HYCM Market Insights & Trading Tips

Why consumers need a vaccine
By Giles Coghlan, Chief Currency Analyst at HYCM

A question of confidence

Trading days have been tricky recently with the market flip-flopping between focusing on rising COVID-19 and the hopes of a stimulus inspired economic recovery. However, the hopes of a ‘V’ shaped recovery have not materialised. Until the consumer is truly confident then any hopes of sustained economic recovery are paper-thin. The economic recovery needs to consumer-led for consumers to start going out, traveling, using public transport again, and returning to the office. Until that confidence returns it will need fiscal stimulus to pave the way through.

Consumers are uncertain

The problem is that consumers don’t have the confidence to spend. This is common sense. Many people are concerned about their jobs and what the future world looks like post-COVID-19. So, spending is the last thing on their mind. HYCM commissioned some research at the start of the crisis where an independent survey of more than 900 UK-based investors (all with investments in excess of £10,000) was conducted to find out how they are investing amidst the coronavirus. Of all the data receivers it was this point that stood out to me, ‘ 33% of all investors plan to put more money into their savings accounts over the coming 12 months’.But that makes sense. If you are uncertain about the future then you save. The problem is that consumers need to spend to add to economic recovery.

COVID-19 hits older people the hardest

Statistically the older you are the less likely you will be in wanting to take risks with COVID-19. It is a more serious illness, statistically speaking, the older you become. Until there is a vaccine then you will not be readily traveling around. Older people will most likely wait for a vaccine until they get back to normal. that pattern is going to be repeated across the world.

Vaccine on the way?

According to a Stanford Medicine interview, NIH’s Fauci is cautiously optimistic that one vaccine will emerge by year-end. there was positive vaccine news from Moderna yesterday. Moderna’s vaccine trial produced a strong immune response for all 45 patients in an early-stage human trial and the findings show the vaccine could provide protection against the coronavirus.

So, if this is the case then you would anticipate stocks being supported by fresh rounds of fiscal stimulus. If this is the case then the dips down towards S&P500 March lows should be buys.



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Market Mood USOIL 16.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Asian equity markets traded lower overnight over concerns around Chinese consumption after the drop in retail sales data. The positive risk tone from yesterday’s positive vaccine news is in the balance this morning as a slew of data is due today.

WTI crude futures have pulled back below $41 today after the OPEC+ meeting where producers agreed to effectively reduce output cuts to between 8.1 – 8.2 mln bpd for August.

The concern going forward is that the oil market will be saturated with oversupply in the future. Therefore, expect US oil sellers from rallies as long as these supply concerns remain is in the market.

Swing trade outlook – We expect this trade to play out over the next 1-2 weeks.

Trade Risks: If the risk tone switches to ‘on’ and positive vaccine news dominates markets this will invalidate the outlook.

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Where now for the EURCHF?
By Giles Coghlan, Chief Currency Analyst at HYCM

CHF weakness to fade?

EURCHF has gained recently on two factors. Firstly, the improving risk tone. Secondly, on the hopes of the €750billion recovery fund being agreed over the weekend. This has led to the EURCHF pair rising above 1.0700 handle and now heading testing the 200DEMA marked on the chart below.



Can EURCHF’s rise higher continue?

Risk for the euro is coming up later today and over the weekend. So, if the economic recovery fund is rejected over the weekend then the 200DEMA offers an excellent place to limit risk for sellers. If there is any early news of the frugal four/five rejecting the deal that offers sellers the chance to sell EURCHF at market. It is around a 50/50 chance on whether the fund is agreed over the weekend. Less surprises are expected from the ECB rate meeting today, but it always pays to be prepared for any surprises. A surprise interest rate cut would also offer a great place to sell EURCHF at market.

The SNB will intervene in the EURCHF

Earlier this week Thomas Jordan of the SNB repeated his willingness to intervene in the EURCHF pair by weakening the Franc. Remember that the Swiss export economy is hindered by a strong CHF, so the SNB have been intervening in the currency markets in order to weaken the CHF through the purchase of Euros and Dollars. This is one of the reasons that the US has labelled the Swiss as ‘currency manipulators’. The US treasury cited the nations’s high current account surplus and bilateral trade balance as evidence of its manipulation.

SNB intervention has limited success

Despite attempts to weaken the CHF over the years including huge levels of intervention, trying to peg the 1.200 handle, and having the world’s lowest interest rates at -0.75% the success has been limited. As you can see from the chart below the SNB face an uphill struggle in trying to weaken the CHF. So, the 200DEmA is a key hurdle for the EURCHF to overcome and could provide a great place for sellers to have their stops defined and limited.



