This article was written by Clive Arneil and David Dixon of Viper Wealth Creation.
Last week saw a higher equity market towards the end of another volatile week as Mario Draghi helped calm choppy waters with talk of potential further easing of interest rates by the ECB.
Super Mario is due to talk again late European time on Monday and there are statements to be released from the Fed and BOJ after meetings as well as from the RBNZ.
Expect further soothing words regarding future policy actions and probable stock market gains.
Should the equity markets recover further then I would expect continued adjustment lower in the value of the yen and euro.
Euro, dollar, pound and yen
EUR/USD has room to head lower with 1.0700/25 looking important to me. If the recent support here is broken then expect 1.0500/25 fairly quickly.
USD/JPY finished at the very top end of a range 116/118.75 and is likely to break higher on firmer equities. A break above 119 will see 120/120.50 in market sights soon after.
However I see relative yen strength unless we see the BOJ act further which does not look or sound likely.
The JPY is my pick of the majors to look to be long of throughout this year which will more than likely see many swings from rude health to doom and gloom in the capital markets.
Sterling has I think for now found a bottom and will recover further this week. If cable can sustain a rally past 1.4300/25 then 1.4550 looks distinctly possible.
EUR/GBP tried and failed to break above 0.7750 and 0.7600 looks likely to see some resistance in the short term.
Although the move lower in the pound has been understandable I suspect that some have jumped on the lower sterling because the potential Brexit story will take profits for now.
This should lead to a recovery of sorts and as stated previously I look to go short against the yen in the low to mid 170’s.
Gold has not moved that much lower from US$1,100 even though risk appetite returned to a degree towards the end of last week.
If the rally in equities as measured by the S&P 500 continues above 1900 with 1945/50 zone possible, then I would not want to be long the shiny metal until close to US$1,050.
So to sum up I believe a calmer market will be helped along by the central banks this week and lead to some risk taking using the euro to fund and less yen safehaven buying.
This should lead to better levels to short sterling and Swiss against the Japanese currency for medium to longer term moves lower in GBP/JPY and CHF/JPY.
Clive Arneil, Viper Wealth Creation
Worked for major brokers for over 20 years trading most instruments in the foreign exchange and derivatives markets.
Brokered deals on behalf of some of the world’s largest banks including Barclays, Citibank, UBS, NatWest and the Bank of England.
Worked mainly in the UK but also in Switzerland, Germany and the U.S.
Retired from the money market at the age of 40 and then worked as a financial data feed specialist supplying market data to banks, brokers and spread-betting companies.
From there he went on to teaching people the skills required to master today’s volatile markets not just in the U.K but also in Singapore, Dubai, South Africa, Germany and Italy.
David Dixon, Viper Wealth Creation
1980 – 2000, NatWest spot, forward and derivatives trader.
Responsibilities included taking on proprietary positions on behalf of the bank in the ‘interbank market’ with trades in multiples of millions of dollars, and on occasion billions.
2000 – 2006 he advised corporate and private clients on various financial matters.
2006 – present, David has been working with Clive.