HYCM Market Insights & Trading Tips

Market Mood USOIL 16.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the US oil on Youtube.


US oil is now entering one of its weakest periods of the year from a seasonal perspective. The losses in US crude oil tends to be large over a seasonal perspective. Will this seasonal pattern come into play for the rest of this month?

Some factors that suggest it might are the fact that Libya has reached full production and Iran may add 500K bpd to supply levels if Biden’s Presidency Is more open to Iran and lifts sanctions. Although a vaccine is in place it will be some time before it is seen to be effective and circulating in major economies. Furthermore, the inventory report last week saw a strong surprise build in the headline figure of over 4 million barrels per day.

On the plus side for oil we have expectations that OPEC+ will delay oil’s output hikes for another 3-6 months.

If the daily trend line on US oil breaks lower, expect sellers as long as price remains below the trend line.

Trade Risks: The main risk to this trade is if the COVID-19 vaccine optimism helps support oil prices higher.

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Three reasons US oil faces headwinds
by Giles Coghlan, Chief Currency Analyst, HYCM

Oil prices face some pressure ahead as it approaches its seasonal weak time of the year. I have posted the returns of US oil over the last 20 years between Nov 20 and Dec 20. You can see the distribution clearly favours sellers. The worst year was 2014 with a huge -27.12% drop in oil. Now this seasonal pressure faces extra difficulty as OPEC+ tries to balance rising oil production levels.


Is OPEC+ to extend cuts?

According to the latest news out on November 11 OPEC+ is talking about extending cuts for 3-6 months.

What’s the present production cut deal?

At present OPEC have agreed a production quota of 21.8mln bpd and are due to relax these to 23mln bpd next year. Libya, Iran and Venezuela are all excluded from the deal.


Three reasons OPEC+ may struggle to balance the market even with cuts?

It may be very difficult as a number of countries are bringing or will bring production back to the market.

Libyan oil production was reported to exceed 1.2mln bpd on November 13. They are said to be ready to comply with quotas when/if they hit +1.6mln bpd. This is a quicker than expected return to production by Libya, so they may hit 1.6mln bpd sooner rather than later.

Iran’s could return to the oil market if Biden administration takes a more dovish approach to the Iran nuclear deal. Their current level of production is around 0.5 mln bpd. However, when the deal was in place it stood higher at 2mln bpd. If Iran turn on the taps that makes it harder for OPEC+ again.

Iraq. Although OPEC production compliance was reported at 101% for October Iraq may struggle to keep production quotas as it funds 97% of its state budget through its oil.

None of this is to mention the potential time it may take for a vaccine to do its work. All of these reasons are potential drags on oil going forward into this seasonally weak time of year.



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Market Mood AUDJPY 17.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

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



Strong AUD, Weak JPY

Risk tone was positively impacted yesterday as Moderna announced that their vaccine has a 94% efficacy rate and a longer shelf life than the Pfizer and BioNtech vaccine. Furthermore, the vaccine can be stored using normal refrigerated temperatures as opposed to the Pfizer vaccine which needed to be stored and transported at -70C.

The positive impact of this news send stocks higher, yields higher, high beta currencies higher, and oil rose too.

As long as this risk tone remains expect more upside in the AUDJPY pair. It is a go to global risk pair and in a positive risk environment expect AUDJPY buyers.

Trade Risks: The main risk to this trade is if there is a negative change in the risk tone.

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Seasonal patterns: End of November is great for the S&P500
by Giles Coghlan, Chief Currency Analyst, HYCM

Seasonal patterns can be great trades. There are certain times of the year when financial instruments have certain pressures on them which result in their prices consistently moving in one direction. For example, the S&P500 has had a very good end to November over the last 10 years. In fact in the last decade the S&P500 has gained eight times out of the last ten times. Here is a look at that information in a little more detail:


The highs and lows

In addition to the success rate of over 80% the maximum drawdown for a long trade taken during this period marked on the chart below has been -2.88% and that was in 2011. The maximum increases during the period has been +5.30% and that was during the year 2018.

