InvestMacro

By Orbex

The economic calendar is rather barren for Australia this week, with consumer sentiment data tomorrow among the few relevant events.

That gives free rein for the markets to react to the weekend’s news, COVID-19, and geopolitical fallout. And it might just turn out that the Aussies are in a better position to weather the bumpy road in the markets.

There are several fundamental reasons to suggest that the AUD might be in for better performance going forward.

The market is still processing last week’s torrent of key data. This data was somewhat of a mixed bag, and the market is parsing it in with the latest events.

From that, there are some key takeaways that could show Australia is in something of a unique situation.

The Next Rate Cut

The only question that remains is whether the RBA will wait until the next meeting to cut rates, or whether it will announce measures ahead of time.

Compare this to money market rate projections in the US and the euro area. These see 75 basis points being cut at the next meeting at the latest.

That the RBA has already cut last week implies they don’t have as much cutting room as other central banks.

The ECB seems happy to plunge into negative rates. And the Fed has not come out opposing them!

The RBA has made it clear that it won’t cut that far. It will instead turn to non-conventional measures if rates reach 0.25%. That’s just 25 basis points away now.

It’s Mathematically Probable

Let’s assume the scenario that the world’s major central banks opt for a “shock and awe” response as traders, analysts and the market are demanding.

Following the next series of meetings, the rates in Australia would match the US’ and be significantly higher than the eurozone. Closing the rate gap with the US would likely support the Aussie, which did a pretty fair job weathering the last major economic downturn.

Widening the rate gap would make Aussie debt a good investment over the euro. We would expect the latter to come under renewed stress with the spread of COVID-19 through the EU, and potential measures to fight it.

Is it Rebound Time?

As China reports resuming factories, demand for raw materials from Australia would be expected to start ramping up as Chinese suppliers try to make up for lost time and fulfill pending orders.

Chinese importers are also expected to take advantage of the lower prices in commodities to snap up bargains.

Australia has managed to keep the spread of COVID-19 to a minimum. There have been just 93 cases so far. In fact, the country has one of the lowest infection rates in the region.

This is very different from the thousands of cases being reported in Europe, prompting major restrictions which could significantly affect the economy.

Keep an Ear to the Ground

Also, Australia imports almost all of its oil. This means it’s likely to see a net benefit in terms of lower production and transportation costs from the fall in the price of crude.

In the early morning, Prime Minister Morrison announced the government was working on a surplus package of AUD5-10B, aimed at supporting employment.

Naturally, the situation could change. Australia could have a major outbreak, or China could not be accurately reporting its return to economic activity. Or perhaps Saudi Arabia and Russia could resolve their differences, and so on.

By Orbex

Bob Moriarty of 321gold explains why he believes gold needs a correction.

By The Gold Report – Source: Bob Moriarty for Streetwise Reports   03/08/2020

In military aviation pilots are taught about an important concept called being on the Back Side of the Power Curve. For every aircraft and altitude there is a speed and power curve. Until the aircraft gets too slow things work just fine. A lot like the Fed. But when the aircraft flies too slow and drag gets too high, the addition of more power makes the situation worse. The aircraft stalls no matter how much power the pilot applies. A lot like the Fed.

On Tuesday the 3^rd of March the Fed surprised the market with a 50 basis point drop in interest rates. The move was intended to reassure the market that the Fed had things under control. The market in turn surprised the Fed by doing the opposite of what those investing using the rear view mirror believed.

The market tanked. Of course it tanked, the economy was on verge of stalling due to the highest debt level in history and just as it hit the stall point, the Fed jammed on the afterburner. Bad idea. But what a wonderful example of why pilots and the Fed should never add power when they are on the backside of the power curve.

Markets don’t trade on fundamentals or because of technicals. At every market top there are a hundred reasons to buy. That’s what makes a top. And at every market bottom there are a hundred reasons to sell, that’s how you know it’s a bottom.

Markets trade on emotion and if you can just measure that emotion with accuracy, you can make a lot of money or in the worst case, avoid losing a lot of money. I wrote about the propensity of the stock market to top based on nothing more complex than the Fear and Greed index on January 1^st.

On Friday March 6^th the Fear and Greed index became the opposite and then some of the late December reading as it hit a reading of 6. That’s really fearful.

Monday March 9^th is going to be an interesting day. The DSI (Daily Sentiment Index) for Treasury Bonds had a near all time high reading of 98 on Friday March 6^th. It’s only been higher one time, which was back in December of 2008.

