HYCM Market Insights & Trading Tips

Market Mood AUDNZD 25.01.21
by Giles Coghlan, Chief Currency Analyst, HYCM

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


Weak AUD, Strong NZD

Strong CPI data out of New Zealand last night has helped the narrative for further NZD strength. New Zealand has been very good at limiting COVID-19 cases and Governor Orr has walked back markets from expecting negative interest rates. Kiwi Bank is the latest investment bank to think the RBNZ will no longer use negative interest rates. They join Westpac and ANZ.

On the strong CPI print New Zealand 10 year bond yields shot higher by 9bps. The bond yield spread moves higher on expectations of rising interest rates. Furthermore the bond yield spread between Australia and New Zealand has decreased indicating that AUDNZD sellers are ahead. There could be some strong AUDNZD selling ahead if this continues next week.

Therefore expect AUDNZD sellers at market and pullbacks.

Trade Risks:

1. The main risk to this trade is from a break out of COVID-19 in New Zealand.
2. Another risk is any comments from the RBNZ about wanting to use negative rates.
3. If the RBNZ talk about tapering bond purchases expect more selling of AUDNZD.

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Bank of Canada sees growth ahead
by Giles Coghlan, Chief Currency Analyst, HYCM

Like the ECB the Bank of Canada also had a more optimistic footing. The general hope is that the current vaccine will put recent woes behind the world economy and central banks are starting to cautiously enter into that hope. The Bank of Canada signaled that they too can see some possible light at the end of the tunnel.

Heading into the latest meeting there was a slight chance of a very small rate cut mooted by market participants. In the event rates were kept unchanged at 0.25% and bond purchases remained at the CAD $4 billion per week level. Interest rates were not expected to rise until 2023, like the Federal Reserve, however the bullish twist for the CAD was the revisions for growth. The end of 2021 growth is now seen as +4.6% vs +3.8% previously. Inflation was revised up to +1.5% vs +1.3%. The slow grind higher for oil has been helping the Canadian oil export economy and the growth revisions show the better outlook.

In terms of Governor Macklem’s noteworthy comments in the press was the BoC’s concern about a stronger CAD. The rise in CAD does provide some risks to the outlook for the Canadian economy, so the BoC will not want to thwart their own hand by appearing ‘too rosy’ on Canada’s prospects.

Out of the event the CAD rose sharply (USDCAD falls) sensing a better outlook for Canada. The OiS futures curve suggest that the BoC is likely to keep rates at the current level for the foreseeable future. Despite the better outlook for CAD there are no obvious candidates for an FX trade. However, remembering the CAD’s bias can be helpful as we move forward, particularly if/when we see strong domestic data either confirming or contradicting the BoC’s better forecasts.

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Market Mood AUDNZD 26.01.21
by Giles Coghlan, Chief Currency Analyst, HYCM

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


Weak AUD, Strong NZD

Strong CPI data out of New Zealand last week has continued to help the NZD find strength. There are four reasons for NZD strength at the moment:

1. New Zealand has been very good at limiting COVID-19 cases. It reported the first case outside of a quarantine community in more than two months on the weekend.
2. Governor Orr has walked back markets from expecting negative interest rates at the last rate meeting saying there was a 100bps readjustment.
3. Kiwi Bank is the latest investment bank to think the RBNZ will no longer use negative interest rates. They join Westpac and ANZ.
4. NZ 10 Year bond yields spiked higher and are testing the 1.100 level.

The bond yield spread between Australia and New Zealand remains heavily pressured today indicating that AUDNZD sellers are ahead.

Expect AUDNZD selling from any return to the 50% Fib level marked above.

Trade Risks:

1. The main risk to this trade is from a further break out of COVID-19 in New Zealand.
2. Another risk is any comments from the RBNZ about wanting to use negative rates.
3. If the RBNZ talk about tapering bond purchases expect more selling of AUDNZD.

