The Week Ahead

Last week was certainly an eventful week with stocks tumbling, yen surging and lots of volatility in general. The Japanese Nikkei225 index was down over 17% at one point last week and the full extent of the crisis and costs to companies is still unclear. 

Investor Focus

There were major developments in Libya over the weekend as French fighter jets launched attacks against Col Gaddafi’s forces to enforce a no-fly zone over the country. This course of action has the backing from the UN council but risks destabilising the country for longer. The on going strife in the region added to other concerns such as developed nations debt levels could weigh on investor sentiment over the next few weeks. 

Economic Releases

This week will be a light week in terms of economic releases but there are a couple of events traders should be particularly aware of: 

• 14.30 Wednesday, Change in EIA Oil Inventories. If crude oil climbs to around previous resistance levels due to developments in Libya this event could provide an opportunity to go short. 
• 12:30 Friday, US GDP Price Index. The latest US GDP figures could provide some end of week volatility especially if they surprise to the downside. Stocks in particular may get choppy around this time. 

Currency Focus

Japanese Yen: Last week the yen surged triggering some brokers to stop all trading on the yen. The G7 nations announced that they would be stepping in to intervene in the currency markets for the first time for over 10 years to try to devalue the yen to reasonable levels. Intervention in currency by central banks usually leads to failure but when there is coordinated action as in this case it is much more likely to work. The USD/JPY pair is important as Japan exports a lot of goods to the US. On this pair the 80 level is the key price that central banks will try to defend. I will be looking out for signs of further intervention if the rate returns to this level. 

US Dollar: The US dollar has been getting hammered recently but the cycle could be about to change. It is looking like a decent bargain at these historically low prices. GDP numbers released on Friday could be the trigger for a reversal in sentiment. 

Watch List

USD/CHF: Oversold on the daily charts and looks ripe for a reversal. I will look out for signs of a change in sentiment or a reversal pattern to go long up to the 0.9250 level.  

Crude Oil: The pattern in oil at the moment is to rally on Middle East tension and to fall on evidence of excess supply in the inventory numbers. I shall be looking to short oil on this weeks US oil inventory release.

Thanks for reading this weeks “The Week Ahead”.