What’s to happen now after the Swiss blind side?

January 19, 2015

Last week was a crazy week for the global market lead by the SNB’s strike on the FX market. Last Thursday’s event, described by some as a ‘black swan’, caused huge losses for traders, hedge funds and banks. Personally, I don’t think the SNB’s decision is a ‘black swan’ event as the consequences itself were fairly predictable. The Swiss Central Bank couldn’t bind their currency with the falling Euro forever. In this light in 2015, will we witness other similar events that may cause huge volatility?

The answer may be a resounding yes. The risks from low oil prices are not limited within oil-producing emerging markets like Russia and Venezuela. The falling prices of energy and raw materials have subdued the global inflation level, putting Eurozone and Japan in front of the deflation. The ECB may probably introduce QE this week, but it may not be enough. The Euro fell by almost 300 pips last week. A rebound may happen if the QE is less aggressive than expected. However, in the longer term, the 1.15 level is not the end.

EURUSD 190115 | Vantage FX

Also, another risk we should be wary of is how the Fed may be forced to delay the timing of the first rate hike to 2016 as the inflation and wage growth are lower than former expectations. The December CPI fell by 0.4% and the annual growth settled at 0.8% – the lowest since 2009.

The Gold prices surged to $1280 on Friday. Now, a head-and-shoulder bottom has completed the daily chart. As I have previously said, looking at it technically, the $1350 will be the target of this pattern. In the background, knowing that the ECB’s QE is on the way, participants are now betting on a later rate hike in US. At least, in the short run, the gold price will keep its bullishness and $1300 will be the next target.

XAUUSD 190115 | Vantage FX

Back to stock markets, the Shanghai Composite surged 1.2% to 3376. ASX 200 fell 0.60% to 5299. The Nikkei Stock Average lost 1.43% on a stronger Yen. European markets were supported by the expectation of QE, except the Swiss market slumped about 6% with higher exchange rate. The UK FTSE was up 0.79%, the German DAX rocketed 1.35% and the French CAC Index rose 1.31%. The US market rebounded after a five-day fell. The S&P 500 closed 1.34% higher to 2019. The Dow gained 1.1% to 17511, and the Nasdaq Composite Index rose 1.39% to 4634.

On the data front, Australia New Motor Vehicle Sales will be released at 11:30 AEDST. The trading volume will be limited in US session as today is the Martin Luther King Day in US.

Have a great trading day!
Anthony


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