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ECB rate meeting: A more optimistic picture
by Giles Coghlan, Chief Currency Analyst, HYCM

The last ECB meeting saw rates unchanged, as expected. The size of the €1850 PEPP bond purchase programme also remained unchanged. Again, as expected. So no surprise so far.

The ECB repeated the notion that they anticipate interest rates remaining low until the inflation outlook moves up to a level sufficiently close to, but below 2%. This is a repeat of earlier messages. However, there was a change in the way that the PEPP bond package would be used.

PEPP bond purchase change shows more optimism

The emphasis shift concerting the full use of the PEPP envelope was when the ECB reminded markets that the full €1850 PEPP envelope does not necessarily have to be used.

This is more upbeat from the ECB as well as a recognition to the ECB policy makers who did not want such a large PEPP envelope in the first place. The total amount of the PEPP envelope remains at €1850 billion with purchases set to remain at their current scale and pace until March 2022.

The Press Conference

Remember that all central bank meetings are not really ‘complete’ until after the press conference. In the last ECB’s press conference Christine Lagarde echoed this positive sentiment reflected in the statement noting that risks to growth is still tilted to the downside, but less pronounced.

This now sees the ECB turning more upbeat due to vaccine optimism. In relation to the EURUSD exchange rate Lagarde said that the ECB was carefully monitoring FX rates and she repeated that no-tools are off the table.

The reaction of the EURUSD was muted and the drift higher after the ECB meeting last week was driven by the weaker USD last week. There was no obvious currency moves to be taken advantage of on this meeting due to the lack of surprises. It was pretty much as the market expected, but with a slightly more optimistic tone.


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Market Mood Silver 27.01.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for Silver on Youtube.



The FOMC meet tomorrow and Jerome Powell’s response will be crucial for precious metals gold and silver. According to the investment bank Citi they are expecting the Fed to repeat and reinforce the Fed’s existing dovishness.

Citi expect no changes to policy and a repeat of the Fed’s last message. A dovish surprise would be any mention of extra stimulus. A hawkish risk would be any mention of tapering bond purchases this year.

If the Fed remains dovish this should support silver buyers.

Trade Risks: The main risk to this trade is from a hawkish twist out of the FOMC with Jerome Powell talking about tapering bonds.

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Gold and its relationship with inflation
by Giles Coghlan, Chief Currency Analyst, HYCM

The mantra that ‘gold is a hedge against inflation’ needs some explanation. We need to remember that if gold really was was such a great hedge against inflation then its price should hardly ever fall. However, taking a look at the long term chart of gold we can see that gold rises and falls considerably within its rise higher.



Inflationary fears

However, gold is certainly a good hedge against the ‘fear of inflation’. Chris Dillow from the FT reports that the fear on inflation can be measured by the gap between 5 year bond yields and their index linked counterparts. In the last 10 biggest annual rises in this index gold rose in 9 put of 10 of these. So, gold does offer some protection against the ‘fear of inflation’.



The bad inflation?

Inflation that is caused by an upturn in the world economy can be bad for gold. The general rule is that when global growth is stronger investors can look to sell gold in order to buy riskier assets. Remember gold gives no interest for holding it, so in a risk positive environment that is one less reason to hold the precious metal. This is why gold did poorly during the last cyclical upturn post the Global Financial Crisis in 2010-2015.


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Market Mood Silver 28.01.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for Silver on Youtube.



The FOMC meet tonight and Jerome Powell is expected to confirm a dovish outlook for the Fed. This should weaken the USD and lift silver higher.

Most analysts expect no changes to the Fed’s policy and a likely repeat of the Fed’s last message. A dovish surprise would be any mention of extra stimulus. The price of silver has consolidated ahead of the FOMC meeting tonight and is currently putting in a false break of an inside bar on the daily chart. The conformation of this move will be if the Fed is dovish and that should lift silver higher. On top of this fundamental backdrop the seasonals are good for silver. Between Jan 27 and Feb 22 silver has gained a total of 16 times over the last 25 years on industrial demand. If the Fed are dovish this could be the perfect time to buy silver.