The average

The average profit for trades taken at this time, if you had bought every time, was +1.89%. So, this means that with a US stimulus package still to come from the US any pullbacks down to key support on the S&P500 could be a great time to potentially make a profit from this seasonal pattern. Looking at the charts the 3400 region is an ideal place to expect buyers from. It is a large round number in confluence with an ascending long term trend line marked on the chart below. The date that the pattern has been noted is from the 21 of November, which is a Saturday. So, potentially that would mean an entry would need to be on Friday of this week, or a drop down into support may be an early entry.



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Market Mood S&P500 18.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the S&P500 on Youtube.



The risk tone has been broadly higher over the last week in the markets as a double dose of vaccine news boosted risk sentiment, and US stocks, higher. The Pfizer/BioNtech vaccine news last week and the Moderna vaccine news yesterday have all helped to boost US stocks.

Although wider questions do remain in the near term about how COVID-19 cases will drag on economies short term, the bigger picture is positive for stocks deep into 2021. On top of this seasonally the S&P500 does very will at the end of November in the run up to early December. In the last 10 years the S&P500 has only lost twice between 22 Nov and 2 December.

Therefore, expect S&P500 buyers on pullbacks.

Trade Risks: The main risk to this trade is if there is a negative change in the risk tone and/or the US has a national lockdown.

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Market Mood USDCAD 19.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

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


The latest CPI data out of Canada showed a firmer than expected reading. The headline figure came in at +0.7% y/y vs +0.4% expected. The key median and trim readings came in as expected, but the common was a small beat at +1.6% vs 1.5% expected. All in all this supported the CAD.

The USD has found sellers. Weak retail sales data out earlier in the week, Fed Powell’s dovish comments, and a delayed US stimulus bill all helped weaken the USD.

Therefore, expect USDCAD sellers in the session ahead.

Trade Risks: The main risk to this trade is if there is a sharp fall in the oil market which will weaken the CAD against the USD.

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What’s going on with gold
by Giles Coghlan, Chief Currency Analyst, HYCM

Gold has been tricky to trade since the vaccine news from Pfizer and BioNtech was announced. Gold futures fell the most in one day for over 7 years on that news/ Why? Well because if the world gets back to normal then interest rates will rise and the appeal of gold is no longer necessary. Now, on top of the Pfizer news, Moderna’s vaccine has also helped that recovery picture as it appear to be more effective and easier to store than Pfizer’s. COVID-19 will most likely be well under control sometime next year. It could be as early as Spring 2021.

So, is gold a buy, a sell, or a hold?

Here are some of the factors to consider:

1. Consumer demand may pick up in the near term. China and India are the world’s largest buyers of gold. China’s purchases reliably come for the Lunar New Year and prices pick up from the end of December through January. See the stats on that for the last 10 years below:


Gold should pick up at this time as China should be able to celebrate their Lunar New Year. The Golden Week holiday started from October 1 -7 in China and it saw 637 million people travel across the country without any rise in cases. This is a very good precedent for a ‘normal’ New Year celebration in China and at least a short term pick up in gold regardless of the longer term picture.

2. Global risks still remain – Brexit, US administration gridlock, and the broader impact of COVID-19 on the economy remains. This can boost gold’s appeal if one of these crisis flares up.

3. Loose monetary policies are set to stay. The Federal Reserve is set to keep rates at their present low levels through to 2023, so rates are not going up in the short term for sure.

4. Some etf buyers have thrown in the towel on gold and dumped their gold longs. SPDR Gold shares, the largest ETF in the US, lost 26 tons last week. This was the biggest outflow since 2016. So, some investors are ditching gold on the vaccine news seeing the end of the crisis.

5. 10 year Treasuries are heading higher and this reduces gold’s appeal.

One area that stands out to is a potential month long buy in gold around December 23 potentially through to the end of January. Investors closing ETF’s in large volumes sends out a message. They think the strong rally in gold is done.


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A great strategy for your pension?
by Giles Coghlan, Chief Currency Analyst, HYCM

If you have never traded the major indices and would like to here is a great seasonal strategy.