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Market Mood USOIL 17.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

One of Wall Street’s best known oil analysts, Helima Croft, fears that the oil market could once again be flooded with excess oil in the coming months as OPEC+ agrees to ease production cuts that have been in place for the last few months. She forecast that if production cuts are eased, that could open the floodgates for smaller OPEC members to break their commitments to cut supply. This in turn would likely imbalance the market. The effective oil cuts in August are now scheduled to be around 8.1-8.2mln BPD.

The fear is that this ‘easing of cuts’ will lead to smaller OPEC members breaking their commitments to production cuts. In May the global oil coalition only delivered around three quarters of the cuts that had been agreed pumping just under 25 million barrels per day. So, further non-compliance is a distinct possibility leading to higher oil supply which should keep oil markets pressured medium term.

Swing trade outlook – We expect this trade to play out over the next 1-2 weeks.

Trade Risks:

 

1. Make sure you are aware of the futures rollover date if you are trading this as a swing trade. Unexpected fees can add up if you hold this over a rollover date. These dates differ broker to broker, so do check BEFORE initiating a position. If the risk tone switches to ‘on’ and positive vaccine news dominates markets this will invalidate the outlook.
2. Strong signs of global oil demand will invalidate this outlook.
3. Signs that COVID-19 is not going to hit demand levels badly if there is a sustained second wave.

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The strength behind China’s weak retail sales data
By Giles Coghlan, Chief Currency Analyst at HYCM

The Hang Seng (-2.00%) and the Shanghai Composite (-4.50%) both traded lower on Thursday this week due to the unexpected drop in China’s retail sales. Retail sales printed at -1.8% vs +0.3% expected. Markets focused on this data as it has knocked investors confidence of the hopes for a fairly swift global economic recovery. You can see the print below:



Looking at the details of the print

Looking at the breakdown of the data shows a better picture than the headline print might otherwise indicate. Most sectors are actually showing growth. In fact only 6 of the 16 sectors that comprise the retail sales reading contracted during June. All of the other sectors put in a strong month. In fact some sectors even grew faster than for the same period in 2019.

Good reasons for falls?

Automobiles, which make up around 10% of all retail sales, fell from a one-off high level from last year. This was unlikely to be a sustainable metric at any rate. There are also suggestions that the petroleum and related products sector might have been impacted by adverse weather (torrential rains) in Southern China which resulted in construction projects being cancelled.



A market biased to the upside

With markets showing a bias to positivity then it should not be too hard to look through this retail sales data. There is not really enough to totally discount the hopes of an economic recovery. At least not on this data.

However, a rising concern today is the US COVID-19 cases. US COVID-19 cases rose by a record 68,428 in 24 hours according to the John Hopkins tracker. Texas cases increased by 10,291 to a total of 292,656 which was the 4th largest increase in record and deaths rose by 129 to 3,561 which was the largest single day increase. Once again we see the markets torn between hopes of economic recovery on the one hand and rising COVID-19 cases on the other.

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Market Mood XAGUSD 20.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM



The longer-term bullish picture for gold and silver remains in place as central banks around the world have cut interest rates. With bonds offering a low yield, equities uncertain after a great run from March lows, and the world in a grip of a recession metals like gold and silver have historically done well. With silver breaking out of a trend line on the weekly chart more gains may be ahead. Expect buyers at market and buyers on stop at 19.55.

Swing trade outlook – We expect this trade to play out over the next 2-4 weeks.

Trade Risks: If silver has a weekly close on Friday below $19 then technically the pair is not ready to break out and the trade should be closed, or stops put in at $18.50.

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A top for Tech?
By Giles Coghlan, Chief Currency Analyst at HYCM

Technology stocks have really been a surprise winner during COVID-19. The accelerated move to digitalisation has really benefited the tech-led NASDAQ. Few could have predicted at the start of the pandemic that the NASDAQ would make fresh and yet it has. That’s trading – full of the unexpected. Of course, in hindsight it makes sense, the world forced to stay at home and watch Netflix, buy via Amazon, and watch google and Facebook ads as they fill the time. However, has this rally now run its course?

Has the NASDAQ now topped?

