HYCM Market Insights & Trading Tips

Market Mood Dow Jones 16.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for Dow Jones on Youtube.


Over the next couple of weeks heading into the US election, there is likely to be continued uncertainty and movements in the polls between President Trump and Joe Biden. However, one aspect remains clear and that is whichever of the two wins a US stimulus package will be passed. So, this means from a medium-term perspective any drops in the Dow Jones can be considered as medium-term buying opportunities into the US elections at the start of November. The passing of the US stimulus package will be supportive for US Stocks.

Expect Dow Jones buyers on pullbacks.

Trade Risks:

1. The main risk to this trade is any very negative COVID-19 news which offsets the expectations of the passing of a large US stimulus bill.
2. Very poor earnings could also question the sustainability of recent share prices.

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Watch out for US election mayhem?
by Giles Coghlan, Chief Currency Analyst, HYCM

With the US elections approaching one of the worries that may rear its head is a concern that has come to be known as the ‘big blue shift’. The ‘big blue shift’ is the possibility that President Trump declares a victory on election night, but further vote-counting over subsequent days and weeks results in a Joe Biden victory. As you can imagine that would throw the US administration into real confusion.

Is this possible?

The term ‘big blue shift’ was used by Edward B. Foley in his 2013 paper which studied elections in the US all the way back to 2000. He found out that Democrat candidates are more likely to make significant gains in the official and complete counting of ballot boxes. You can view his research here: ‘Preparing for a Disputed Presidential Election: An exercise in Election Risk Assessment and Management‘. Reading the introduction Foley paints a colorful, but a believable picture of the way that President Trump might tweet through the election night. If President Trump begins to see his lead fall away in a ‘blue shift’. Foley’s words are worth quoting in full:

It is Election Night 2020. This time it is all eyes on Pennsylvania, as whoever wins the Keystone State will win an Electoral College majority. Trump is ahead in the state by 20,000 votes, and he is tweeting “The race is over. Another four years to keep Making America Great Again.”

The Associated Press (AP) and the networks have not yet declared Trump the winner. Although 20,000 is a sizable lead, they have learned in recent years that numbers can shift before final, official certification of election results. They are afraid of “calling” the election for Trump, only to find themselves needing to retract the call – as they embarrassingly did twenty years earlier, in 2000. Trump’s Democratic opponent, _________ (fill in the blank with whichever candidate you prefer; we will pick Elizabeth Warren since at the moment she is the front-runner according to prediction markets), 1 is not conceding, claiming the race still too close to call. Both candidates end the night without going in front of the cameras.

In the morning, new numbers show Trump’s lead starting to slip, and by noon it is below 20,000. Impatient, Trump holds an impromptu press conference and announces:

I’ve won reelection. The results last night showed that I won Pennsylvania by over 20,000 votes. Those results were complete, with 100 percent of precincts reporting. As far as I’m concerned, those results are now final. I’m not going to let machine politicians in Philadelphia steal my reelection victory from me – or from my voters!

Why is it a particular worry for these elections?

There are three key factors that mean this is a real concern this year:

1. COVID-19 concerns mean many states are making it easier to vote by mail.
2. President Trump is railing against postal voting as ‘open to fraud’
3. The key state of Pennsylvania is particularly vulnerable to a very tense and contested vote count.

Finally, the Associated Press normally calls a winner once they are convinced that one candidate had secured 270 of the 538 votes. Normally one candidate will capitulate before the morning. However, this year, the pressure will be on to avoid an early call and not to get caught out by the ‘blueshift’. This is one area to watch for. If we do see a contested election then expect risk assets to sell off heavily. The S&P500 markets may be particularly vulnerable to this outcome.

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The difficulty of equivalence for UK banks and latest GBP news
by Giles Coghlan, Chief Currency Analyst, HYCM

What is equivalence?

It is when the EU decides that a non-EU member’s rules are roughly equivalent to their own. Although slightly different the rules are said to be equivalent and therefore comparable to EU standards. For UK banks the main issue of equivalence has been granted by the EU, namely that the EU has granted European firms permission to continue using London’s dominant clearinghouses. Now, this decision only lasts until July 2022 and then the EU is planning on a more significant review. The result of this review could be that clearinghouses are forced to relocate to the EU bloc.

What’s the main worry with equivalence?

The main concern is that the EU can unilaterally withdraw the status ‘equivalence’ at very short notice. The UK has repeatedly pressed for longer notice periods. There are also lots of areas still to be agreed and the EU is not in a hurry to grant equivalence to the UK.

