Wednesday, 28 August 2013

Market Moves During Quiet Times

Back in the old days, prior to instant communications via smart phones, tablets, or laptops, late August used to be a very quiet time.  Then, the trading desks were manned by junior traders who had limited authority, merely waiting while the partners and senior traders were away, enjoying the last weeks of Summer.

Having spent the last week away from my office, I personally found the instant communications  to be lacking.  There is a difference between knowing the last tick, however, and knowing the multiple drivers that influence the last mini-trend.  Perhaps it is the missing second or third screen, but, more likely, it may be the many distractions when you are away.

Tuesdsay, the markets are reeling from the hawkish speech regarding the Syrian situation.  The US S & P 500 is down to 1633, 1.44%, and the Global Dow is down 1.37%.  The spokesman for President Obama claims he has yet to make a decision but vessels are moving into the eastern Med and markets believe something is about to happen. 

The crude market is always sensitive to Middle East conflict.  The WTI is trading close to 109, and Brent is trading close to 114/barrel.  Further, the price of wholesale gasoline has raced ahead today, up 2.8% to over 3.03 per gallon. With taxes and mark up this pushes the retail price of US gas ever closer to 4.00 per gallon, a level that may put the fragile US recovery in danger.

Part of the US recovery has been based on the premise that the housing market has recovered.  The Case-Shiller 20-City Index today showed a double-digit increase for the fourth straight month. Bob Shiller, though, was cautious.  He said "none of this is real, the housing market has gotten very speculative."  Continuing, Shiller says, "for the long term buyer, the fact that (prices) are going up now, doesn't mean anything for where it will be  when you sell.  The market is "driven by irrational exuberance."

Click to Enlarge USDCAD Daily Forex Chart

Perhaps the US data released Thursday will give us guidance.  Is the US recovery continuing?  US GDP, Annualized (Q/Q) is expected to be up 2.2% from last months 1.7%.

Recently, the USD has gained on the Canadian Dollar (USDCAD, FXC, UUP, UDN).  Part of this was caused by the perception the USD was gaining faster than the loonie.  Last week the USD moved above 1.0550, but has since retreated to below 1.05.  If the US news proves a bit wobbly, the C$ might continue to gain lost ground.

Click to Enlarge USDCAD Daily Forex Chart

Besides, while the US may suffer from the strong energy prices, oil is Canada's biggest export product.  We believe you can try to sell the USD versus the C$ near the 1.0490 area for a sell-off to the 1.03 area.  For the europhobes, consider selling the euro and buying the C$ above the 1.40 area; a retreat to the 1.3750 might be possible. 

As always, manage your money.
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