Seasonal patterns are well known in finance and one pattern that turns up over and over again is the superior return of major indices over the winter period. There is a saying in Wall St, ’sell in May, and go away’. Essentially that indices are pretty flat during the summer months. Now looking at the chart below you can see that the return on the FTSE 100 if you bought from May through to October each year since 1984 would have given you very minimal returns. There was little advantage to being exposed to the FTSE 100 during the summer. Look at the red line on the chart – a very flat return.

Winter tells a different story though

However, buying from November through to April would have exceeded the return of the FTSE100. Look at the green line on the chart below.
So, the mantra for the UK FTSE 100 would be to buy in November, but sell in May. So around fireworks night in the UK and exiting at the end of April.



This phenomena is not only unique to the UK. It is reputed across the world. If you take a look at the table below you can see the return of the major indices over winter vs the return over the summer. It shows that over the last 40/50 years the saying has been true. It rarely pays to hold stocks over the summer period. Sell in May and go away.



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Market Mood NZDUSD 20.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

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



Strong NZD, Weak USD

At the last Reserve Bank of New Zealand meeting the NZD was sent shooting higher as the RBNZ said that they would need 100bps less stimulus in the coming weeks. The economy and the global situation was less severe than the last time they met and this provided for a boost for the NZD and NZ10 Y bonds.

Th medium term outlook for the USD remains weak and positive vaccine hopes is also supportive of the NZD from a cyclical growth perspective.

Therefore, expect NZDUSD buyers from deeper pullbacks.

Trade Risks: The main risk to this trade is if there is a sharp risk off tone which boosts the USD higher, weakens NZD, and that will invalidate this outlook.

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Week Ahead 23.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Last weeks strong global equity moves was supported this week as more positive vaccine news helped boost risk assets higher. News that Moderna’s vaccine was 95% effective and was easier to transport helped support the case for buyers in global stocks. The market is currently balancing long term hopes of a return to normality next year vs a short term dip in economic recovery over current rising COVID-19 cases. In other news expectations of a Brexit deal supported the GBP and helped push the GBPUSD further towards August highs at 1.3500. Will a deal finally be reached next week or is this another false start for discussions?

Other key events from the past week

1. Vaccine news: Moderna’s vaccine news, November 16. A longer shelf life for its COVID-19 vaccine & only the need for refrigeration vs Pfizer’s need for -70C storage was good news for a global recovery in 2021. Some investors bought heavily into cyclical stocks on the growing hopes of a normal 2021.
2. USD: Retail sales disappoint, November 17. The US consumer makes up around 70% of the United States GDP so a weaker than expected retail sales reading this week helped send the dollar lower. Retail sales only rose +0.3% last month vs the Reuters expected poll of +0.5%.
3. Brexit: GBP gains on anticipation of deal, November 17. UK Chief Brexit negotiator told UK PM Johnson to expect a Brussels trade agreement early next week. Will a deal finally be delivered? Register for our Wednesday workshop to find out how you can develop a trading plan for the week ahead.

Key events for the coming week

1. EUR: Key PMI data. November 23. The eurozone starts a quiet economic data week of with PMI data out of France and Germany. Expectations are that the ECB will add further stimulus packages and a miss in PMI’s here will add to selling pressure to the euro heading into the ECB’s next rate meeting.
2. USD: FOMC minutes, November 25. In a light calendar week the FOMC minutes will be viewed for clues as to the Federal Reserve’s next policy move. No surprises are expected and you can read the last FOMC statement here.
3. SP500: Strong period for US stocks, November 20-Dec 06. The S&P500 has gained value in eight of the last ten years from Nov 21 through to Dec 04. Is this a great time for dips be bought next week on vaccine optimism? Or is 2020 a terrible year to consider seasonal trades?

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Gold ETF investors are still selling
by Giles Coghlan, Chief Currency Analyst, HYCM


In trying to find the next direction for gold it is very helpful to be aware that the ETF investors that really helped push gold higher are continuing to reduce their positions.