The DSI may bounce around at record highs for two weeks as it did in December of 2008 during the GFC but there is another interesting issue that makes me think we will have a turn almost at once. The 9^th of March marks a full moon and according to Tom McClellan his research showed that at full moons, markets tended to either accelerate in the direction they were moving or do an immediate U-turn.

Gold has wanted to correct for a couple of months. Gold shares peaked relative to gold at the start of the year at exactly the same time as I was saying to beware the stock market. I started to lighten my percentage of shares to cash during what was a great time to be selling shares. I have kept my core positions but selling when you have a profit beats the hell out of selling at a loss.

Gold needs a correction. Two weeks ago the DSI on gold hit 96 and that says things are getting frothy. I always get a lot of hate mail when I point out that gold and resource stocks sometimes go down but that just tells me I have nailed it.

We have entered the Greatest Depression. The latest chaos in the stock market is just the beginning. It’s going a lot lower. And likewise, bond prices could go higher with gold. But when everyone is on one side of the boat, that’s not a percentage bet.

Meanwhile the coronavirus spirals out of control. In the U.S. the number of cases went up almost 400% in a week, from 68 on the 29^th of February to 378 on the 7^th of March. That’s nothing. In France cases exploded higher from 100 cases on the last of February to 653 a week later for a 550% higher reported number cases in a week. Germany showed a 750% increase in coronavirus cases in the same week.

The travel industry is being destroyed. The world faces a critical shortage of medicine starting at once. Airlines may as well fold now and get it over with. The coronavirus will not cause the Greatest Depression. That was on the cards already due to the incredible amount of debt in the world that will never be paid. The virus is little more than a catalyst but it is a black swan of black swans and makes for a handy excuse.

Meanwhile the latest act out of Washington is Donald Trump playing Archie Bunker in a comedy with tragic overtones with Mike Pence cast as Barney Fife. Pence believes you can pray away an outbreak of a deadly virus while Trump believes women only have two important attributes and you can conduct world affairs on Twitter.

Anyone appointing a born again Christian who believes in neither science nor evolution as the leader of the U.S. fight against a deadly virus is an idiot. But it’s a case of the blind leading the blind.

Readers, don’t be tempted to consider writing a novel or a screenplay to be made into a movie using our own Archie Bunker and Barney Fife as characters. If your plot was identical to the facts it would be rejected as being too far fetched to be believed.

The stock market hasn’t finished its crash. The Everything Bubble just blew sky high and the ensuing deflation is going to take everything down.

Bob Moriarty founded 321gold.com, with his late wife, Barbara Moriarty, more than 16 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.

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By IFCMarkets

Smaller than expected recovery in French industrial output bearish for EURUSD

French industrial production rose 1.2% over month in January after 2.5% decline in December, when a 1.8% growth was forecast. This is bearish for EURUSD

Summary of technical analysis

Market Analysis provided by IFCMarkets

By TheTechnicalTraders – If you do not understand implied volatility and you are buying put or call options or some combination, you have been warned!

The market continues to move very fast, has large swings, and one would think that makes it an excellent time to buy options for huge gains, right? Our Research Team believes that large Volatility swings will be here for a while. Once you understand the significant role Volatility plays in Option Pricing, you may want to avoid this investment construct for some time to come.

The VIX is at an extreme level and has only been over 50 only seven times in the past 25 years based on a daily closing price. It evident the last two trading sessions the investment sentiment has been bearish and option puts make money if price declines, which has been the popular trade of choice until now.

What many options traders do not understand, however, is that the price of options is configured using implied volatility.

The more volatility, the more expensive the options become to factor in the wild swings the underlying security may experience. This is reflected in the price the option trades off to factor in the fear and trepidation.

This can be seen in the substantial premium on top of the intrinsic pricing from the strike price.

Be sure to opt-in to our free market trend signals before closing this page, so you don’t miss our next special report!

For example, bank stocks are usually considered very conservative when implied volatility is under 20. This results in options being priced accordingly.

However, in the last few trading sessions, volatility has jumped, reaching 62 at one point this week already, which is more than 3x what you would want when simply buying options. This is a VERY HIGH RISK and a difficult time to buy options. Unfortunately, this is what most options traders do, they BUY options, and while it may work in most market conditions, this is most likely NOT the time you want to do so until such time Volatility and VIX begin to subside and we do not see that in the near future.