Trade Risks: The main risk to this trade is from a hawkish twist out of the FOMC with Jerome Powell talking about tapering bonds.

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Why wallstreetbets is different to the tech bubble
by Giles Coghlan, Chief Currency Analyst, HYCM

There has been lots of attention around wallstreetbets and the company Gamestop. To read more see here.


The excitement is high in the community as they take aim at wall street firms and seek to topple them. This is clear example of modern day Speculator’s guilt writ large. One user wrote:

“As soon as public trading opens I’m going to liquidate all my remaining boomer stock and buy whatever more I can of GME. This truly is once in a lifetime opportunity”.

There was an interesting piece this week on Bloomberg’s opinion market live blog explaining why this scenario is different to the tech bubble of the naughties. Here is the thinking. Some people think that the moves in Gamestop are not particularly noteworthy because:

1. This has all happened before.
2. Retail investors are too small in their size to substantially move markets.

The problem with the GameStop saga

The difference between now and the tech bubble is that retail investors are more sophisticated (talking of a Gamma squeeze) and more leveraged.

Leverage exacerbates the situation

Via the use of leverage small retail bets can be transformed into sizeable ones. By adding these retail bets together you quickly reach high, market moving amounts.
The retail investor can trade options on Robinhood. The total volumes of options hit 7.47 billion contracts in 2020. That is 45% higher than in 2018. A great deal of these options are being traded by retail investors.

The gamma squeeze is a phenomena where as price reaches an option’s strike price dealers will have to be buy more and more of the underlying stock. This has been adding to the woes of GammaStop. Other companies like BlackBerry, Nokia and AMC are also getting pulled in. The race for higher regulation is on. The easy way for this to be contained is that retail traders will be asked to provide more margin for their positions.

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Week Ahead 01.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Markets were pushed and pulled on risk sentiment this week as the slowdown in the vaccine roll out reduced optimism of a return to global growth. However, the main focus for the week was the Federal Reserve interest rate decision midweek. The Fed stressed the recent slow down in growth prospects, but otherwise reassured markets that financial accommodation (low interest rates and QE) would remain in place. This means any deeper falls lower in equities should find dip buyers. In other news the companies GameStop, Nokia, Blackberry, and AMC all saw spectacular gains this week as the retail driven reddit community wallstreetbets bought call options in huge volumes. What a week!

Other key events from the past week

1. AUD: CPI data, Jan 27. Australia’s CPI data did print higher this week, but the AUD continued to lose ground against the NZD as the RBNZ is expected to pull-back from negative interest rates. AUDNZD saw strong selling.
2. USD: Interest Rate Statement, Jan 27. Interest rates were unchanged, but key focus was on the speed of bond tapering. The Fed’s message was that no bond tapering was expected any time soon and this supported silver and gold buyers.
3. EUR: ECB to cut rates? Jan 27. ECB‘s Knot said the ECB has the tools necessary to combat EURUSD gains. The EUR saw some selling as Knot explained the ECB had room to ‘lower rates further’. EURUSD fell sharply on this headline.

Key events for the coming week

1. AUD: Interest Rate Statement, Feb 02. Australia’s interest rates are likely to stay at 0.10% for the foreseeable future, but investors will look for any clues as to when the RBA will start thinking of hiking as the AUD economy improves.
2. GBP: Interest Rate Statement, Feb 04. Interest rates are expected to be un-changed. However, with the Bank of England walking back from negative interest rates will they confirm that stance this week and send the GBP higher?
3. USD: Employment data? Feb 05. Will the US employment data this week con-firm the expected US economic recover?

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Market Mood XAUUSD 29.01.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for XAUUSD on Youtube.