ETF flows have increased heavily during 2020, flows dropping now though
The holdings in gold backed ETF’s fell more than a million ounces in November. This means that gold backed ETF’s are on course for the first monthly decrease this year. Gold prices have been pressured since November 09 and the good news of Pfizer’s/BioNtech’s vaccine news. The sudden spike higher in US 10 Y bond yields sent the precious metal falling and the USD pushing higher. This provides a natural drag on gold prices.



However, since the initial reaction in the US10 year yields and the USD we have seen the USD drift lower again which is more supportive for gold. This has meant that gold has mainly stayed within a tight range above $1850. Any continued retreat from ETF investors does continue to make the case for near term downside.
However, the areas of $1800/$1820 does look like a decent support level for gold. The medium case for gold buyers has certainly not gone as interest rates around the world are still expected to stay low for the medium term. The Federal Reserve is not planning on raising rates until 2023. QE shows no signs of slowing and large demand from China should return in time for the Lunar New Year. See last week’s post here.

One low risk entry idea

If this bullish outlook for gold proves to be correct then conservative traders could always take a break on the trending higher by using a buy on stop order. If the trend line break ultimately fails after a break then pull the longs and come back another day. This is a way of managing risk for investors trying to get into a long, but wanting to minimise their risk. Slowing ETF outflows would also be a great sign for a bullish move higher and could be a great cue for timing a long into early 2021. So, keep an eye out on the latest ETF flow news.


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Market Mood Platinum 23.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

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


From the period of December 20 through to February 28 Platinum has gained in value in 24 of the last 25 years, so it could be a great time to buy Platinum. On top of this rising price Platinum is also projected to have a 2020 supply level of 6738 koz. This is versus a demand of 7940 koz. So this means there is a supply shortage to meet demand.

Furthermore, projected supply levels according to the World Platinum Investment Council are expected to rise to 7865 koz. However, demand is again expected to exceed supply in 2021 with a level of 8089 koz.

Therefore, expect Platinum buyers on pullbacks and breakouts.

Trade Risks: The main risk to this trade is if there is a sharp risk off tone which boosts the USD higher and causes Platinum to fall.

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Market Mood EURGBP 24.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

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



Weak EUR, Strong GBP

The expectation still remains that the EU and the UK will agree a Brexit deal sometime this week. This is keeping the GBP supported.

This week is very light on top tier data with the European PMI data arguably the most important data out. With the European services PMI data missing expectations at 41.3 vs 42.2 expected the ECB are still expected to increase stimulus measures at the next ECB meeting.

Therefore expect EURGBP sellers on pullbacks.

Trade Risks: The main risk to this trade is if the EU and the UK walk away from a Brexit deal.

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Why Platinum looks very strong
by Giles Coghlan, Chief Currency Analyst, HYCM

Platinum is approaching its best time of the year as a seasonal trend the metal tends to gain from mid-December over the first couple of months of the following year. This is a pattern that has stood over the last 25-30 years. Is this a great time to go long?

Platinum Demand is greater than Platinum supply

Attached Image (click to enlarge)

There is a basic fact to this metal market that demand for Platinum is out stripping its supply.

The bar chart below shows the annual supply changes from 2019 -2020 in the Platinum market. The left hand side is the 2019 supply print. The right hand side is the 2020 forecast supply.


And now for the demand side of the equation.


The right hand blue bar shows the demand for 2019 and the right blue bar shows the demand that is forecast for 2020. Now notice a deficit of -1,202 koz compared to an estimate of just -336 koz three months earlier.

However, then take a look into the future and you can see that demand is expected to rise in 2021 to 8089 koz – look at the chart below and the right hand side.


And the supply side for 2021? Well it is still below the demand level.


Conclusion?

So platinum is a market where demand is expected to outstrip supply for the end of this year and throughout 2021. Furthermore, there is a strategic role for platinum in the growth of the hydrogen economy too, so demand could expand even further. There is lots more to be said, but you can access some of the latest research from the World Platinum Investment Council here. Read pages 1-6 for a decent summary and page 4 for the investment case in a nutshell.