Is the fear justified?

Yes. Around mid-2019 the EU withdrew equivalence covering market access to the Swiss Stock Exchange. See Bloomberg’s report on that at the time. The EU took action against the Swiss when talks about the Swiss relationship with the EU did not progress the way the EU wanted. The EU has said that decisions on market access will not be subject to negotiations and that the EU will ultimately protect its own interests.

The worry here is that the issue of equivalence has become politicised and creates tensions for the UK’s financial services industry. The UK currently generates £10 billion per year that relies on equivalence according to the Bank of England.


Which areas are still to be covered?

The areas of equivalence still to be decided are on derivatives, broader passes to portfolio management, investment advice, underwriting, and trade execution.

Which areas are not covered by equivalence?

Core banking activities like receiving deposits, investment services for retail clients, and cross border lending services are all not covered. So, if UK banks would like to continue those lines of business then they will probably need offices in the EU to do so. This is why some banking operations have shifted to Frankfurt, Paris, and Dublin.

The latest expectations are the EU Chief Brexit negotiator could be in London tomorrow in cautious optimism on a breakthrough in Brexit discussions. As long as this positive mood remains expect EURGBP sellers on hopes of a coming Brexit deal.



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Market Mood XAGUSD 21.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the XAGUSD on Youtube.


US House Speaker Pelosi and Treasury Secretary Mnuchin are moving towards a stimulus deal and will speak again today according to her aide. Furthermore, AstraZeneca’s COVID-19 vaccine trial in the US is expected to resume as early as this week, according to sources.

The positive bias towards a stimulus deal and positive vaccine news is keeping equities supported and US 10 year bond yields have broken higher through 0.80. This has led to a softer dollar which is supporting both gold and silver prices.

Therefore, expect buyers in silver on pullbacks.

Trade Risks:

1. The main risk to this trade is a breakdown in US stimulus package talks.
2. Senate Majority leader McConnell reportedly told the senate that on Tuesday that he has warned the White House not to make a big stimulus deal before the election.

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Market Mood Euro Stoxx 50 22.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the Euro Stoxx 50 on Youtube.


Euro Stoxx 50 futures have fallen by around 0.80% as a downbeat Wall St session looks set to flow through into the European trading session. The main driver of the losses in the equity space has been the lack of progress made in the US stimulus talks. Despite US House Speaker Pelosi seeing the potential for a deal to be reached she also recognises that a US stimulus deal may need to wait until after the US election. It could well be the case as outlined by Fox’s Pergram and sources cited that the political efforts from both sides are to merely give the appearance of trying to get a deal done before the election.

Therefore in this environment expect sellers in the Euro Stoxx 50 as long as the hopes of a US stimulus package are fading.

Trade Risks:

1. The main risk to this trade is if there is progress towards a US stimulus package.
2. President Trump and Joe Biden will have a televised debate today and if Trump takes ground on Biden that will be positive for the USD.

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FX Week Ahead 26.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

The main drivers in the markets are predominantly geopolitical right now: upcoming US elections, ongoing Brexit negotiations, new vaccine developments, and rising COVID-19 levels are all impacting risk in different ways. However, the key event supporting risk this week has been the upcoming US stimulus package. At the time of writing, risk markets are broadly moving higher (equities the present exception) in anticipation of a huge US stimulus package. As long as the expectations of a US stimulus package remain expect strong gold bids on both USD weakness and general safe-haven flows on impending US election risks.

Key events from the past week

1. AUD: RBA minutes show cutting bias, October 20. The RBA minutes this week show that members discussed lowering interest rates towards zero. The expectations are now for an RBA rate cut at the upcoming November 03 rate meeting.
2. GBP: Sterling rises on Brexit deal hopes, October 21. The GBPUSD rose on news that EU negotiators are expected to go to London as soon as today (Thursday 22 October) to resume trade discussions with the UK. Will this optimism remain?
3. COVID-19: AstraZeneca trials to resume, October 21. AstraZeneca trials in the US are set to resume as early as this week according to sources cited by Ransquawk. Expect further positive vaccine news to be a positive boost to risk sentiment.

Key events for the coming week

1. CAD: Interest rate decision, October 28. The Bank of Canada is expected to keep rates unchanged with OIS markets giving an 85% chance of no change. Be prepared in case there is a surprise cut which will result in instant CAD sell-ing.
2. EUR: Interest rate decision, October 29. The ECB has expressed concern recently over both the strength of the Euro and the weak inflationary pressures facing the eurozone. Will this cause them to potentially cut rates this week or will they keep interest rates unchanged?
3. USD: Election risks, October 19-23. As long as Biden maintains a firm lead over President Trump in the polls that should be positive for risk and continued negative pressure for the USD.

