Markets Stabilise But Gold Continues to Rally

Okay, good morning. It is Wednesday, 19th of February. I'm going to get you up to speed with a couple of the major news items from late last night on Wall Street and overnight in Asia, and then a look at the charts and how things are shaping up for the day ahead. And as you can see from the headlines here, this is the kind of Bloomberg opening wrap. Stop Stock futures advance, yen retreats, oil climbs. So this would all be indicative of a kind of risk-on mindset, and it does come after this kind of main bullet point here: China considers proposals to aid the nation's virus-hit airlines. Now I'll talk about this in a moment, but generally that's given the market a little bit of reprieve overnight. It did follow on from a general reversal that we saw from this time yesterday when the market was feeling the brunt of that Apple revenue warning that we saw and that gap down in equity markets. But let's, let's start with that as a talking point, because you remember in the briefing yesterday I was kind of giving some warning almost of not getting too blinkered by the fact that there's been a big move overnight. Obviously, one of the world's most influential and largest companies has had an impact to reverberate across assets, given the fact that not only is it singularly a large company, but it almost starts to make the reality of the impact of the virus somewhat real. But the whole point was, as I was kind of stressing, was I didn't really think that that was particularly that surprising. I mean, Apple— I mean, to give you an idea, I think Apple's up about, was it 80% on the year, or 80% from June low that we had from last year. So, you know, to think that really, um, this was a surprise. It's that kind of emotive knee-jerk reaction, but rationale reality returns. And you know, this was the, this was the chart unaltered that we were looking at yesterday of the S&P 500, and these rectangle boxes were those areas that we were looking at as potential opportunities to get long the market again, depending, depending on your kind of risk appetite how conservative or not you wanted to be in. You know, you can see there with that rectangle on the low side, we did get down to that S2. So it's a little bit rough around the edges on, on getting in on that previous low and high that you can see, high on the, on the 6th and the low on the 13th. But the prevailing idea did pay off in that sense. We had a little bit of push downside at the open, and then from that point we just continue to rally up, and you would have had a nice logical targets. Yesterday's levels up and around what would have been the pivot, which coincided with the gap-down opening price on electronic trade. As we were saying, I think a push back up to the consolidation of around that area of the all-time record highs that we saw at the beginning of the week, I think would have been a little bit optimistic. So managing the trade up accordingly would have paid off. And for now, that buy the dip mantra is still holding true. Um, the other thing as well that was quite in play yesterday was— well, let's talk about from a risk perspective. Although equities did bounce, I think from an investor's point of view, having some exposure and not having a bit of FOMO as well on an asset that's been moving, uh, very rapidly was gold yesterday. And you can see here, gold really started to fly a couple of interesting technical points here. Let me move this down to a longer time frame. So for one, obviously we managed to break above quite a key level, which was the year-to-date— I mean, X-ing out that sort of Middle Eastern blip that we had. This is the second highest print that we had back in early Feb. So we managed to smash through that yesterday, and when we did, there was quite an interesting setup. So I was actually talking to, in the afternoon, a group of our traders in Bahrain. And at the time, we were looking at this area of price action. And I'll talk you through, because we, we went through and shared a trade, um, as a group. And what we were looking at— if I just get my rectangle to make things a bit clearer— at the time, the price action what we were focusing on was this price action here. Now, just to talk you through what the, the thinking was was that we were looking at, at the time, the price was coming back down after we had a little bit of a push-up in equities. At one point looked like we were recovering. Gold came back down, and we were looking at this, this kind of, uh, opportunity that was around. If I put a horizontal line on these previous, uh, range of the highs that were seen during the European morning, and then looking at a potential long opportunity depending on how the other asset classes were performing to be indicative then of that risk-off environment. And so having a stop placed just underneath, uh, the R1 as a bit of protection, and then trying to play the market back up using the entry point at around that zone between the R1 and the previous highs, and then targeting then the move back up in order to play out then the previous high that would have been around the R1, and then the $1,600 handle And actually, when we were in that trade together, we were out of the entire position at $1,600, but then you can see it smashed higher, and you can see how psychologically $1,600 could be quite a key area. You get the extension on the break of $1,600, just psychologically you get a $2.50 snap higher, comes back. Yeah, you would have been quite brave at the time, I think, to then take a long at that point on the Classic, although it would have certainly have paid off