This could very well be a great time to go Platinum.


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The buyers and sellers case for gold
by Giles Coghlan, Chief Currency Analyst, HYCM

Gold looks to the FOMC minutes

Gold investors will be looking at the FOMC minutes very carefully on Wednesday. Gold traders will want to get a clue on gold’s near term direction. Gold has been sold recently on a firmer dollar and hope of a coronavirus vaccine. The optimism surrounding the Pfizer and BioNTech vaccine resulted in US10 year yields moving higher towards 1.00% around Nov 09. The news also prompted the biggest daily loss in gold futures in around 7 years. Since then there there has been strong outflows in ETF holdings.


So, gold has two conflicting cases to balance.

The sellers case

A vaccine is on the way. This will precede a return to normality and a return to rising rates. In this view gold can be sold now as the crisis and gold’s long term appeal is over. Or if not over, certainly less appealing right now in the immediacy.

The buyers case

Buyers are still confident as low interest rates are seen to be here for years and record QE purchases alongside huge stimulus packages will keep the appeal of gold alive over the medium/longer term. On top of this the physical demand should pick up for the Lunar New year as China starts buying gold again. Gold can still be bought, but there may be a short term flush lower which won’t last.

The minutes in focus

In light of these two cases the Fed’s minutes will be viewed carefully tonight due to the conflict between Secretary Mnuchin and Fed Chair’s Jerome Powell over whether to preserve emergency lending programs which makes the prospect of further stimulus uncertain. If the US Gov’t and the Fed are seen to be not coming to rescue the US economy then expect more near term gold sellers. However, if traders can see clues from the minutes that the Fed will move to support the US economy then expect gold buyers to step in once again.

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Market Mood EURNZD 25.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

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



Weak EUR, Strong NZD

Expectations of the RBNZ keeping rates on hold rather than moving to negative rates have increased after New Zealand PM Arden has requested Governor Orr to consider house prices in setting monetary policy. This saw a sharp rise higher in NZ 10 year bonds as the RBNZ are now seen as even less likely to ease rates.
The EUR remains bearish with deflationary concerns, growth concerns, and delays in the recovery fund and budget.

Therefore expect EURNZD sellers on pullbacks.

Trade Risks:

1. The main risk to this trade is if Governor Orr comes out tonight and is bearish regarding future rate moves.
2. The other risk is if the RBNZ financial stability report paints a more bearish picture regarding the NZD economy.

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AUDNZD sell on rallies now?
by Giles Coghlan, Chief Currency Analyst, HYCM

On Tuesday the RBNZ moved towards the idea of considering house prices as part of their consideration in setting monetary policy. This had the NZ 10 year bond yields moving sharply higher as market participants saw that it decreases the chances of an RBNZ rate cut.


If the RBNZ add house prices to their remit then the subsequent reduction in house prices will act as a form of monetary tightening. Remember that NZ house prices were expected to drop during the pandemic. In fact they rose 8% in October. NZ PM Robertson is concerned and is trying to get Governor Orr to address the situation. The net result is that there will be less need for negative rates.

You can see the reaction in the overnight-indexed swap markets as more than 40bps of cuts had been priced in by the end of 2021. That is now just down to 5bps.


In contrast to the RBNZ the RBA is focusing on keeping short term yields close to the Official Cash Rater and that could leave AUD yields slightly below NZD yields. This opens up the pathway for sellers on AUDNZD rallies higher as long as this divergence remains. This turnaround has come quickly from the RBNZ who seemed set on negative rates from only back in October 14. Assistant Governor Christian Hawkesby had said then that the RBNZ was not bluffing on the prospect of negative rates.

This opens up the prospect of an AUDNZD sell on rallies as long as this divergence remains between the RBNZ and RBA.


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Seasonal Insights: JPMorgan Chase & Co 26.11.20
by Giles Coghlan, Chief Currency Analyst, HYCM

Is JPMorgan Chase & Co a great buy as the world grows in optimism over vaccine hopes? Watch it on Youtube.