Let me try to explain in the most basic laymen terms because I know 95% of options trades don’t really get this, and it boggles my mind. As you know, or should know, buying options is one of the riskiest and hardest ways to profit from the market, in my opinion (and statistics continue to prove this out as MOST option buyers LOSE money). I traded options years ago and do very little options trading now, though they are still a great way to make money with certain trade setups and in certain market conditions.

Options Risk #1: Time Decay/Theta

In short, trying to time the market with an index, stock, sector, commodity, or currency is hard enough, but when you buy options, you make things a whole lot harder for yourself. Not only do you need to time this almost perfectly so that the underlying asset has time to move, but you need to time it with precision because now the time is your enemy (Theta).

Every day the option contract you bought is going to lose value because you lose time, and there are fewer days left for your asset to move in the direction to make up for the large premium embedded in the option price. Each day this time premium begins to erode. The closer you get to the time expiration, the faster the time premium decays.

Options Risk #2: Implied Volatility

This is the main issue I want to share and the reason for writing this article for you.

If options are valued in relation to implied volatility (which they are), then when the volatility is above 50 (62 as of Monday, March 9) and the option is worth $1,00.

Here is the issue, even if the price of your asset stays the same, but the fear in the market fades away as it always does from this extreme level, your option value will decline dramatically. I’m just using numbers out of thin air for the example so you can grasp the issues easily.

If implied volatility drops from 62 down to 35, the option contract value will go down with the volatility as well. The $1.00 contract priced with huge volatility could now be worth $0.85 overnight.

If you traded a short-term option contract, then you will also have time decay, and your option would drop even more to say $0.82.

Remember this is the type of price action you will experience and the VIX falling (and fear subsiding) and even if your asset price just stays the same you have the potential for a significant loss and is the reason why buying options during extreme high volatility is not the trade that should be taken.

Options Trading Tip

If implied volatility is over 25 then 
it is usually better to be a seller of options, 
if it’s under 25, then its often better to be a buyer.

So what does a trader do? 

We encourage investors to use probabilities to work in your favor!

You could put on debit spreads: This way, some of the volatility is reduced as you sell a put or call, so the volatility premium is now in your favor, and time decay is mitigated.

OR

Sell it to those people that are so sure of this big move!

We have already identified that we are in a period where the VIX in an area very rarely seen. But since the VIX can stay here for a while, a more logical option move may be to sell calls going out into the future. Due to contango, it will retrace back down as the contango effect will begin to change as trader sentiment improves, and fear is reduced.

Credit spreads have so many advantages over simply buying calls and puts

• Defined risk – Can only lose the difference of your strikes less the premium received.
• If the trade starts to go against, you have backup options to manage risk.
• Roll the trade to a future date giving your trade time to work out.
• Sell another option spread opposite of your existing trade (if a put spread on place a credit call spread, this creates an iron condor) now giving you a larger cushion for the trade to work as you received more premium.
• Buyback the offending strike at a loss and let the profitable strike run if you feel it has legs.
• Buy a put to defend your spread further out in time as theta decay does not get affected as quickly.
• Use a stop loss of 2x or 3x premium received etc.
• or take possession of the stock
• Income – selling out of the money credit spreads can be an effective way of generating a passive revenue stream

RISK REWARD is most important, and it is critical to get into the right trade at the right time. Remember that theta-neutral trades and buying options are when implied volatility is low. Selling options, when implied volatility is high, is your best option.

• This is where we are right now.

I hope this helps shed some light on the basics of why buying options during high volatility is an uphill battle, no matter how good your timing is to predict the movement of the underlying asset you are trading.

In the near future, my team and I will make our options trades available to follow. As you know, timing the market is our specialty. Knowing what time frame an asset will rally or breakdown, and how far its first move will give us a distinct advantage to pinpoint the ideal option contracts to consider buying or selling for maximum short-term gains.

Happy Trading!

Chris Vermeulen

TheTechnicalTraders.com

By George Prior

Global stocks are rebounding on stimulus measures and can be expected to recover considerably by the end of the year, affirms the CEO of one of the world’s largest independent financial advisory organizations.

The comment from Nigel Green, CEO and founder of deVere Group, comes as shares in the Asia-Pacific region jumped and European indices opened higher on Tuesday, recovering from dramatic losses on Monday following the increase in the number of certified coronavirus cases and the oil price war that ignited over the weekend.