very well, but given the fact that the market already came up fairly quickly, about $8, to join the market that late— yeah, as I said, it did pay off, um, but I guess it's kind of the— your appetite again and how risky you want to take on that point. So we've now formed a little bit of a range. This is kind of the, the method of which gold tends to move. You kind of get these periods of consolidation, then we break consolidation. And so what's quite interesting to watch now this morning as we come into the European session again is, you know, now we're breaking back above and we're targeting 1610. You know, does this now act as another floor here around the top end of what was yesterday's range and overnight Asia Pacific to then push up again and go for another run on the upside? So that was gold. The other one was euro that we were looking at, and for the euro there's a couple of interesting things I just want to have a look at. So let me just remove this camera feed so you can see everything. So I'm going to start with the euro on a longer time frame. There's a couple of key technical points which we've been looking at for a while, and this starts to put into context price activity over the last 2 and a half years. This is the one that Sam's been talking about for a while, and it was that Macron gap up that we had in kind of April-May time of 2017. The euro jumped up because he kind of forced out then the possibility of the National Front and Marine Le Pen coming in, and that was a net positive for euro at the time. We retested then, now back at around the second part of that one, confirmation of Macron, and we kind of pushed on. But we broke that yesterday, and obviously that was quite a key level, um, not that it was the singular reason but more kind of generally negative economic data coming out of Germany, this time by way of ZEW, with the economists and analysts being quite pessimistic in the soft data about the forward-looking economic future. And that bumped us down quite aggressive. But what's interesting here is when you look on the dailies is, you know, when the market, as it did yesterday, sees this quite aggressive break, you see you had that kind of double bottom test of those levels that were seen overnight in the Asia-Pacific session, We had a test in European morning. On the third attempt on trying, we break, and quite a steep and fast fall down. Now, where did we get to at the bottom of that to find that initial low? Well, we go back to the dailies. That was exactly bang on where we were on that previous move before the gap up that was seen on the Macron move. So again, it's not, you know, it's not rocket science. It's just technical patterns as to identify then if you were in the short, where is the market going to target and respond to, then it was at that point. Now, one of the things that I think was quite clear yesterday was that, I mean, obviously, as you can see here on the daily, the euro is in a downward trend and has been for quite a while. As we've discussed, the dynamics between quite a firm dollar recently with generally deterioration in a lot of the eurozone economy has put greater weight. And there's a few other technical points of interest. For one, you can see this like long-term descending trend line we've had going back to 2017, multiple tests, and has held through 2018, 2019. Now we did break through that yesterday, so again acts as more weight in order to snap through some of the price action, the extension on this latter part. This is this line coming in here to get down to the lows. But equally so, now you can see how that's acting on the long term as a little bit of a double top just on the horizontal line here from a clear resistance, but then you've also got that long-term trend line coming in just above. So what's going to be quite interesting today is, does the euro now— is this quite a strong level of upside resistance, if you like, and now we continue that longer-term downward trend? If all things remain equal, we have dollar holding up but generally euro weakness, and we drift back down. And obviously the levels to watch now are going to be on the range low. So this type of area here, and then subsequently the low that we had on initial spike yesterday. What was quite interesting, um, was what I was looking at yesterday again with some of the guys in Bahrain was we were— we, we— it's an afternoon session I do with them in their evening, so we missed that initial downward move. But the discussion that we were having as a trade strategy at the time was, well, if you actually look at that, that fall then technically speaking it was quite a lot of momentum. And the reason for that is because it's almost like a technical— what I'd refer to as a bit of a trapdoor. We break long-term level of significance, it really gets some momentum and the market really drops. But that inherently means then that there can be a little bit of a quite violent pullback before then the general trend might materialize over the coming days. And we're actually— we're looking at a short-term long to come back up to then eventually target that, that previous area of support turned now resistance. And, and actually the guys managed to get hold of some of that on the reversal back up, which is almost a counterintuitive trade, but it's going off the assumption— although fundamentally our bias was still short— that this move was an overextension, almost of the exaggeration of key technical levels breaking, and there might be an opportunity then because we felt that on the bottom side that was a really strong level of support, just giving the long-term reasoning