I came across an interesting piece on Bloomberg making a case for a NASDAQ top. The rationale is based around the ratio between the NASDAQ 100 and the Russel 2000. The ratio between the two indexes is currently very high. In fact, it is at its highest since the last tech bubble in 2000. It is, at the time of writing, approaching a three standard deviation move from its mean quarterly average since 1985. Take a look at the chart below:



What to do about this?

The ability to call ‘tops’ is very tricky. In fact, the market can remain irrational far longer than you can remain solvent. Look at the recent rise in Tesla recently. Some bubbles just don’t make sense. At one time tulip bulbs could sell for around 10 years of wages. Now you can get a dozen or so for a relatively small amount of cash.
Wait for signs of technical reversals.

However, looking for some key reversal patterns at these levels on the Nasdaq would make sense. Patterns like a Head and Shoulders pattern and double/triple tops could provide an early heads up and, more importantly, a way to quantify your risk.


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Three reasons gold is set for more gains
By Giles Coghlan, Chief Currency Analyst at HYCM

Gold has further to go for the following three reasons. The primary reason for more gold upside is that there is more stimulus to come from around the world. The EU recovery fund was agreed yesterday and this puts pressure on the UK to add further stimulus to their economy as Brexit looms. Furthermore, the increase in COVID-19 cases globally, especially in the US, means that the Fed is likely to ease more which will suit gold upside. So, here are three reasons to support gold’s upside:

 

1. Fed officials have warned that the US outlook is getting worse and easing is the answer. Chicago Fed Chief said, ‘i’m worried about the downside risks and I think that’s how policy needs to be positioned’. John Williams and Raphael Bostic also gave additional signals.
2. The Bank of England is expected to add more stimulus to the UK economy as it is stuck with Brexit and COVID-19 struggles. Economists at Goldman Sachs think that the bank could signal in August that rates could turn negative.
3. Thirdly, Jean-Sebastian Jacques, head of diversified miner Rio Tinto and an executive keyed in with the heartbeat of the global economy says: ‘the uncertainty in the marketplace is because there is no doubt -it’s a question of when – we will have a second wave of COVID-19.

So, gold has taken out and been supported at the $1800 level. The $2000 is not looking impossible by year-end.

With some US jobs support ending in July and the furlough scheme in the UK running out in October we can expect more easing to come unless a radical treatment changes the outlook. See here for a relatively simple, but possibly effective, protein treatment from the UK normally used for MS patients.

Technical long entry

Any return back down to the broken 4hr trend line at $1815 should find buyers with stops underneath the trend line. Any break and close below the trend line and the bullish momentum is lost and expect longs to exit.

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Market Mood XAGUSD 21.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

The longer-term bullish picture for gold and silver remains in place as central banks around the world have cut interest rates. With bonds offering a low yield, equities uncertain after a great run from March lows, and the world in a grip of a recession metals like gold and silver have historically done well.

We reported yesterday that with silver breaking out of a trend line on the weekly chart more gains may be ahead. Those gains were immediately materialised as silver-headed into key overhead resistance at around the 20.30-20.50 region. Buyers from yesterday should take profit at this level or at least move the stop to break even.

Re-entries can be considered from pullback as marked on the chart.

Swing trade outlook – We expect this trade to play out over the next 2-4 weeks.

Trade Risks: If silver has a weekly close on Friday below $19 then technically the pair has lost its bullish perspective.

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Market Mood EURUSD 22.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

Strong EUR, Weak USD

The European Recovery Fund has been taken by the market as a very positive sign on European solidarity. As a result, the chances of the eurozone breaking up are now reduced as the nations pull together to support the economy via the fund.

There is also another dynamic currently at play which is that Europe has falling COVID-19 cases while the US has rising case numbers. As a result, the outlook for the EUR vs the USD looks stronger over the short to medium term. As a result, expect EURUSD buyers on pullbacks to 1.1400 this week.

Swing trade outlook – We expect this trade to play out over the next 2-3 days.

Trade Risks:

1. If there is a very strong risk-off sentiment that comes into the market expect USD strength and EURUSD downside.
2. If Europe’s COVID-19 case count starts to rise rapidly this will also invalidate this outlook.
3. A good treatment that minimises the risk of COVID-19 will also invalidate this outlook.

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Silver set to outshine gold
By Giles Coghlan, Chief Currency Analyst at HYCM

Gold vs silver

Precious metals, silver, and gold continue to have a very strong fundamental bias to the upside. Low-interest rates, extra stimulus expected from major world economies, and risk positive markets on vaccine hopes are all keeping gold and silver heavily supported. The rise of silver has been extremely strong since the signal of the broken weekly trend line from last Friday. However, despite recent gains, there could be much more to go for silver.