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Will oil prices drop in November?
by Giles Coghlan, Chief Currency Analyst, HYCM


On Monday, October 19 the latest OPEC+ JMMC meeting did not give any surprises to the oil market. It was uneventful. There was no recommendation to change the previously approved policy for 2021 reducing the group’s collective output cuts to 7.7mln bpd from 9.7mln bpd. However, one interesting observation was that both Russia and Saudi Arabia highlighted the uncertain demand outlook given COVID-19’s recent return. It is worth considering that in more detail as there could be some factors dragging on oil prices into November.

The rise of home working

More and more people are working from home. There are fewer business trips and less frequent commutes at the moment. However, this could become a permanent change impacting fuel demand in an ongoing way. In Singapore, for example, nearly 50% of people are working from home. Look at the drop in mobility on the table below.


Some of this home working will be permanent as the digital age allows for perfectly adequate work from home.

The drop in travel

Travel traffic is way down. Flightradar 24, which provides a real-time online flight tracking service, sees a coming 3.5mln bpd decline in jet fuel consumption. They note a 48% drop in global commercial flights.

The levels of jet fuel and gasoline inventory at major ports such as Amsterdam have also risen to multi-year highs. Global road traffic is way down with San Francisco road traffic plunging 70%. The TomTom traffic index suggests that major cities’ traffic volumes were 24% lower during the week of October 09 than a year earlier.


Even though OPEC expects global demand to exceed the pre-pandemic levels in 2022 that could be an overly optimistic projection. The widespread adoption of electric vehicles, which is almost a foregone conclusion now, which will in the longer term also weigh on oil demand. However, in the short term, low oil prices will slow the adoption of electric vehicles.

Dates for the diary

1. JMMC meeting is November 17
2. OPEC/OPEC+ meeting is November 30/December 01

It will be interesting to see how these meetings respond to the mounting pressures that Saudi and Russia alluded to in their last meeting. Any talk of production cuts will support oil prices, but falling demand will cap them in the meantime. Key resistance in US oil is found at $45 on the weekly chart and near term sellers can be expected at that level as long as COVID-19 demand issues remain. One risk to this outlook is the successful completion of a COVID-19 vaccine which would boost oil on improving risk sentiment.

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Three reasons for more gold gains
by Giles Coghlan, Chief Currency Analyst, HYCM

This article highlights three reasons for gold to continue higher as cited by a Bloomberg report on the gold market. They are as follows:

#1 Gold futures in contango

Contango is when the futures price of a commodity is higher than its spot price. The contango in the gold market is very steep at the moment which shows that heavy demand is likely to drive spot prices up higher. Strong demand for gold futures has been significant in driving prices higher since 2019.

#2 Gold futures managed money net positions are at a healthy level

Managed futures positions are at their least net long in over a year which is indicative of a healthy, strong bull market. This is positive as positions that are very long in a bull market or very short in a bear market can indicate extreme and overextended positions. However, CME gold net longs on the chart below are around 22% and well below the 50% high point from August. So, with gold fundamentals still firmly in place for gold bugs, there is still plenty of space for more buyers to step in without any sign of an overstretched market. Furthermore, the spot price is near the 20 simple moving average on the weekly timeframe (the strong gold line) which is near term technical support.


#3 Gold technicals look strong on narrowing Bollinger Bands

On top of price moving towards the 20 SMA spot prices have also approached the narrowest 50-day Bollinger bands. The technical picture favours a break higher as the price is at the bottom end of the band. See the chart below:


Risks

The main risks to this trade are all linked up to the US stimulus package and the upcoming US elections. The core risk is USD strength from a surprise Trump win. Although unlikely at this stage watch out for narrowing polls. Another outlier risk is surprise USD strength from a Biden victory. Expectations are currently for USD weakness with Biden on improving reflation conditions for the US and reversal of US protectionist policies. However, in 2016 the US election results were expecting heavy selling in equities and we saw the exact opposite.

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Market Mood EURGBP 23.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the EURGBP pair on Youtube.