Mr Green notes: “Stock markets will rebound quickly on news of stimulus measures to be implemented by governments around the world to help cushion the economic impact of coronavirus and the oil price war that developed over the weekend.”

China has an investment plan for this year of tens of trillions of yuan, including gas pipelines and nuclear power plants.

U.S. President Donald Trump has pledged a “major” economic relief package, potentially to include a payroll tax cut.

The UK Chancellor is expected to announce a raft of emergency measures to support businesses in his first budget on Wednesday.

Meanwhile, Australia’s billion-dollar coronavirus stimulus package is likely to include one-off cash payments to certain groups.

The deVere chief executive continues: “The stimulus packages within major economies, together with the practical measures being taken to limit the spread of coronavirus – such as Italy’s Prime Minister Giuseppe Conte placing the entire country on lockdown – plus China signalling that the outbreak has peaked with a visit to Wuhan by President Xi, will serve to calm markets.

“We expect global stock markets – which are actively seeking bullish signals – to have recovered significantly before the year end.

“Right now investors, such as myself, are using this wave of volatility to review their portfolios where necessary and, importantly, to drip-feed new money into the market.

“A growing number of investors are going to be taking advantage of the current lower entry points to enhance their portfolios in the near-term.”

The deVere CEO concludes: “Markets are rebounding and it is likely that they will recover significantly by the end of 2020.

“Investors need to ensure that they remain in the markets with well-diversified portfolios and should consider topping up their portfolios sooner rather than later in order to create, grow and protect their wealth.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.

Article By RoboForex.com

EURUSD, “Euro vs. US Dollar”

As we can see in the H4 chart, the pair continues growing. By now, EURUSD has completed several reversal candlestick patterns, such as Shooting Star, close to the resistance level. Right now, the pair is still reversing. We may assume that later the price may move to reach 1.1250. However, one shouldn’t exclude a possibility that the price may continue growing without any pullbacks towards 1.1250.

USDJPY, “US Dollar vs. Japanese Yen”

As we can see in the H4 chart, the fundamental background made USDJPY fall. After testing the support level, the price has formed several reversal patterns, including Hammer. Right now, the pair is reversing. The current situation implies that the price may grow to reach 107.10. At the same time, the pair may choose another scenario, according to which the instrument is expected to continue falling towards 101.20 after a slight correction.

EURGBP, “Euro vs. Great Britain Pound”

As we can see in the H4 chart, after testing the resistance level again, EURGBP has formed several reversal patterns, such as Shooting Star. Right now, the pair is reversing. At the moment, we may assume that later the market may form a new pullback towards 0.8645. However, one shouldn’t exclude an opposite scenario, which implies that the instrument may continue the rising tendency with the target at 0.8800.

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

Article By RoboForex.com

GBPUSD, “Great Britain Pound vs US Dollar”

GBPUSD is trading at 1.3045; the instrument is moving above Ichimoku Cloud, thus indicating an ascending tendency. The markets could indicate that the price may test Tenkan-Sen and Kijun-Sen at 1.2975 and then resume moving upwards to reach 1.3315. Another signal to confirm further ascending movement is the price’s rebounding from the support level. However, the scenario that implies further growth may be canceled if the price breaks the cloud’s downside border and fixes below 1.2780. In this case, the pair may continue falling towards 1.2675.

XAUUSD, “Gold vs US Dollar”

XAUUSD is trading at 1656.00; the instrument is moving above Ichimoku Cloud, thus indicating an ascending tendency. The markets could indicate that the price may test the cloud’s upside border at 1625.00 and then resume moving upwards to reach 1720.00. Another signal to confirm further ascending movement is the price’s rebounding from the rising channel’s downside border. However, the scenario that implies further growth may be canceled if the price breaks the cloud’s downside border and fixes below 1605.00. In this case, the pair may continue falling towards 1575.00.

USDCAD, “US Dollar vs Canadian Dollar”

USDCAD is trading at 1.3623; the instrument is moving above Ichimoku Cloud, thus indicating an ascending tendency. The markets could indicate that the price may test Tenkan-Sen and Kijun-Sen at 1.3565 and then resume moving upwards to reach 1.3845. Another signal to confirm further ascending movement is the price’s rebounding from the rising channel’s downside border. However, the scenario that implies further growth may be canceled if the price breaks the cloud’s downside border and fixes below 1.3305. In this case, the pair may continue falling towards 1.3210.