Silver has more obvious room to the upside than gold does

If you look at silver you can see that the current price is around half of what the record high has been. The record high has been around $50. This means that silver has plenty of more room to go higher. The fundamental picture is also very strong with Goldman Sachs seeing a ‘near-perfect environment for silver’ and Citi is ‘very positive’ noting the steady silver investment demand. Furthermore, Bloomberg notes that inflows in silver-backed ETF’s are now running at well over 1000 tons a month. The upside looks set and expects buyers from pullbacks unless market conditions change from today’s environment.

Remember that silver benefits from both safe-haven bids and its demand as an industrial metal. Silver is used in anything from mobile phones to solar panels.

Where will silver buyers re-enter?

Firstly, look at the 4-hour chart at the top and the breakout of the ascending weekly trend line. Any return to $19.20 should find buyers.


A second option is to look for a monthly close above the trend line marked. Some longer-term buyers will enter at market or a slight pullback towards $19.20. If we get a close above $19.20 at the end of the month this is one area on the charts to watch.


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Market Mood EURGBP 23.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM



Strong EUR, Weak GBP

The European Recovery Fund has been taken by the market as a very positive sign of European solidarity. As a result, the chances of the eurozone breaking up are now reduced as the nations pull together to support the economy via the fund. There is a strong call option skew on heavy EURUSD options, so more EUR strength is anticipated by the market.

The UK is still struggling with Brexit negotiations. According to Gov’t sources, there has been neither ‘breakdown nor breakthrough’ on major sticking points and talks are at an admitted impasse. EU is expected to warn that are only a few weeks left to arrange a Brexit deal that is legally operational by year-end after the latest round of talks. The EU had penciled in a summit of EU leaders for October 15 to approve any agreement, with the possibility to move it later in the month if needed. However, they warned that further delays would jeopardise the ratification process ahead of a vote in the European Parliament in December.

As a result, expect EURGBP buyers at market and buying on stops at 0.9142.

Swing trade outlook – We expect this trade to play out over the next 3-5 days.

Trade Risks:

1. If there is a positive breakthrough in Brexit negotiations that will invalidate this outlook.
2. If Europe’s COVID-19 case count starts to rise rapidly this will also invalidate this outlook.

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Indian Rupee heading for strength?
By Giles Coghlan, Chief Currency Analyst at HYCM

An interesting one for those that trade the Indian Rupee. India is now on track to record a large current account surplus for the fiscal year of 2021. The current account surplus is now expected to show a surplus of around $72 billion vs a fall in the current account of $24.7 billion from 2020. Now, the Reserve Bank of India may try to limit some of those inflows. The RBI will try to absorb the balance of payments via $80 billion in net FX purchases in 2021. However, there is still a steep INR forwards curve that can offer a decent carry trade for investors. There is a ‘double whammy’ effect as countries with a current account surplus tend to be rewarded by the FX sphere with a strengthening currency.

USD weakness is gaining pace

The passing of the European Recovery fund this week added extra weakness to the USD. The show of European solidarity has been strong and sent out the right message to the market which now sees a heavy call option skew to prices as high as 1.2000. The EURUSD took out the 1.1500 level and the pressure is now on for the US to pass the further stimulus. This USD weakness is set to continue as COVID-19 cases grow and President Trump admits that the outbreak will, ‘get worse before it gets better’. Dollar falls remain strong in the market.

USDINR

So, this means that the bias is set for the USDINR to fall lower. Expect sellers on stop on a break of 74.22 to the downside.



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FX Week Ahead 27.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM

Large gains in silver and gold were a key highlight this week. In our Telegram channel, at the start of the week, we highlighted the strong technical and fundamental picture for silver. The fundamental picture is recognised by Goldman Sachs seeing a ‘near-perfect environment for silver’ and Citi being ‘very positive’ on silver noting the steady investment demand. Gold is also now within touching distance of the all-time highs at $1921 and both precious metals are showing heavy ETF demand with silver seeing inflows of over 1000 tons a month. The gains in silver and gold have not been a surprise, but the speed of these gains have.

