Top 4 Assets To Watch This Week - Monday, Feb. 27
The Devil Is in the Details: Trump and the Fed Driving US Economic Policy
On Wednesday, 15 March, the Fed will be convening to announce its interest rate decision. The federal funds rate is currently at 0.50% – 0.75%. There is now a 26.6% probability of interest rates rising to 0.75% – 1.00% in March. A rate hike will strengthen the USD, make dollar-denominated commodities such as gold and others relatively more expensive, and decrease overall demand. Further, the pace and scope of rate hikes will impact equities markets. This coming week, several high-ranking Fed FOMC officials will be discussing the state of the US economy and whether now is the right time to hike interest rates. The Beige Book is a big event on the economic calendar, and this will be the subject of intense scrutiny on Thursday, 2 March 2017.
Of equal importance is President Donald J. Trump’s address to Congress. On Tuesday, 28 February 2017, Trump wall be addressing a joint session of Congress via a televised address. This speech differs from the official State of the Union address that US presidents deliver every so often. Naturally, Trump’s fiery rhetoric is going to spark a furor among those on the left, and elation with those on the right. Regardless, markets are going to react to Trump’s speech. He has been big on promises, but light on details and analysts will be carefully listening to the content of his address for issues related to feasibility, affordability and practicality. Some of the most highly anticipated policy objectives for the Trump administration are tax reform, deregulation, the US/Mexico border wall, and general immigration policy.
As it stands, analysts from TD Securities believe that Trump’s address will only reinforce what markets already know about his policies. From this perspective, we can expect little change on the economic front. The media will have a field day with Trump’s address, and all aspects of the speech will be dissected with surgical precision. Coupled with the Beige Book and the Fed speakers, this will certainly be an interesting week for binary options traders. We can expect a strong push towards an increase in the FFR, which will change the dynamic of US economic activity.
Trading Opportunity #1 – USD Likely to Pare Gains as Economic Data Rolls in
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US economic data releases this week are expected to reflect a contraction in manufacturing and trade. Economists are expecting a 0.5% decline in capital goods orders (excluding aircraft) for January 2017. Recall that capital goods orders declined by 0.7% in December 2016. On the flip side, analysts are expecting a strong uptick in durable goods, up 1.9% for January, a sharp reversal from the 0.5% decline in December 2016. The synergistic effect of these data releases is likely to have a contractionary effect on the greenback, and a pullback in dollar pairs such as the USD/GBP (currently at 0.8024 or +0.74%). That the GBP has been falling in recent trading sessions towards the 1.25 support level is expected. Currency traders anticipate that the 1.24 level will hold as the next support level, but tremendous volatility is expected in this pair over the next couple of days. Long-term, we should see an appreciation of the GBP, but short-term the GBP is one of the worst performing currencies in the G10. Of course, the dollar rally is going to stall based on concerns of a federal funds rate hike.
Trading Opportunity #2 – How Is Gold Looking This Coming Week?
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The gold price is going to be highly reactive to any uncertainty that is generated by President Trump’s address to Congress on Tuesday, 28 February 2017. Since gold is responsive to negative news (contentious immigration executive orders, the Mexico/USA border wall, deregulation, oil price concerns etc.), we can expect further upside momentum with the gold price this coming week. Gold price futures have been rising steadily over the past couple of days, and gold for delivery in April is now at $1,258.30 per ounce, up 1.55% or $19.20. Gold is also going to react strongly to decisions taken by the Fed, and a prelude to these decisions will be available with the Fed policymakers this week.
The Beige Book (Thursday, 2 March 2017) will provide guidance on possible Fed action with the FFR. Any comments that appear likely to support interest rate hikes will drive down the price of gold. Gold also gained favour recently when President Trump offered little information about how to go about implementing his tax policy. The clearest indicator of gold’s likely performance this week is the futures market. As a binary options trader, look for signs that gold cannot rise above $1257.30 – this indicates that sellers have come into play. Short-term, gold is going to rise, but come March 15, 2017, your best bet may be to place put options on the precious metal.
Trading Opportunity #3 – Exxon Mobil Corporation Looking Bearish
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As a binary options stock trader, the trend is your friend when it comes to XOM. Judging from the above graphic, we can clearly see that the short-term trend for XOM is bearish. As at Friday, 24 February 2017, the multinational petroleum company was trading at $81.08 per share, down 0.86% or $0.70. Unfortunately for the bulls out there, there has been little to cheer about since mid-December 2016. At that stage, the stock was trading around $92.58 per share, and it has dropped approximately $11 in three months. Analysts have also shifted their forecast for the stock from a buy/hold rating to a clear hold rating.
Over the past 4 quarters, the stock has beaten earnings estimates 3 times, but it failed in Q2 2016. For 2017, XOM – Exxon Mobil – is the worst-performing stock on the Dow Jones Industrial Average. This is a major indictment of one of the world’s biggest energy companies, which is still valued at an incredible $336.32 billion. Since the start of 2017, the stock is down 10.2%, owing to a high extraction, drilling and production costs from Canada’s rich oil sands. With the oil price currently trading in the $50 – $55 per barrel range, there is little profitability for XOM, and the oil price must rise significantly for the stock price to show some gains. For binary options traders, this is a cue to take action.
Trading Opportunity #4: the FTSE 100 Index is Down
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The FTSE 100 Index is currently trading at 7,243.70, down 0.38% or 27.67 points. The short-term performance of the index is being affected by the performance of the major components such as Anglo American PLC, Ashstead Group PLC, Admiral Group PLC and 3I Group PLC – all of which are down between 1.34% and 2.85%. The performance of the FTSE 100 index moves in the opposite direction to the strength of the GBP. When the GBP is rallying, the FTSE 100 index retreats, and vice versa. As a case in point, the GBP/USD currency pair is now at 1.2462, (down 0.72%) or $0.0091. The USD is expected to weaken this coming week, which indicates that the GBP will likely strengthen and further suppress gains on the FTSE 100 index. As a binary options trader, watch out for Trump’s speech as this invariably affects the GBP.
Disclosure: None.
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