Article By RoboForex.com

Attention!
Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex LP bears no responsibility for trading results based on trading recommendations described in these analytical reviews.

By Orbex

The bloodbath has begun.

The Monday morning trading session was one for the history books. The S&P’s drop flipped the market switches following a 7% plunge.

Despite all eyes turning to the oil price war which we saw escalating over the weekend, there is way more to the capital flight than just that.

And there is far more than just the coronavirus outbreak and US’ delayed response to it.

Dollar Weak Since Sanders Emerged as Front-Runner

The international and political implications of a Sanders win are what first showed the initial signs of capital flight to the safe-havens, namely the yen and Swiss franc.

Bernie is well known for his focus on health care and has succeeded in winning the support of African American and Hispanic voters.

When combined with the coronavirus outbreak and how poorly the Trump administration has responded to the health emergency so far, Bernie’s “Medicare for All” was a clear component of his win in Nevada’s caucuses.

Despite Biden’s bounce back following the Super Tuesday victory, the possibility of a full Democrat House remains real now, posing another threat to equities markets.

Virus Emergency Opens Doors to Coordinated Response, But We See None Yet

Although we can’t say that Japan, Italy, China, the US, and others have taken the correct steps at the right time, we can expect fiscal and monetary measures to take place soon.

It isn’t just about locking down the entire country to help reduce the spread of the pandemic. It’s also about how the pandemic will continue to affect global economies.

With that in mind, the emergency rate cuts are obviously adding a bitter taste to the disaster. However, this isn’t to blame for Monday’s crash either.

We know that the ECB is likely to follow suit and dive into deeper negative territories on Thursday. Theoretically, this will add pressure to a soaring euro. But will easing be beneficial at this stage, or will it increase the risk of recession?

At the end of the day, if no one goes out to spend, GDPs will suffer even further than they did thanks to the downside of the trade war.

G7 should really act quickly and bring central banks and governments together to stem the crash.

Was the Oil Price War the Final Flourish?

Investors currently seem to be shrugging off any news that is unrelated to the oil market. However, this is likely to change with Washington’s response.

Saudi Arabia’s decision to go into an oil price war with Russia was one that affects all governments and economies and dents the global outlook.

However, the triggering of the “circuit breakers” spells something bigger than the historic ceasing in equities trading.

By Orbex

By IFCMarkets

Ready for the publication of inflation data in Poland

Such a movement means weakening of the Polish zloty against the euro. Now the rate of the National Bank of Poland (NBP) is 1.5%. The next meeting of NBP is to be held on April 8. Lower rates can have a negative impact on the zloty exchange rate, as the country has high inflation. In January, it amounted to 4.4% in annual terms, which is the highest since December 2011. The NBP was even forced to raise the official inflation forecast for 2020 to 3.7% from 2.3% in 2019. At the same time, Poland lowered the forecast for the growth of their GDP to 3.2% this year from 4% last year. February inflation data in Poland will be released on March 13 and may affect the zloty rate.

Summary of technical analysis

Market Analysis provided by IFCMarkets

By Orbex

EURUSD Maintains Bullish Gains

The euro continues its onslaught, rising against a weaker US dollar. Price action is within reach of the 1.1500 level. Price action gapped higher on Monday’s open near the 1.1300 handle. There is a risk that price could retrace gains to the gap. The momentum could recover unless the Stochastics oscillator manages to break the bearish divergence.

WTI Crude Oil Bounces off 2016 Lows

Crude oil prices fell over 30% on the day on Monday’s open. Price fell to 2016 lows of 28.00 before recovering. The declines came as Saudi Arabia started a price war following Russia’s reluctance to cut oil production. The rebound could see a possible retracement to the declines. However, it is still too early to call a bottom in prices.

GBPUSD Retreats Off the Resistance Level

The pound sterling is building a strong momentum to the upside. Price action briefly tested the resistance level near 1.3200 before slipping back. We expect prices to consolidate within the 1.3200 and 1.2960 level. The Stochastics oscillator has slipped back from the overbought levels. A renewal in the momentum will see price likely retesting the resistance level once again.

XAUUSD Retreats After Hitting 1700

Gold prices surged on Monday’s open to test the 1700 level. However, price action retreated off these highs. The lower support level of 1655 will be in check for the moment. Below the 1655 level, the next main support is at 1632. Unless prices reverse near 1655, we expect price action to remain subdued to the downside.

By Orbex