of where this price has previously reacted in the past. And so yeah, that was— ended up being quite decent. The one thing I would say though is a few other trades that I was looking at from some of the guys was particularly one chap, he was— he wanted to get short euro in the morning and he wanted to be long equities So both his trade ideas fundamentally from the analysis that was being carried out and the trading plan was correct. You know, equities, um, he was right in the assumption. We kind of shared that in the fact that we felt the market was a little bit overdone with the Apple reaction, that if we can get a good entry point to get back long again, it would pay off. But then also equally, there was a key level we knew there in the long term to be watching in the euro. Now the only problem is for him is the exercising of that plan was a little bit off, off point, and so just, just got stopped out. And remember, we had that headline yesterday, the Soros comment came out about the eurozone finance ministers discussing a fiscal stimulus. That basically flipped him out, stopped him out on the short in euro that he was in, and then obviously the market came all the way back down not long after. And then the equity trade, pretty similar situation. So, you know, for any new traders, that's just a tough day at the office, and it's one of those where I get it, I know it's really difficult not to get frustrated by it, but the way I was trying to encourage him, given that, you know, this is all relatively new to him still, was that your process was correct, your analysis was spot on. Directionally, you called the market right in each of these assets. It was just the execution that needed a little bit of refinement. And also, when you get a snap unexpected source comment that spikes the euro 20 pips and stops you out, I'm afraid that is going to happen from time to time. But statistically speaking, if you have that, you know, really definitive trading plan and you stick to it and you remain disciplined, I can almost assure you that more often than not, in the long term, when you extrapolate this out over multiple trades, it will pay off and the consistency will be there. Because as much as you might get stopped out to the tick now and again, if you continue to adhere to that process that was pleasing to see, then I think he's on the right track. So again, it's all about mindset thereafter. So now that was yesterday. It's about hitting that reset button this morning, uh, and then just going at it completely fresh, objectively, not dwelling on yesterday's price movement. And that's another important lesson. Yesterday saw some really quite big moves in the market, in gold, in euro, in equities, even in oil as well. I, you know, I can see overnight we've had a bit of a pop higher. You know, the main thing is, is that every day is unique, and don't come in expecting then a repeat of an equally sized big volatile market moving day. You've got to look at it on the merit of what is it that's in play. If you actually look at the news flow from this morning, it's quite different. Yesterday was a big kind of reaction, big, you know, making a big splash about Apple. But if you look at it this morning, I mean, the only thing that we're talking about is China is considering more aid specifically on virus-hit airlines. And for me, this is certainly— it does make sense in respect to Asian indices have performed okay overnight. They've almost stabilized after some of the sell-off seen yesterday. But this is kind of a continuation. For me, it's not particularly new. So I wouldn't see this as a real potent force then to see a big pickup in risk appetite. I don't quite see that because this is just another extension of how their means to counteract the significant impact of the virus. So a positive, but remember, we're now accustomed to the Chinese authorities looking to take these types of measures. So this is where you're trying to quantify the impact. The other thing here, investors continue to gauge the virus impact on earnings. I mean, this was a look at the coronavirus live tracker. So confirmed cases up at around 75,000, total deaths 2,000, but total recovered is a number that's getting quite quite large now, almost 15,000. A good comment that I saw from one of the main economists at UBS this morning, and I think it really sums it up when it comes to the virus and markets. He said, it's important to conceptualize the impact of the virus. We are not expecting a permanent cut in global growth. Now, I don't think that this chap is unique or an individual in having that viewpoint. That is the collective shared view of general markets at this point, and Yeah, as I've said many times, although this situation still carries real ramifications for not just China but the global economy, for the moment most people aren't expecting it to be a permanent thing. And so by therefore default, we're managing to look beyond it almost, and hence the reason why markets aren't spectacularly selling off. Now, gold, you could say, is bucking that trend. Well, you know, gold, gold You know, ask Will, our MD here at Amplify. I mean, he's a real gold bug. And, you know, from the beginning of the year, from Middle Eastern unrest to uncertainty on the trade war to now the virus and the technical breaks of some of these key longstanding upside levels that we're seeing, you know, it's just a good, good measure of a natural composition of a basket of assets to have some exposure to gold in the environment of which we exist in 2020. And that certainly is paying off. And, you know, the overall top-level notion of as well how