Geopolitical risks are what moves markets. Whether it’s the instability in the middle east, and the impact of war on Oil prices, to trade wars weakening indices markets. As traders, we must understand these fundamentals and their potential impact on the markets we follow in hope of volatility based opportunities. The next 10 weeks see the approach up to two huge political deadlines. In the UK, the deadline to reach a deal and see Brexit executed, and in the US the return of the debt limit, along with the episodes surrounding the shutdown of government until Trump delivers on his campaign promise of a wall bordering the US and Mexico.
In the markets, we’ve seen these points of uncertainty highlighted with recent rallies. Gold, JPY, and CHF all getting stronger, as traders flock to safe-havens. In Indices and equities all selling off as a result.
So where are the opportunities? Here are some of the markets to pay attention to as we embark on days of political darkness.
After the flash crash a few weeks ago the Yen has recovered all losses against the Dollar. Even with the recovered losses, the markets remain closer to oversold as per the 14 days RSI. The resistance of 109.4 threatened to break last week, and with the help of a compromise to end the current US government shutdown, we saw a rally leading to a breakout.
So how do we see history repeating itself with a further bull run up to 114? Markets still oversold, JPY rate decision upcoming this week may shed further light on the future direction as this week progresses.
Losing yet another vote in parliament had put Theresa May at the periphery of an employment exit. However yet again survived, now knowing the EU must reconsider the initially agreed deal, or face a no-deal which would be chaos for both, she hopes to re-enter negotiations. The FTSE rallied on Friday as a result, breaking the 6950 resistance. However, as we have seen via the RSI the markets haven’t passed the 61 marks of this indicator in over a year. This poses the question, will this breakout turn out to be false, and as the tensions in negotiations rise, return back to the 6600 region?
Cable hasn’t been trading where the markets are historically accustomed to seeing them, which is above $1.45. Currently at $1.28 this pairing sits on it’s 2 year floor. 10/25 week moving averages positioned for a potential upwards cross, along with the RSI at 46, sees the technicals pointing to a potential bull upcoming run. As the US Debt Ceiling nears a reassessment on March 1st, a weaker dollar has historically been present each of the last few instances where the US agreed on it’s limits. This has often been the go-to strategy, to increase exports and overall income to help pay back debts and remain within limits. If this were to happen again, the next 10 weeks may see us reenter the $1.45 mark.
Senior Market Analyst