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Low liquidity in the currency markets allows for extremely volatile swings as major players are away on holidays
MORNING BRIEF
Extremely volatile trading conditions was the theme of the currency markets on Friday with the Euro and the Cable on a rollercoaster ride. The significantly low trading volume and very thin liquidity caused by the absence of most market participants have allowed the Euro to explode from 1.3750 to nearly 1.3900 and back to 1.3740 in the same day making it almost impossible to trade it. The Pound was in a similar mood climbing to 1.6570 only to give back its gains within the day and close near the 1.6470 area. We’ve made word of this possibility in our last reports and we’d like to mention again that the Holidays’ season is not the best time to trust the market’s moves as even the slightest of trades gets magnified by the lack of opposing demand and these overextended rallies reverse as easily as they are created. It is important to mention that even though the Dollar has been devaluated at the ending of last week nothing has changed to cause this and no news-related development has occurred thus this rally should be regarded of low significance. We’re pretty certain that the week ahead of us will also feature extremely low trading volume and very thin liquidity and this could make for either very low volatility or extremely wide swings as we witnessed in Friday. In either case if you would like to trade these days we strongly suggest that you do it with caution and not trust the current price action in the same way you would do any other day of the year.
US Home Sales on the docket today
Our Economic Calendar features the US Pending Home Sales today and an 1% rise is expected on a month-to-month basis on the important index. The housing market has been lagging in the US and, even though other key metrics have been improving lately triggering Fed’s decision to taper, Home Sales isn’t one of them. It’s important to monitor the progress in this sector as improvements in it will assist the Fed in reducing its asset purchases program on schedule. The next few days there are only a couple of important news releases with the US Consumer Confidence tomorrow and the ISM Manufacturing Index scheduled for Thursday.
Economic Calendar
|
Time |
Currency |
Event |
Importance |
Forecast |
Previous |
|
15.00 |
USD |
Pending Home Sales (YoY) |
Medium |
-0.2% |
-2.2% |
|
15.00 |
USD |
Pending Home Sales (MoM) |
Low |
1.0% |
-0.6% |
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TECHNICAL ANALYSIS & LEVELS
EUR/USD
The Euro was on a wild ride on Friday climbing nearly to 1.3900 on low liquidity conditions only to retreat down to 1.3750 within a few hours. This type of behavior is usual in periods of low participation in the markets and is caused by the lack of any trading interest on the other side of the market: buyers are pushing the price higher and the system is searching for selling interest on higher levels and given the lack of significant offers in these levels the price covers overextended lengths and then comes back down as quickly as it rose. This means that nothing has changed in the fundamentals of the Euro or the Dollar and we expect the US currency to strengthen versus the European coin as soon as market participants come back in their trading desks.
GBP/USD
The Pound demonstrated similar behavior with the Euro but at a smaller degree. The British currency reached as high as 1.6570 on Friday only to come back down to close the day at 1.6470. The chart above illustrates how much overextended the move on Friday was and we will treat it as a brief rally. The next few days will determine how the Pound will close the year and we expect the British currency to begin the next year strong versus the Dollar.
FTSE 100
The FTSE 100 continues to gain ground and the low trading volume in stocks is allowing for this rally to formulate. The key for the UK index will be to hold on to these gains after the Holidays’ season ends and we expect a deep retracement to occur at some point. The instrument appears to be extremely overbought and we wouldn’t suggest any trades on it even if it wasn’t Christmas period.
Gold
Gold remained oddly quiet on Friday and held on its previous gains hovering around the $1,210 area. The yellow metal has been in an uptrend the previous week retracing higher after the significant losses of the recent period. We expect Gold to devaluate further as 2014 begins and the intensified demand for Dollars will be the cue for this sell-off rally to begin.
The above charts have been created using FXCM’s Trading Station platform.
STOCK MARKET FOCUS
[Restricted Content] Plc.
The Alpesh Patel Momentum/Value filter has indicated [Restricted Content] Plc. as our stock of the day.
Company Information: [Restricted Content]
Created using Sharescope Pro
[Restricted Content] Plc. has been rated an 8 out 10 in our Value/Growth rating and gets an B Grade rating on our Bullish Momentum meter. The P/E ratio is relatively low suggesting that the stock might be underpriced, the ratio of the price earnings growth is also low and Turnover is up year on year supporting the growth potential. From a technical standpoint, the MACD indicator is turning upwards indicating that a swing higher might be developing. The suggested holding period for a stock of this type is 2-3 months.
Important Information
The filters and settings in the Special Edition of the Sharescope software use Alpesh Patel’s proprietary criteria to generate suggestions of securities worthy of further investigation. They DO NOT CONSTITUTE INVESTMENT ADVICE.
The next edition of the NewsletterPro service will be delivered on Friday, January 3rd.
We’d like to wish you a Happy and Prosperous New Year filled with joy and happiness.
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