the industry: Tiomarkets VIP Black. For more details on this truly exceptional offering see here. For more analysis and commentary, visit our YouTube channel where you can find market commentary videos to support your learning and growth as a trader. 

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