Weak EUR, Strong GBP

The EU and the UK have entered into a period of intensive Brexit talks. It is still in the best interest of the EU and the UK to try and reach a trade agreement before the deadline at the end of the year. The EURGBP pair should find sellers on rallies higher as expectations of a deal breakthrough grow. The headlines coming out for Brexit related developments are growing again, but the current mood is that disappointing Brexits headline is faded on the optimism that a deal will finally be reached.

Therefore, expect EURGBP sellers on any rallies higher as long as hopes of a Brexit deal remain.

Trade Risks:

1. The main risk to this trade outlook is if the UK firmly commits to leaving the UK without a trade deal.
2. Any near term breakdown in talks will also invalidate this outlook.

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Have you noticed Gold rises in a risk on market?
by Giles Coghlan, Chief Currency Analyst, HYCM

This short article is to point out a relationship with gold and the dollar. It does pay from time to time to point out the obvious and this may be a relationship that you have missed if you are not heavily absorbed in the markets day to day. Well, you probably know that gold is an anti-dollar commodity. The USD has the biggest impact on the gold. If you take a look at the chart below you can see how the recent relationship between the spot gold price and the dollar index has played out.



When the dollar falls, gold rises and vice versa. Now during the COVID-19 crisis the USD has been operating like a safe haven currency and gaining strength during risk off sessions. This is key to understanding the way that the USD has been impacting gold. If you take a look at the chart below of the S&P500 (candlesticks) and the DXY (yellow line) you can see the relationship. As the S&P500 falls, so does gold and vice versa.


The above means that gold is trading like a ‘risk-on’ commodity. When markets are trading risk on, gold rises. If you would like some help in recognising what a ‘risk on’ market looks like check out this video. This is also why gold is still expected to keep rising in the medium term as a weak USD picture is anticipated on an expected Biden victory in the US elections. So, this explains the near term drivers of gold, the anti-use commodity.

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Market Mood BTCUSD 26.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for Bitcoin on Youtube.


There has been a major shift in the perception of cryptocurrencies that has happened recently. PayPal’s willingness to endorse the use of cryptocurrency by its large user base put Bitcoin firmly on the map and gave it a stamp of approval from mainstream headlines. The rise in central banks looking at using digital currencies also means that PayPal is getting ready for a new, digital future.

Furthermore, renowned hedge fund manager Paul Tudor Jones said in an interview on CNBC last week that he was more bullish than ever on Bitcoin. Bloomberg’s intelligence report forecast Bitcoin at $14,000 by year end and JP Morgan’s Global Quantitative and Derivatives Strategy team sees Bitcoin having considerable upside potential. Bitcoin’s appeal is set to reach more traditional and highly capitalised investors.

Therefore, in this environment expect Bitcoin buyers on pullbacks.

Trade Risks: The main risk to this trade is if Bitcoin loses support from mainstream media.

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Copper set for structural boost higher?
by Giles Coghlan, Chief Currency Analyst, HYCM

Joe Biden has stated that he will spend $2 trillion over four years to improve infrastructure, create zero-emissions, public transport and create clean energy jobs. Green investments stand to gain with a Biden Presidency. With green technology relying heavily on copper for conducting electricity via wiring and conductors the need for copper is expected to grow in the coming weeks and months ahead.

Commodities are at a two year high even as the pandemic cases rise and winter approaching for both Europe and the US.


This optimism in the commodity market had led Goldman Sachs to forecast a 12 month return of 28% for commodities in 2021. Metals and crops are expected to do well supported by policy aided demand, a weaker USD, rising inflation risks and a lack of investment. Goldman Sachs also point out that a number of commodity markets are in a deficit at the moment with, ‘all but cocoa, coffee, and iron ore in a deficit’.

Although oil will face a hard winter, with demand falling on rising COVID-19 cases, the continued expansion of China and weak dollar should support commodity gains going forward.

Looking at the copper futures chart from a longer term view it is reasonable to expect buyers from any heavy falls into support. These areas highlighted are particularly worth keeping an eye on as well as any key areas for break outs higher. Watch out for sharp price action on a Biden victory and any unexpected moves like we saw in the 2016 election.


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Market Mood SPX 27.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen for the latest market mood for the SPX on Youtube.



There are reports that there has been some progress towards a stimulus deal, but not enough to make a deal imminent before the US elections. Equity markets recent falls have been due to the disappointment of no US stimulus deal looking likely before the US election.

However, with either a President Trump second term or a Joe Biden victory the US stimulus package is still expected to pass after the US elections. This means that any meaningful dips in the S&P500 before the US election should find buyers.

However, traders should be aware of the large risks involved with holding positions over the US elections next week and square positions before the elections.