The Fed met last night and they left rates unchanged as expected. The Fed had a dovish stance as the statement recognised that ‘activity and employment had moderated in recent months’, with weakness in ‘the sectors most adversely affected by the pandemic’.

Jerome Powell managed to strike a balance between sounding concerned about the US economy but also optimistic about a vaccine. The reaction in the US10 y was telling as it drifted back down towards the 1.00% yield area. This dovish outlook is supportive for gold as the low rates, high amounts of QE, positive environment for gold is set to continue for now.

Therefore, expect gold buyers on any breakouts higher of the trend line above.

Trade Risks:

1. Any good vaccine news will weigh on gold.
2. Any strong signs of US recovery will invalidate this outlook.
3. Any talk of bond tapering will invalidate this outlook.
4. Any strong moves higher in US 10 year yields will strengthen the dollar.
5. Any risk off moves will strengthen the USD.

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Watch the VIX
by Giles Coghlan, Chief Currency Analyst, HYCM

Markets have been in a state of turmoil recently over the GameStop drama. Stocks have been tumbling, so how do traders time entries to go long again? Well, one key indicator is the VIX.



What is the VIX?

The Cboe Volatility Index (VIX) is a real-time market index representing the market’s expectations for volatility over the coming 30 days. When it rises, stocks fall as market participants predict more volatility ahead. So with all the drama surrounding the GameStop, AMC, Nokia and BlackBerry shares the VIX has risen prompting heavy outflows from major indices.

However, opportunities remain for the recovery when it comes. Many traders look to the VIX to guide that timing.

An opportunity signaled by the VIX ahead

When the VIX drops we can see stock markets recover. It is a pretty reliable pattern and you can see the last couple of recoveries in the VIX led to large gains in stocks. So, with the Fed on hold, we can expect stocks dips on buyers. If the VIX spikes again, just waiting for the VIX to drop again before dip buying can help with timing.


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Market Mood FTSE 100 01.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Listen to the latest market mood for the FTSE 100 on Youtube.


The FTSE 100 has been falling recently on the volatility in the markets after the GameStop saga produced a liquidity squeeze. The FTSE 100 fell lower alongside other stocks, but the medium term picture looks good for FTSE 100 buyers. That outlook is based on:

1. Now with Brexit agreed the UK will see investors approach the UK again as that uncertainty has been removed.
2. The UK is vaccinating its population very fast and this should speed the UK economic recovery.
3. The FTSE 100 is trading near key support which offers an ideal place for buyers to place stops.

Trade Risks:

1. A slow down in vaccinations will alter this outlook.
2. A new variant of COVID-19 which is vaccine resistant will invalidate this outlook.

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What we learnt from the Fed
by Giles Coghlan, Chief Currency Analyst, HYCM

The US rates were left unchanged. This was as expected. The Fed recognised a ‘moderation’ in the pace of the US recovery in recent months and managed on balance to strike a note between vaccine optimism yet sufficient dovishness. It was decided that one month term repo ops wouldn’t be offered after February 09. However, the Fed stated that it was ready to adjust repo operations as appropriate. In the press conference after the statement Powell said that he considered real levels of unemployment to be closer to 10% in the US.

Bond tapering

One key aspect that was anticipated before the meeting was whether the Fed would mention anything on bond tapering. The consensus view was that this would be unlikely. Powell kept to the expected line and stated that it was. ‘too early to talk about tapering’. This reassured markets. Powell went a little further and said that more could be done with bond purchases. This was the right message for the market to hear and hit the right dovish notes.

Inflation

Powell said the Fed will not react to small and transient inflation rises. This is to avoid the scenario where markets start pricing in interest rate rises on the first sign of inflation. Investors will almost certainly do this anyway, but Powell is wanting to warn against that. There were no comments on the exact levels of inflation as you would expect, but Powell said he would ‘welcome’ higher inflation. That’s the sort of comment that can come back to bite you in the world of politics. However, in the context we are in, Powell simply means a little inflation would be good news rather than anything sinister around.

