Trading Opportunities For The Week Ahead – Monday, Jan. 16
The US economy is headed in the right direction, according to the latest polling data of US Small Business Optimism. The surprise election of Donald J. Trump is perceived to be a net positive by most small businesses in the country. The US Small Business Optimism Index surged to its highest level since 1980, when Ronald Reagan took office. The December 2016 report of Small Business Optimism was telling. This was the highest level for the index since 2004, jumping 38 points according to data compiled by the National Federation of Independent Business Index of Small Business Optimism. Simply put, this bodes well for traders going long on US economic growth prospects in 2017.
Meanwhile, across the Atlantic fears are mounting. Prime Minister Theresa May is expected to push for a Hard Brexit as soon as possible. This is an anathema for GBP bulls and UK investors. A Hard Brexit is a reference to a sudden break between the UK and the EU. The preferred Soft Brexit would allow the UK to establish frameworks and business operations before the UK invokes Article 50 of the Lisbon Treaty. As always, casualty #1 is the British pound. The GBP/USD pair dropped below the critical 1.20 level for the first time in three months. Prime Minister May is purportedly preparing for tariff-free trade with the European Union in exchange for limited immigration and lucrative deals with member countries. The GBP/USD pair has now depreciated by approximately 19% since the June 23, 2016 referendum.
Trading opportunity #1 – Traders Short the GBP En Masse
The GBP/USD pair is being hit from all sides. In the US, the greenback is rallying on the back of increased Small Business Optimism. The rapid surge in December has helped to drive up demand for the USD, despite a pullback against the Japanese yen in recent days. The US Dollar Index is trading fractionally lower at 101.17, down 0.29%, but still hovering around its 52-week high of 103.81. The GBP on the other hand is in all sorts of trouble. Prime Minister Theresa May has not helped matters with her calls for a Hard Brexit. The GBP/USD pair dropped below the key 1.20 level for the first time since October 2016.
Of course, every time the British Prime Minister lays out her plans for a swift departure from the European Union, the GBP is going to be casualty #1. Britain voted by a margin of 52%/48% in favour of a Brexit on June 23, 2016. Parliament has accepted the non-binding referendum. Prime Minister May is now tasked with the arduous task of disentangling the United Kingdom from the European Union. She has opted for a swift divorce from the EU, but this comes with significant volatility. The GBP is struggling to regain its footing in the currencies arena. As such, it is the weakest performing currency of the G10 and binary options traders will do well to follow the Prime Minister’s policy vis-a-vis Brexit proceedings.
Trading Opportunity #2 – the FTSE 100 Index Perks up when the GBP Slacks Off
As a trader, it is possible to utilise the same events to capitalise on multiple fronts. A classic example of this is the Brexit issue. Every time markets get spooked by Prime Minister Theresa May’s Brexit proposals, put options on the GBP/USD pair (and all other GBP denominated pairs) are the order of the day. Conversely, the FTSE 100 index always rallies when the GBP weakens. The FTSE 100 index is currently at 7,337.81, up 45.44 points or 0.62%. This comes as no surprise, given the sharp depreciation of the GBP.
Since the FTSE 100 index is comprised largely of companies with overseas earnings, any depreciation of the GBP is met with tremendous optimism in the FTSE 100 index. The above chart clearly displays the uninterrupted gains made by the FTSE 100 index over the past 2-week period. It should be noted that this is highly unusual for any index, and traders will be cautious not to expect this trend to continue indefinitely. The long-term ramifications of a Brexit are largely unknown. However, over the short-term we can expect incremental gains in the all-share index to continue as long as the GBP faces headwinds.
Trading Opportunity #3 – Silver Wheaton (SLW) Stock Continues to Rise
Silver Wheaton Corporation (SLW) stock is trading at $20.47 per share, up 1.79% or $0.36. The company has returned 9.58% over the past 1 month, which is substantial given the broader state of global markets. The stock’s 1-year performance reflected a gain of 83.59%. The above chart indicates the current price versus the 50-day moving average and the 200-day moving average. SLW stock is priced between both averages, with a short-term bullish uptrend evident. As a trader, there are some important things that you should be looking out for with SLW stock. In Q3, Nationwide Fund Advisers reduced holdings in the company by 18.6%. It sold 28,630 shares of its 124,958 shares.
Bearish sentiment aside, various other institutional investors have increased their holdings in the company, including Wellington Management group LLP (+330.9%), Nuveen Asset Management LLC also added SLW stock to its portfolio, as did Legal & General Group Plc (+4.1%) in recent months. The trend is your friend with this stock, and the current upside movement has overtaken the 50-day moving average which is trending lower. This is good news for binary options traders, and the stock is ripe for the picking now.
Trading opportunity #4 – Brent Crude Oil Trending Bearish
Brent crude oil is currently trading at $55.45 per barrel, down 1% or $0.56. It is on a strong bearish downtrend, as traders are a little dubious about OPEC cutting production. Oil futures on the Nymex declined by 1.2% on Friday, 13 January 2017, and declines of 3% took place for the week. Oil bulls will be glad that Saudi Arabia has cut production to under 10 million barrels per day, and will likely reduce supply further within six months. The long-term trend for crude oil appears to be bullish.
Oil has advanced sharply since the historic agreement between OPEC and non-OPEC members in December. However, the key $55 level is proving difficult to maintain. The big problem for oil prices remains the US. WTI crude oil producers are upping production levels just as OPEC is reducing them. This neutralises production cuts and price rises. As a binary option trader, it is going to prove difficult to gauge the momentum of oil markets with WTI and Brent crude oil producers moving in opposite directions. Nonetheless, the trend is currently bearish for Brent crude oil.