Key events from the past week

 

1. EUR: European Recovery Fund, July 17-20. The second-longest ever Europe-an policymakers meeting saw the €750 billion Euro Recovery Fund agreed. This show of European solidarity saw the EURUSD push above the 1.1500 handle.
2. Silver soars: Recession buster, July 20/21. The longer-term bullish picture for gold and silver remains in place as central banks around the world cut interest rates and the world’s in a grip of a recession. Metals like gold and silver have historically done well in this environment and strong bids were noted this week.
3. USD: Stimulus delay drags on the USD. The USD risks weakening further in the near term if US stimulus negotiations drag into August when a senate recess is scheduled. Key elements of the $2 trillion Cares Act expire this month and investors are anxious for a rescue package to succeed it.

Key events for the coming week

 

1. USD: US Interest Rate Meeting, July 29. The FOMC meet next week and the OIS Fed Fund Futures contract prices point towards a 75% chance of no change to the interest rates. The future guidance from the Fed will be key with interest rates expecting to be unchanged at 0.125%.
2. CNY: Manufacturing PMI, July 31. Investors are betting on a china driven global recovery cycle and the key to that narrative is strong manufacturing data from China. A strong reading PMI here will reassure markets that the recovery is continuing.
3. US-China tensions to rise? This week saw tensions rise as China could consider shutting the US consulate in Wuhan in response to the US order for China to shut its Houston consulate.

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Double top forms on the Nasdaq
By Giles Coghlan, Chief Currency Analyst at HYCM



The Nasdaq has formed a double top on the 1-hour chart. Take a look at the chart above for the pattern outlined and the trigger sellers will use for an entry. The potential for a top to form in the Nasdaq was flagged at the start of the week. The heart of the rationale for a possible top was based on this:

The rationale is based around the ratio between the NASDAQ 100 and the Russel 2000. The ratio between the two indexes is currently at its highest since the last tech bubble around the turn of the millennium in 2000. It is, at the time of writing, approaching a three standard deviation move from its mean quarterly average since 1985.

What could sink the Nasdaq and bring the double top into play?

One area to watch is the closure of consulates. This represents a step up in the China/US tensions. After the Houston consulate was shut on Wednesday of this week President Trump said that shutting more embassies cannot be ruled out. A further escalation and we are back to the US/China trade war playbook from 2019.

However, there are a number of issues that are dragging on risk markets including rising virus cases from California to Hong Kong and slow progress towards a US stimulus package so there is plenty of reasons for sellers to enter the market.

Sellers are ready

With a very large number of market participants who are very jittery with the rise in stock prices the mood is there for selling. If we do see that bearish sentiment takes hold from geopolitical concerns or slowing economies this double top offers a way of playing the sell-side in tech.

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Market Mood USOIL 24.07.20
By Giles Coghlan, Chief Currency Analyst at HYCM



The fall in European equity futures and Asia-Pac indexes show the market entering the day with a risk-off setting.

The crude oil market has marched on recently with strength, but this rally is unsustainable. There is a swathe of negative news now for oil:

1. rising virus cases from California to Hong Kong,
2. stalling progress towards a US stimulus package,
3. rising US-China tensions,
4. approaching tropical storms that could shut down US refineries,
5. rising US stockpiles after another inventory build yesterday,
6. OPEC+ production cuts are set to expire next month.

Therefore expect oil sellers at market.

Swing trade outlook – We expect this trade to play out over the next 3-5 days.

Trade Risks:

1. If there is a positive turn in risk and risk-on sentiment returns that can keep oil’s rally going.
2. Surprise progress in the US stimulus bill could turn sentiment positive and invalidate this outlook.
3. Any good COVID-19 vaccine/treatment news could also invalidate this outlook.

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Market Mood XAUUSD 27.07.20
by Giles Coghlan, Chief Currency Analyst at HYCM

Attached Image (click to enlarge)

The rise in gold to take out all-time highs has been supported by the following three things:

1. A weak dollar. Fears of a fiscal cliff this week from the US are keeping the dollar weak on the session and this has bolstered gold.
2. A technical break of the all-time highs in gold opens up the $2000 region.
3. Rising US-China tensions and COVID-19 cases also supports the purchase of gold as a hedge.

Therefore expect gold buyers today on any pullback to $1900.

Day trade outlook – We expect this trade to play out over the next 12 hours.

Trade Risks: If there is strong risk aversion that could result in some gold long positions being liquidated to offset stock losses.

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Addicted to credit
by Giles Coghlan, Chief Currency Analyst at HYCM

The Bloomberg Market’s Live team published a piece on the Market’s Live blog making a case for Quantitative Easing continuing indefinitely. The thinking is that the world’s major banks are not buying debt quickly enough still leaving ~$1 trillion of new sovereign bonds for buyers in the months ahead. This means that the Fed, ECB, and BoE will have to speed up the pace of their bond purchases in order to keep the present low bond yield levels which they need to do in order to keep borrowing costs down. The net result of this means that enormous COVID-19 support packages are being met with a seemingly virtually unlimited amount of bond purchases in order to keep borrowing costs down.

