Guest presenter Judith Waker offers her fundamental analysis of current markets:

Not a week to second guess the market or rely on technicals to trade forex.

The fundamentals are screaming to stay away and keep the powder dry.

Of course the news even outside the still (just about) United Kingdom is full of the referendum and the endless debates and discussions about breaking the Union. It is a global event, and whatever the decision it is fairly clear it will be a close result.

Whatever it is , it will bring it’s own consequences. The FTSE has seen a gap down and is falling, clearly nervous but all the campaigning will be over today and tomorrow will reveal what the Scot’s want. The markets will no doubt figure out what it all means and it may take a while. If that was not enough to keep us away from the trading desk, the FOMC may have been, their big meeting yesterday needs digesting and Yellen speaks later today. And it is all about what they don’t say as well as what they do. Traders were on ‘hawk watch’, but more of that in a moment.

The UK Economy

Well an obvious place to start.

The FTSE has shown the level of anxiety amongst share holders in the UK, clearly volatile and no doubt with an eye on the polls which still leave too narrow a gap to be sure which way this vote is going.

Interestingly and maybe ‘note to self’ for the weekend, the economic results, echoing Carney’s optimism in his TUC speech last week, have been good, including sterling (excuse the pun!) unemployment numbers and a reasonable consumer price index. An upbeat week in terms of growth indicators but that may be severely compromised should the Ayes have it. When data is weighed with the two awaited results, anything is possible!

Dollar strength

The dollar index has charged upwards for the last three months and stalled at it’s highs this week. No doubt watching the two big events but they have been focused on the FOMC so everyone understood that yesterday’s meeting and today’s speech are paramount in  predicting USD direction or correction. It was apparently all down to the word ‘considerable’ and it was still there. Although the lack of it would have been more hawkish, the market reacted to strengthen the dollar. It may be because the fed indicated that it expects UP TO 1.5% by end of 2015, previously 1.25 l. Someone did the maths and that would mean a June 2014 rate hike at latest if the increments are to be kept equal. Add to that 2 dissenters that believe in earlier rate hikes and the hawks are off and running. By 2017, the Fed expects policy to be ‘back to normal’ (post QE) and interest rates at 2.75% More from Yellen tomorrow.

The Loonie (Canada’s dollar)

Sick and tired (I live in the UK) of Alex Salmond and Gordon Brown, who the BBC have described as a revivalist preacher, I decided to take a little closer look at the Cad. Just for the sheer pleasure of it!

Some good data this week with Manufacturing Sales above expectations, but what was interesting was the Bank of Canada’s chairman, Poloz speaking about the freely floating currency. He believes in market forces, that policy induced growth cannot maintain living standards. In his words, “a floating loon is a thing of beauty and so is a floating loonie”  Cute if just a tad trite and yet he has a point. He evidenced a recovering export market, whilst until now heavily reliant on oil, there are other strengths now appearing in the non-oil market including machinery, industrial materials and business services and they will all benefit from the recovering US economy. There are results this week for Consumer prices and wholesale sales. With a floating currency , data will strongly influence the value of the Canadian Dollar.

Back in Europe

Interestingly some stronger data showed up this week, the German economic sentiment came in above expectations whilst Europe overall didn’t even meet them. Italian trade balanced also pleased but the Eurozone missed quite dismally. There is a pattern here! If recovery comes it will take a while in the zone overall. Europe is also nervous about the UK vote. There are regions wanting their own independence, in Spain for one example, and also a reduced UK may be more inclined to turn it’s back on Europe.

The Swissie

Following my comments last week, more disappointing economic data earlier this week. It is a vulnerable economy and aware of it’s neighbours weaknesses. It has lost ground following the FOMC

The beleaguered Aussie.

Recent free fall stemmed  by promises of liquidation in the Chinese economy on which it is very dependant, but another bad day after the FOMC meeting.  The dominant problems remains the China effect and their declining demand for iron ore which continues to drop it’s value. Double trouble for the Aussie and the outlook is not good.

The Kiwi.

Milk auctions kept prices even so no reaction in the NZD . It has suffered a similar fall to the Aussie and like it, is a commodity currency and commodity prices are falling. Obviously, FOMC took it’s toll here too.

And In Conclusion….Volatility

Global events and policy have the potential to drive up volatility. The index, the VIX, is still at relative lows but both the FOMC and the fate of the Great British Union can change all that. If the VIX responds,trading communities will be happy with increased opportunity. That’s if we can work out what it all means! The market appeared to run with the so called hawkish/ less doveish/ implied whatever stance of the Fed, but tomorrow and friday will have its own effect and it won’t just be felt in the UK. Personally I prefer to take the weekend to gather some more opinions and attempt some insight of my own but essentially still looking for longs only on the dollar. Stay fundamentally tuned!

Judith Waker

www.fortresstradingacademy.com

Fundamentals