Last week was an exciting one for traders.
Mid-week, the Federal Reserve withdrew its final stimulus as expected, causing the US dollar to strengthen. The monthly bond purchases which stood at USD85 billion in December 2013 was scaled back by USD10 billion each in the last eight meetings. On 30th October, the Fed removed the final USD15 billion from the market.
This marks the end of the Fed’s latest round of quantitative easing which began in January 2013. It has amassed a total of USD790 billion of Treasuries and USD813 billion of mortgage-backed securities. An improvement in the US labour market was cited as one of the main reasons for ending the quantitative easing program in October.
Data last week in the US showed the world’s largest economy grew an annualised 3.5 percent in the third quarter, beating the 3 percent increase in gross domestic product predicted by economists. Fewer Americans filed applications for unemployment benefits in the past month than at any time in more than 14 years, a separate report showed.
While all attention was focused on the Fed and the US dollar last week, the Bank of Japan (BOJ) sprang a surprise by easing its monetary policy. It released a statement on 31st October saying they would raise the expanding the monetary base to 80 trillion yen, up from the previous figure of about 60 trillion to 70 trillion yen. Governor Haruhiko Kuroda also led the board to decide to triple the pace of purchases of exchange-traded funds and Japanese real estate trusts.
The announcement came just hours after Japan’s Government Pension Investment Fund said that it would put half its holdings in local and foreign stocks and start investing in alternative assets. The announcement caused the Topix to surge the most in 16 months and the yen to fall to 112.97 against the dollar, a level not seen in almost eight years.
Amidst the divergent policies between the US and Japan, Gold seems to have lost ground. Spot gold touched USD1161 at the end of last week, it’s lowest intraday price since July 2010. The precious metal dropped 4.7 percent last week to cap a second straight monthly loss. Societe Generale SA and Goldman Sachs Group Inc. are among the banks expecting further losses for gold.
Gold is heading for the first consecutive annual retreat since 2000 as prices are 2.8 percent lower this year after a 28 percent slump in 2013. Bullion fell last year as the Fed prepared to end bond-buying and holdings in exchange-traded products contracted.
So here’s a snapshot: The US stock market is up as the US dollar strengthens. The Japanese stock market is up as the Japanese yen weakens. Gold is down as the divergent policies between US and Japan become clearer.
Top News This Week
Australia: Retail Sales m/m. Tuesday, 4th November, 8.30am.
Expect figures to come in at 0.3% (previous figure was 0.1%).
Expect figures to come in at 0.3% (previous figure was 0.1%).
USA: ISM Non-Manufacturing PMI. Wednesday, 5th November, 11pm.
Expect figures to come in below 58.4 (previous figure was 58.6).
Expect figures to come in below 58.4 (previous figure was 58.6).
USA: Non-Farm Payrolls. Friday, 7th November, 9.30pm.
Expect figures to come in below 230K (previous figure was 248K).
Expect figures to come in below 230K (previous figure was 248K).
Trade Call
Long USD/JPY at 112.05
On the H1 chart, USD/JPY has shot up over 300 pips due to the BOJ’s monetary easing. I expect some traders to take profit on the “Long USD/JPY trade” this week, which would cause a momentary retracement from its current position. We will enter for a long again to follow the uptrend.
An entry is taken at 112.05 after the pullback. A stop loss of 50 pips is placed and we will have two targets on this trade, exiting the first position at 112.55 and the second one at 113.05.
Entry Price = 112.05
Stop Loss = 111.55
1st Profit = 112.55
2nd Profit = 113.05
Stop Loss = 111.55
1st Profit = 112.55
2nd Profit = 113.05
Sources: (As written on BTInvest, 03 November 2014.)
Note: The information in this article has been obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and opinions are subject to change without notice. This article is for information only and not to be construed as a solicitation for contracts. We accept no liability for any direct or indirect loss arising from the use of this information.
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