It’s a low-news day today in August, the kind of time when lucky people are more likely to be at the beach on holiday than sitting at a trading desk. Despite the quiet markets, there are a couple of stories worth telling as New York gets underway.
Firstly, Bitcoin at the London open was looking a little frightening. Not quite a bursting bubble, but beginning to show the first signs. However, recent hours have seen traders, investors and speculators push the price up above the crucial new resistance level of $3934.40. If the price can close today clear above that level, then the daily chart candlestick will be a large bullish pin candlestick, suggesting an ongoing upwards movement in the price of Bitcoin is probable over the short term.
Secondly, the only major data release due today was the Canadian Core Retail Sales. The market was expecting the number to be completely flat and unchanged, but the result was an increase of 0.7%. This boosted the Canadian Dollar, notably against an otherwise strong U.S. Dollar. The Canadian Dollar has already been gaining over recent days and weeks, and the USD/CAD currency pair hit a new 3-week low of 1.2526.
Everywhere else, it was a story of modest gains for stocks and the U.S. Dollar.
In yesterday’s preview of the upcoming FOMC Meeting Minutes release, I highlighted that the most probable tradable incident would be if the statement contained language doubting increasing inflationary pressure, going on to recommend that if this occurred, stocks and the AUD/USD currency pair should be the best vehicles to trade, in the long direction.Continue reading…
A few hours from now, at 7pm London time, the Federal Reserve will release the minutes of the recent FOMC meeting, the contents of which will be keenly examined by the markets, which may then generate significant moves in USD and stock prices. It’s a simple action of a release of a statement (the minutes), and that is it.Continue reading…
If I had all the time in the world to trade, and was able and willing to sit at my desk for 16 hours per day from Monday to Friday, I think I would probably follow a strategy of looking at all the major currencies, commodities, and stock indices, and asking myself constantly, “where is the real flow”? Continue reading…
Korean tensions have been cooling off a little. There is no sign of North Korea’s vaunted missile test towards the U.S. territory and military base in Guam, although there have been some preliminary signs that a submarine launched missile test may be imminent. If such a test is conducted, it will certainly raise tensions still higher. Despite these factors, nobody is expecting war might break out imminently, as North Korea will probably achieve its near-term strategic objectives simply by conducting successful missile tests, and the U.S.A. would need to move more military equipment and personnel closer to Korea to be able to launch a credible strike at the North Korean leadership and nuclear weapons.
A new North Korean test would certainly hit stock markets and other risk assets, and would be highly likely to boost safe-haven assets such as gold and the Japanese Yen, despite the paradox of Japan’s location as a potential target for a North Korean strike.
A full-scale war would certainly be won by the U.S.A. but at a very high cost to South Korea. North Korea possesses the largest artillery force in the world, and South Korea’s capital Seoul is well within its range. Seoul has a population of more than 25 million people and senior U.S. military personnel estimated in 2005 that it would be very difficult to protect Seoul over the first 24 to 28 hours of a conflict, and resultant casualties from even a conventional attack might be as high as 100,000 people killed, plus massive structural damage. With this in mind, in addition to the emotional bonds felt by South Koreans towards their kinfolk in the North, it is understandable that the South Korean leadership has begun making public noises against war. This, in turn, places the U.S. in a tough position: whether to allow the development of nuclear-tipped ICBMs by North Korea, with the possibility that such weapons might be exported to or otherwise shared with Iran, leading to a subsequent deterioration of American power in Asia and the Middle East, and an increased vulnerability of the U.S. homeland to nuclear attack or nuclear terror. Yet the alternative would be triggering the most terrible war the world has seen in a lifetime, against the wishes of South Korea, which would bear horrific casualties.
After yesterday’s exchange of threats between the U.S.A. and North Korea, which have had a clear effect on short-term market sentiment, it was unclear how the situation would develop. The North Korean threat seemed to clearly indicate a missile attack on the U.S. military base in Guam. This would be a clear casus belli, and would seem to make no sense as a strategic move if the threat was carried out by North Korea.
North Korean state media are now saying that the proposed missile test towards Guam is being planned and put before Kim Jong Un for a decision within a few days. Although few analysts are expecting war to break out, North Korea has carried out all its threatened missile tests in recent months, and so has established some credibility. It might be that there are behind the scenes negotiations currently running between the U.S.A. and North Korea, and this threat is North Korean pressure as part of these negotiations. After all, Kim may announce he has decided not to pursue the test. Yet what if North Korea goes ahead with a successful test? How will the U.S. respond? This is the question, and the answer to that may well determine how market sentiment looks going into next week. If North Korea calls off the Guam test, risk on assets such as precious metals might stop rising. If such a test goes ahead and is successful, tensions will rise and we can expect precious metals to spike and stocks to sell off.
Although threats of war in Korea can be expected to boost safe havens, and have done so, the movements have not been very large, and as Rex Tillerson moves to calm the rhetoric, few are expecting to war to break out over the coming days. However, it has been a while since we had a clear “risk on” market move, and as there is a growing conviction among analysts that stocks and risk are overpriced, this movement we see beginning now could be the start of a new trend.
I might be wrong, but I just got out of stocks, as yesterday’s sharp dive from new highs on the Dow Jones has spooked me. We also see the Japanese Yen and precious metals dominating the market with strength, and the U.S. Dollar advancing everywhere else, except energy.
This “risk on” move may die away quickly if tensions dissipate, but what happens over the next few days may give us some clues as to where the market might start to go when the holiday season ends in a few weeks.
It is August, the early part of the week, and there is an extremely light news schedule. Taken together, these are classic reasons why the market should be so extraordinarily quiet, as it is. For those of us not off enjoying a holiday somewhere, this can be a frustrating time: you can’t extract much alpha from markets when they are barely moving! Ironically though, there is at least one hot market boiling over right now – Bitcoin. The crypto-currency, after its “hard fork” last week, has gone to make new all-time high prices, rising by more than 22% since last Friday’s close alone!
Although there is a lot of fear that this is a bubble prone to bursting suddenly and spectacularly, I think this is a great asset to trade on a short-term basis, provided you use low leverage. It is trending strongly, and by using stop losses and very low leverage, you should be able to protect against catastrophic losses, although significant slippage in the event of a crash is a reasonably likely eventuality.
A big part of successful trading is the correct utilization of opportunist instincts. What that means in plain English, is making sure you get a piece of what’s going on right now. It is all very well to stay on the sidelines, and a great thing about retail trading is that you are under no pressure except that which you put on yourself. Yet, it is possible to be too cautious and overly restrictive of the assets you trade. If you can trade Bitcoin, and you really need a positive chance of making some good profits this month, it is probably a good idea to make sure you are in the frame here. The BTC/USD pair is the usual way of trading it, and this pair has behaved very technically, respecting obvious support and resistance and trend lines, so it is very “tradable”.