much wiggle room have central banks got with a lot of negative yielding debt, you know, and these sorts of things. And if people are then just looking for equities as just to try and find some type of value in a lower yielding world, then at some point, if the overvalued nature of the equity market and we come crashing down, well, again, you know, these are good points to have some exposure to gold over the long term in that respect. From a, from an asset class mix in that respect. Other things just wanted to mention, and again, I guess a lesson here is, you know, when I was talking about Apple yesterday, it's very important to, again, like this, the comment on the virus, to conceptualize the impact. Think about it from a, you know, try and remove yourself out of the just headline sensationalism that you read day to day. We know Apple is important, but we also know that about 17% of the entire revenue of Apple is derived out of the Chinese market. We also know that the Chinese, um, manufacturer of the iPhone, which is their main product that they sell, as much as they're trying to diversify. So we understand it's important, but again, in, in context, the share price is up, almost spectacular performance it's seen over the last several months. And so one of the things here is about, again, this view, like with the virus, this thing for Apple is specifically tied to the virus. If what we are saying is that markets are quite comfortable, that they're not expecting a permanent cut to global growth, and also overlaid with the Chinese authorities, both fiscally and monetary policy-wise, doing whatever it takes, well then actually, is this not just then a short-term issue that will quickly be recovered. And this was our view yesterday. And, you know, it doesn't— it doesn't— again, when you step out of the day-to-day headlines, I don't think it's that difficult to— you've just got to have a bit more mindset of thinking about the bigger picture. And these were what all the equity research analysts were saying. The outbreak is dampening demand in China in the near term, along with production, but the firm still sees strong global demand. The impact from the virus will be mostly recouped once the environment normalizes. Absent of a longer-running coronavirus impact, the broader story remains very much intact. You know, this could be buyers on the, on the weakness. Now look, me and all these equity research analysts could be wrong, but that's not the point. It's not about being wrong or right, it's about anticipating then fundamentally how these asset prices might move in the short term. And so this is how I'm kind of factoring in when I make these kind of statements about whether I feel a piece of news is going to have a continuous ability to move the market in a negative way, or whether it's overdone or not. So hopefully it makes a bit more sense of the, the kind of rationale in that respect. Final headlines to have a look at. This is an update on Brexit. I mean, the pound's not really moving this morning. Currency markets, more broadly speaking, quite quiet. The Dixie's pretty flat. Albeit the euro, well, the DXY sitting at respectively quite interesting levels. Obviously the upside of that range that we were talking about in the euro could be quite interesting. But from the pound perspective, we get more economic data later, CPI, and then updates on Brexit. The latest, as you can see here, is the EU have hardened their stance ahead of negotiations on a new deal with Britain, demanding fair competition guarantees that would stand the test of time. Now That sounds pretty, pretty bold, quite assertive, quite brash. It does come after basically the, the UK said yesterday, um, Boris Johnson's Brexit advisor said that London would never be bound by the bloc's rules, and this was the whole point of its determination to leave. So this is not going to move the market, this type of rhetoric. This is exactly the sort of thing when you've got to apply context. This is absolutely Nothing new. This is absolutely not to be— not a surprise. It's as to be expected. This is again going back to that template, setting the frame of the negotiation, which all parties involved, both Europe and Britain, know the pressure point isn't until a few months later. So for now, it's about posturing. So if we get more of these types of comments, do not think that that's a negative for the pound. This is just the the, the way of which politics works and how you need to interpret then of what markets are looking at. So I'd expect this type of distance in the negotiations to remain the case for some time, to be quite honest. Now, from a data perspective, we do have the UK CPI. So yesterday the jobs data didn't really have, um, too much in the way of an immediate over data impact, although cable did see some, their movement, um, in the period thereafter. but we kick off really a slew of economic data for the week, and CPI is obviously always a headline print. And expectations are— this is UK CPI over the last 12 readings— the Street estimate is for this number to bounce back up to 1.6%. So pretty decent recovery and putting us at what, a 4-month high going back to really the late summer of last year. There is a range of 1.2%, which would be the lowest here, and continuing this kind of deceleration, if you like, over what we have seen since the kind of the grind and slowdown in the British economy on the uncertainties of Brexit. But obviously the Boris bump that we've seen in other data might well be reflected in this also. The range 1.2 to 1.8, expectations of 1.6. And, you know, one of those things we always point