The bottom line here is that Fed is on hold.

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Seasonal Insights Nike 02.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Will Nike gain in value again this year over this period? Listen on Youtube



Nike, Inc. is an American multinational corporation that is engaged in the design, development, manufacturing, and worldwide marketing and sales of footwear, apparel, equipment, accessories, and services. Nike shares are entering a strong time of the year. From February 08 through to March 02 Nike shares have gained nine times in the last 10 years. Although Nike shares lost value during the initial fall in share values last year as COVID-19 took a grip of the markets the demand for sportswear was high during lockdown. Nike could be a stock that sees it share price rise.

Trade Risks:

1. The main risk to this trade is if there is strong risk off trading heading into year end on the US stimulus bill not being as large as expected.
2. Another key risk is if GameStop fears spill over into risk markets and risk stays elevated.

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Silver expecting dip buyers
by Giles Coghlan, Chief Currency Analyst, HYCM

Attached Image (click to enlarge)

The wallstreetbets phenomena has resulted in silver gaining as the Reddit group highlighted silver as a next potential target. The difference between the gains in silver and the increase in stocks like GME and AMC is that silver has some big investment groups who see higher prices ahead. So, it is not a case of the little guy vs the big guys in silver gains. It is a more mixed portfolio of players who are bullish on silver. Also, some of the wallstreetbets group are wanting to distance themselves from silver buying. Silver also has a strong seasonal time of year on industrial demand.

Major investment firms fuel silver gains

1. Goldman Sachs calls silver its, ‘preferred’ precious metal and has a 12 month target of $30/oz. The rationale is that it benefits from USD falls and green tech demand. Makes sense.
2. Citi see more silver upside and see it peaking at $28-$30 oz on a demand recovery.
3. UBS are making a case for silver at $30 by the end of Q1.

Silver seasonals

Seasonal demand is very good for silver around the first half of February. In the last 25 years silver has gained a total of 16 times between January 31 and February 18. The largest gain was in 2009 with a +15.13% gain. The largest fall was in 2001 with a -7.79% loss.

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Market Mood AUDCAD 03.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM


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



Weak AUD, Strong CAD

The Reserve Bank of Australia kept the cash rate and the 3yr bond yield target unchanged at 0.10% as expected. The RBA also said that they will not increase rate until actual inflation is above the 2-3% target range. This means that interest rates may not be increased until 2024. The change to the policy was the extension of bond purchases by $AUD100 billion. This was slightly unexpected and brought AUD weakness.

The Bank of Canada has a more optimistic outlook and the latest rise in oil prices is supporting CAD. This means that AUDCAD rallies higher should find sellers.

Trade Risks: The main risk to this trade is from a risk off tone that weakens oil and sends CAD lower.

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Market Mood AUDNZD 04.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

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


Weak AUD, Strong NZD

The latest employment data from New Zealand last night was a strong beat. The unemployment rate fell to 4.9% from an expected 5.6% and the employment change rose to 0.7% from an expected -0.1%. This led ANZ investment bank to raise their RBNZ forecast to ‘on hold’.

The Reserve Bank of Australia kept the cash rate and the 3yr bond yield target unchanged at 0.10% as expected. The RBA also said that they will not increase rate until actual inflation is above the 2-3% target range. This means that interest rates may not be increased until 2024. The change to the policy was the extension of bond purchases by $AUD100 billion. This was slightly unexpected and brought AUD weakness as the RBA gave a bearish tweak to their policy.

This means that AUDNZD rallies higher should find sellers.

Trade Risks:

1. The main risk to this trade is from any data that weakens the outlook for New Zealand.
2. Any positive sentiment from Governor Lowe could also support the AUD.