Trade Risks:

 

1. The main risk to this trade is some very negative COVID-19 news, like more shutdowns across the world, which causes equity markets to sell off sharply.
2. Another risk is if the chances of a US stimulus deal fade and/or the package offered is smaller than the market expects.

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Will a Biden win boost gold prices higher?
by Giles Coghlan, Chief Currency Analyst, HYCM

Despite gold’s falls yesterday. Gold’s fundamental outlook remains very good. The Federal Reserve are not planning on raising interest rates until 2023. So, when inflation is considered this means that rates are negative. This makes cash unattractive to hold and increases gold’s appeal.

US dollar weakness ahead

The US dollar, which heavily impacts gold prices, faces a period of weakness over the medium term. This is to provide a further gold boost.
The expectations of a huge US stimulus packages still to be confirmed after the US elections also favours gold. With Biden firmly ahead in the polls a Biden presidency could boost gold prices even higher for the further following reasons:

1. Biden would retract from President Trump’s ‘America first’ protectionist policies. This weakens the USD, helps the global economy, and boosts gold.
2. Biden is ahead in the polls, but gold has still been relatively subdued. This means Biden victory is not yet priced into the precious metal. This increases the chances of an explosive reaction higher gold.
3. Gold has been trading as a ‘risk-on’ commodity. So, when the US stimulus package finally gets passed through the US administration this will boost risk assets and lift gold along with it.
4. Gold has been far more resilient over the last few sessions even as equity markets fall. This shows that strong bids are underpinning gold, despite the risk off tones ahead of the US elections.
5. Technicals are supportive. See previous post here.

If a vaccine is able to be rolled out before the end of 2021 then Chinese lunar New Year demand for gold should pick up too further boosting gold prices into year end and 2022. The 100 EMA is providing near term support for gold at the moment and can be used to define short term risk for buyers.

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Market Mood EURGBP 29.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the EURGBP pair on Youtube.



Weak EUR, Strong GBP

The ECB is expected to give a negative twist to their rate meeting today, so the euro should be pressured heading into the meeting. The shutdowns in France and Germany on rising COVID-19 cases will also help weaken the euro.

The UK is still expected to find a trade deal with the EU, so expect dips in the GBP to be bought as long as these hopes remain.

This means that the EURGBP pair should find sellers this AM.

Trade Risks: The main risk to this trade is some negative Brexit news which will strengthen the EURGBP pair.

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What can gold bugs learn from the latest World Gold Council Report?
by Giles Coghlan, Chief Currency Analyst, HYCM

Year to date demand for gold is approximately equal to 2009 demand .The year to date demand is around 2,972 tonnes. Take a look at the year to date demand chart for gold to compare it to other years with a breakdown of the major parts to this demand: Gold backed ETF’s, bars and coins, and jewellery demand etc.



Recent demand has been slowing as spot prices hit high levels in Q3. The quarter on quarter demand for Q3 fell to 892.3 tonnes. This is the lowest since Q3 2009:



World Gold Council’s key findings

1. Jewellery demand has improved from the Q2 record low. Most markets have seen some kind of recovery as lockdown restrictions lifted across the world. Some sellers have reported a shift to online shopping helping demand recover. The drop in jewellery demand was partly due to rising gold prices as well which hit recent peaks in Q3. Read the full report here.
2. Exchange traded funds demand have grown again. Gold backed etf’s achieved 3880 tonnes in Q3 as these investments grew by a further 272.5 tonnes. So, the fall in jewellery demand has been more than compensated for by the rise in ETF holdings.
3. Bar and coin demand rockets higher to a YTD record. Q3 bar and coin demand in the US has more than quadrupled year on year yo 19.2 tonnes. The Year to date purchases are 48.9 tonnes more than treble the demand that was in the same period of 2019.


4. Central banks sell. This was mainly due to the fact that Turkey and Uzbekistan sold around 57 tonnes of gold between them. I suppose they are cashing in with the higher prices. Six other central banks increased reserves.


In summary, there is plenty of potential demand still to come in the market. If a COVID-19 vaccine rolls out and that gives consumers enough confidence then the jewellery market should open right up. The growth in bars and coins is encouraging as it means that investors and consumers are looking to accumulate gold. The huge rise in ETF’s shows the fundamental bias for gold bugs is still there as investors accumulate positions.



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Market Mood AUDJPY 30.10.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the AUDJPY pair on Youtube.