out, just be a little bit mindful of a little bit of pre-movement that you typically get in the pound. Uh, the pound already seeing a little bit of movement this morning, perhaps just getting— let me just remove some of these. So here, I mean, this is what we were looking at yesterday, Alex and I. We were looking at a Fib retracement from basically this move from the low on the 10th all the way up to the high that we printed on the 13th. And the 50% Fib with yesterday's pivot, you can see, was a real good technical point where the market responded before it moved higher. And where do we move higher? Well, when people are chasing the market up, you can see the extension of the wick there right up to the top end of that range. So again, this is where, you know, the technicals are so key in terms of the, the rate of execution. And one thing I did see yesterday was with someone in a pound trade was that they had their limit order to get them out of the long position, which was looking good. They had it just pretty, pretty much on the pivot. Now what I'd suggest in that situation is be mindful that if everyone's looking at the same exit point then it almost scales down then where people are going to be getting out of that trade a few ticks earlier and earlier and earlier, not wanting to miss out on maximizing their profit opportunity on that trade. So you've just got to be a little bit agile. And when you're sitting there in the intraday environment— and this will improve with time— is your intuition of when to come out of that trade. You might well have the pivot level and your, your limit order there to come out of the, the long trade, so you're short. And then as it comes up, keep an eye on the ladder. Can be quite telling then of the type of momentum you get in the market. And generally when you get a bit of saturation in that momentum, that can be a trigger point then where, you know, it's no point just being for the sake of one tick or two ticks being quite stubborn to say it's going to come here. The market has come up quite quickly and starts hesitating and it doesn't look like it's going to push higher, then look, just take it. At least take one contract and then let another, you know, the benefit of having multiple contracts obviously is, is very helpful in these types of situations. So yeah, having a look what, what's happened this morning is we've had a little bit of a break out of the top end of that range. That's the Asia-Pacific session. So in terms of the CPI, it could be, could be quite interesting, you know, from, from looking at this price activity from yesterday, there's certainly some scope for some upside if we get a real firm positive print. 1.8% or north of that on the top end of the range, and certainly could open up and be looking up for the retest up at around the R1, which is kind of that high point that we had here. And then you've got the, the high of the end of the range from yesterday just above there as well. On the flip side, any reverse, then obviously these kind of areas here back down to the range high in Asia, the Asian low on the range, then you've kind of got the 130 handle, which would be around here, and then the prevailing same technical point on that fib with the bounce from yesterday. So kind of here and then down at these levels here, around there. So again, it's not— I don't have too much of a view on the dollar for today. I'd rather just be more agile and, and wait for the data to come out. Um, and remember, as much as we talk about this planning, that doesn't necessarily mean that you have to pull the trigger. If the data comes out in line, then the likelihood is it might not see much movement. And so then it's just enacting the discipline, of course, if the trade opportunity doesn't, doesn't represent or doesn't come up in that, that fashion. All right, finally, quick look at the calendar. Let's have a look at what we have. So beyond the UK data, and don't forget, with the UK there's a whole batch of data coming out. As you can see here, there's UK CPI, PPI, and RPI. Now the way to look at this is CPI definitely will carry the biggest weighted impact. The market will look at that first and foremost. That will heavily dominate and outweigh the others. The only time the others can really get a bit of a look in, uh, is if they are wildly out of line. But the markets will be firmly focused on the year-on-year print is the one to look out for going into the afternoon. US housing starts, building permits, PPI final demand numbers CAD inflation data, and then you've got the FOMC minutes. I'm not going to be doing any live coverage of that. I'm not really expecting too much to come out of it, to be honest. But the one other thing I'd say then you need to look out for and to contemplate for later on this afternoon is there is quite a lot of Fed speakers. So if you look, check this out, you've got Fed Bostic, Fed's Mester, Fed's Kashkari, Fed's Kaplan, Fed's Barkin. Now Mester is a voter, as too is Kashkari and Kaplan. Barkin and Bostic are not. But these guys are talking all the way throughout the afternoon and this evening. So for me, the minutes, they're a little bit bland now given the historic nature of the— of when the discussions took place. I'd say perhaps more meaningful will be the general vibe of the, the comments made by these FOMC members as we go through, and Federal Reserve governors as you go through the session. All right, I'm going to leave it at that. Wish you guys a good day. I know the guys want to get you in for a morning meeting here, so I wish you all a good day, and I'll see you in the chat room. Thank you very much.