The Market’s Live team makes an important point. There is not really an easy way to go back now we have started down this QE path. Many people now who take mortgages will have no memory of high-interest rates and how crippling they can be. Many new mortgages will be based on these ultra-low rates which means that the central banks must keep adding to their QE programs and keep the borrowing costs down just to keep economies stable. We have become totally addicted to cheap credit. Failure to keep this environment going will just cripple an economy now that is dependent on low borrowing costs.

Gold and silver set to shine

This environment however is perfect for both gold and silver to shine in. With central banks committed to do ‘whatever it takes’ to cushion the COVID-19 blow and low yields for the medium-term future expect the precious metals to keep moving higher and look for pullbacks for buying.

$1900 looks like an area where we can expect pullback buyers in gold and $23 an area to expect pullback buyers in silver.


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Understanding the Euro’s recent rise
by Giles Coghlan, Chief Currency Analyst at HYCM

EURUSD and EURGBP upside bias

Broad dollar weakness has been supporting the EURUSD rise lately. The EURUSD can be known as the ‘anti-euro’ index due to its strong EUR component of the Dollar Index. As a result, they have a strong negative correlation. When the Dollar Index falls the EURUSD rises and vice versa. However, it is not only Dollar weakness that is supporting the EURUSD pair. The Bloomberg EUR index is also up around 2.5% this month and up about 8% since February’s low.

What other factors are supporting the Euro?

The passing of the €750 billion European Recovery Fund has been a very positive sign on European solidarity to weather a storm. The so-called ‘frugal four’ did not object enough to block the fund’s passing in the end. This means that the chances of the eurozone now breaking up are seen as being reduced as the nations pull together to support the economy. This has boosted sentiment for the eurozone as a whole and supports the Euro.

Secondly, yesterday german IFO data rose across all three subcomponents giving the euro more reasons to rally. This only adds to the strong July PMI readings from last week and is at least some indication of a potential ‘V’ shaped recovery.

One risk area for the EURUSD this week is due to the US federal CARES Act. This Act has provided huge support to the households impacted by joblessness by extending unemployment insurance benefits by 13 weeks. Furthermore, it has a large payment of an extra US$600 per week to all 31.8 million unemployed. However, the scheme ends in July. So, the issue is that there is a need for more stimulus before the month-end, which may prove easier said than done to finalise. This is called a ‘fiscal cliff edge’. At the end of the month, the fiscal supports dramatically ends.

Options markets

In the options markets that is a strong call option skew on EURUSD options, so more EUR strength is anticipated by the market going forward. The majority of these options are ‘call’ (buy side) options which means the options market is positioning for more EURUS strength ahead.


EURGBP upside bias

The UK, on the other hand, is still struggling with Brexit negotiations. The EU had out in a date for a summit of EU leaders on October 15 to approve any agreement, with the possibility to move it later in the month if needed. However, they warned that further delays would jeopardise the ratification process ahead of a vote in the European Parliament in December.

As a result, expect EURGBP buyers medium term as long as this situation remains the same.


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Market Mood EURGBP 28.07.20
by Giles Coghlan, Chief Currency Analyst at HYCM



The European Recovery Fund has been taken by the market as a very positive sign on European solidarity. As a result, the chances of the eurozone breaking up are now reduced as the nations pull together to support the economy via the fund. There is a strong call option skew on heavy EURUSD options, so more EUR strength is anticipated by the market.

The UK, on the other hand, is still struggling with Brexit negotiations. According to Gov’t sources, there has been neither ‘breakdown nor breakthrough’ on major sticking points and talks are at an admitted impasse. EU is expected to warn that are only a few weeks left to arrange a Brexit deal that is legally operational by year-end after the latest round of talks. The EU had penciled in a summit of EU leaders for October 15 to approve any agreement, with the possibility to move it later in the month if needed. However, they warned that further delays would jeopardise the ratification process ahead of a vote in European Parliament in December.
As a result, expect EURGBP buyers medium term as long as this situation remains the same.

Swing trade outlook – We expect this trade to play out over the next 3-5 days.

Trade Risks:

1. Good Brexit news will invalidate this outlook.
2. A sharp rise in European COVID-19 cases will also invalidate this outlook.

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