Weak AUD, Strong JPY

The release of big tech earnings last night from Amazon, Apple, Twitter, Facebook, and Alphabet was largely a disappointment to the market and US futures markets are trading lower across the board. Oil is trading lower from the last few sessions, bond yields are pressured, gold is feeling the pinch, and the market looks to be heading into another risk off day as chances of further national lockdowns grow and risk off flows increase on the concerns over the coming US election.

Therefore, in this risk-off environment, expect JPY buyers and AUD sellers. Pullbacks on this pair should find sellers.

Trade Risks: The main risk to this trade is if the market switches to a risk on setting.

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Is copper a bargain before the US election?
by Giles Coghlan, Chief Currency Analyst, HYCM

The return to national lockdowns has been the catalyst for the recent global stock market fall. National lockdowns in Germany and France as COVID-19 cases surge sent the EUR plunging last week and stocks dropped with risk flows away from equities. This also meant that copper found some sellers as industrial demand takes a hit and reduces the demand for the metal. The recent bull run in copper has been very strong. The metal was able to easily brush off its original COVID-19 falls and make new ground on hopes of coming growth. However, the rise higher also makes it vulnerable for a correction lower.



Copper’s fundamental demand remains good

Copper stands to gain from the rise in green technology, so it is hard to see copper prices keep falling without seeing dip buyers step back.

Where and when might they return?

Well the first catalyst for a Copper dip buyer could be about to come next week. A crucial difference between Republican President Trump and Democrat Joe Biden is their differing proposals around Green investments. While President Trump is in favour of building roads, bridges, and airports and has not publicly shown much interest in ‘green’ investments. By contrast Joe Biden plans to spend $2 trillion over four years to improve infrastructure, create zero-emissions, public transport, and create clean energy jobs. A Biden victory this week would be a great gain for green investment, and copper demand. This is because all the wiring and conducting material needed for green tech relies heavily on copper.

If Biden wins and both houses fall under Democrat control it will be easier for Biden’s policies to pass. Biden is ahead in the polls, so buying copper the day before could be a shrewd move. However, it could equally go horribly wrong if Trump does another surprise and wins (highly unlikely) or if the US election end up being. Check out this article for a brief history of contested elections in the US. Either way, copper stands to gain over a longer term move into green tech, but will the US election be a near term boost for prices or will investors have to wait a little longer?

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Market Mood GBPAUD 02.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the GBPAUD pair on Youtube.



Weak GBP, Strong AUD

The news over the weekend that the UK is set to go into new national lockdown measures should pressure the GBP to start the week. Pubs, restaurants, gyms, and non-essential shops are due to come into force from Thursday this week.

By contrast, Australia has recorded its first day of no local cases of COVID-19 in almost five months over the weekend. Health officials are now saying that more restrictions may be lifted in the coming days.

Therefore, expect GBPAUD sellers on pullbacks.

Trade Risks: The main risk to this trade is if there is any positive Brexit news which lifts the GBP.

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The rise of Algorithms and what it means for markets
by Giles Coghlan, Chief Currency Analyst, HYCM

A different topic for us to look at today as we await the outcome of the US elections. Around 15% of daily spot FX trading is executed by algorithms. So, what is an algorithm? It is an automated trading program that places a trade according to a pre-defined set of instructions. These algorithms have developed from very simple rule based mechanisms to more advanced strategies that respond to different market conditions.

So, which are the main currencies are using EA’s?

In a Markets Committee survey where algorithm providers where asked which currencies EA’s were used with and what the size of the ticket was the following answered were given. Look at the results of the survey below. It is no surprise that around 94% of G7 currencies have clients using EA’s. This is for the major currencies like the USD, the EUR and the GBP etc. The average ticket size is around 31 million for this G7 block.


So, what are the consequences of using algorithms?

One hidden impact of their use has been a move towards market makers, often the bank, trying to match orders internally without passing them on to external venues. This trend has now raised some concerns with the Bank of International Settlements as if too much internal order sorting takes place then the quality of prices reported may be undermined. You could envisage a situation where the reported prices is not reflecting the true price. This could also cause the trading volumes on primary venues to drop. This matters because prices from primary trading venues such as Refinitiv and EBS are used as reference prices for other currency trading platforms and for bilateral trading. You can read the full report here.

Another impact to be aware of is the rise of ‘flash crashes’. These are sudden violent moves in markets and they appear to be accented by algorithmic trading. The most likely time for a flash crash is after the close of the US session and before the open of the Asian session, so this is something to be aware of if you are holding trades over that time.

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