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RBA: Surprises markets with additional bond purchases
by Giles Coghlan, Chief Currency Analyst, HYCM

The Reserve Bank of Australia met on February the 02 and delivered a surprise to the markets. They kept the interest rate and the 3yr bond yield target unchanged at 0.10%. This was as expected. The RBA also noted that the recent economic recovery had been based on significant fiscal and monetary support. The RBA said they will not increase interest rates until actual inflation is above the 2-3% target range. This means that interest rates are expected to stay as they are until 2024. So far, no surprises.

The surprise

The change to the policy was the extension of the RBA’s bond purchase programme. Bond purchases were extended past April and by the amount of $AUD100 billion. The bonds are to be bought at the current pace from then of $AUD5 billion a week, This was slightly unexpected as some desks were expecting the possibility of QE coming to an end in April on the back of stronger labour data. In fact reading the RBA’s statement it was generally quite upbeat, despite the dovish twist in their policy action. Remember that QE purchases weaken a currency, so the AUD was weaker out of the meeting. You can read the whole statement here from the RBA.

This decision put immediate pressure on the AUDNZD pair and has opened up a further drop in the AU10Y and NZ10Y bond yield spread. The divergence between the two means that the latest RBA decision keeps an AUDNZD sell bias in place unless NZD data/central bank decision alters the outlook for the NZ10Y. The latest NZD employment date has led to ANZ expecting the RBNZ to keep interest rates unchanged at 0.25%. This should means AUDNZD rallies higher find sellers.


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Week Ahead 08.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

The GameStop induced volatility faded this week and that helped support equity market gains. See here for an interview we gave to the UK National Express this week. Further good news on vaccine roll outs and the effectiveness of existing vaccines further helped strong gains in the world’s major indices. The medium term picture is that record amounts of fiscal and monetary support is working in helping the global recovery from a COVID-19 induced slump. It is this narrative that is ensuring that all dips in risk markets are bought. As long as volatility remains subdued next week the hopes of a global recovery should continue to support the risk complex on any dips lower.

Other key events from the past week

1. AUD: Interest Rate Statement, Feb 02. The RBA surprised markets by adding an additional $AUD100 billion to their bond purchase programme. This resulted in AUDNZD downside as the RBA diverges from a more optimistic RBNZ.
2. GBP: Interest Rate Statement, Feb 04. The BoE were expected to walk the mar-ket back from expectations of negative interest rates and they did supporting the GBP out of the event. Rates remain unchanged at 0.10% as expected as did as-set purchases.
3. USD: DXY breaks 91.00, Feb 03. The Dollar Index broke higher above 91.00 midweek as the recent USD bearish picture is challenged. The rise in US10 year yields helped the USD higher. Any significant improvement in the US economy opens up the potential for further US10 year yields and USD gains with it.

Key events for the coming week

1. NZD: Inflation expectations, Feb 09. Employment data from New Zealand this week resulted in ANZ projecting that RBNZ will remain on hold at their next rate decision. A higher inflation print here will support that view.
2. USD: Inflation date, Feb 10. A key element of recent USD strength has been hopes of a faster than expected US recovery. Any signs of rising inflation in the US will lead to expectations of bond tapering and that will lead to USD gains09?
3. EUR: Double dip recession? Feb 12. Will the EURUSD keep drifting lower as the Eurozone heads towards a double dip recession and the US economy continue to show signs of strength?

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Seasonal Insights Apple 05.02.21
by Giles Coghlan, Chief Currency Analyst, HYCM

Will Apple share rise over the medium term? Listen on Youtube.



Apple is an American multinational technology company headquartered in California, that designs, develops, and sells consumer electronics, computer software, and online services. Apple shares are entering a strong time of the year. From February 04 through to April 05 Apple shares have gained eleven times in the last fourteen years. Although Apple shares lost value during the initial fall in share values last year as COVID-19 took a grip of the markets the demand for technology was high during lockdown boasting sales. Apple could be a stock that sees it share price rise between now and April if the seasonals play out again.

Trade Risks: The main risk to this trade is if there is any strong risk off trading.

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