JPMorgan Chase & Co have a very strong seasonal pattern for this time of the year from Nov 26 through to Dec 08-10. Over the last 15 years the share price has risen 10 times recording an annualised return of over 275%. The largest profit has been 19.17% and the largest loss has been -7.23%.

Trade Risks: The main risk to this trade is if there is heavy equity selling on month end flows or risk off trading on rising COVID-19 lockdowns.

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Oil complex eyes OPEC+
by Giles Coghlan, Chief Currency Analyst, HYCM

The rally in oil since the US elections at the start of November has been stunning. There has been a strong move higher too on the Pfizer/BioNtech vaccine news. This twin dose of news has led to strong gains across the crude complex. Brent crude has gained +25% on the month and WTI over +35% since election night. What a run for oil, but can it continue? Key to answering that question will come from next week’s OPEC+ meeting.

OPEC+ to determine oil’s next move

The key issue is whether OPEC+ will postpone the supply that is scheduled to return for the start of January. Current market expectations are that these production cuts will be extended for 3-6 months. Remember, that whenever trading the news we want to be aware of the base case. So, this is the base case for next week, that OPEC+ is expected to hold back supply. The market reaction we can expect is that:

1. If OPEC+ extend production cuts there will be minimal market reaction (as this is expected).
2. IF OPEC+ do not extend cuts there will be sudden oil selling as this is unexpected. (No cuts means more supply which means lower oil prices).

Demand to return, but it may take some time

The recent rally higher in the crude complex has been on the expectations of global demand returning. A vaccine will allow the world to start using fuel again. Cars, aviation and construction can begin in earnest. A Biden presidency has further helped oil in the near term and timespreads have firmed up showing that concerns on large oil surpluses are dissipating. However, there is plenty of Global Crude oil in floating storage compared to the pre-pandemic levels. See chart below.

So there should still be some pull backs in oil’s movements higher on the ebbs and flows over the next few weeks and months, but in the near term look at OPEC+. If OPEC+ extend cuts then look out for buyers on the dips marked on the chart below.


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Week Ahead 30.11.20

by Giles Coghlan, Chief Currency Analyst, HYCM

This week saw another strong risk on rally as a combination of positive factors came together. Firstly, news President Trump was prepared to start proceedings to transfer power to President elect Joe Biden relieved markets. Secondly, news that Janet Yellen would be appointed as Treasury Secretary encouraged risk as she is a vocal dove. Thirdly, positive vaccine news from across the world ranging from the West’s Pfizer to Russia’s Sputnik vaccine encouraged signs of coming global normality. This all sent risk on and allowed the Dow Jones index above 30,000 for the first ever time ahead of the US Thanksgiving holiday on Thursday.

Other key events from the past week

1. EUR: Key PMI data, November 23. Dropping eurozone PMI’s affirmed a second dip for the economy this week. The good news is the drop was helped by stronger manufacturing. Will the ECB now deliver more easing in December?
2. GBP: Fading Brexit optimism? November 25. EU Chief Negotiator Barnier told UK’s Chief Brexit negotiator Frost that if the most problematic points don’t change then the European negotiators have little reason to make the trip to London. Watch out for heavy GBP selling if negotiations stop altogether!
3. S&P500: Strong period for US stocks, November 20-Dec 06. The S&P500 started its strong seasonal pattern well. The S&P500 has gained value in eight of the last ten years from Nov 21 through to Dec 04.

Key events for the coming week

1. Oil: OPEC+ meets, November 30. OPEC+ meets this week to decide on output policy for next year. The recent rally in oil will need confirmation of the news that January’s planned output hike are delayed. If that news is not forthcoming then Brent’s 25% gain this month looks vulnerable to a correction lower.
2. AUD: Interest rate decision, December 01. This is the first central bank decision of December, but the RBA are not expected to change interest rates. However, investors will carefully watch for any change in forward guidance.
3. Vaccine Optimism: Global growth coming, December 04. Will this week register another strong rally in stocks on vaccine optimism?

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