Plenty of reasons to sell Peripheral debt concerns in Europe, the ongoing war in Libya, natural disaster in Japan, dodgy Chinese data and uncertainty in the US marked a return to risk-aversion driven trading this week for our clients. Intense combat raged in Libya as traders nervously watched Saudi Arabia ahead of the 'day of rage' planned for Friday, although WTI crude trended lower. On Monday, the WTI front-month contract hit its highest levels since the August 2008 super spike, briefly trading above $106, and then headed south to trade below $100 on Friday after the Saudi protests fizzled (WTI closed above $100). Gold and silver closed out the week off of recent all-time highs. The dollar has finally caught a safe-haven bid after two months of punishment at the hands of the euro, following sovereign downgrades of Greece and Spain, as well as fresh expectations that a Portugal bailout is imminent. This brought some much needed stability back to the FX markets as traders wondered how to make sense of the disasters and mixed data this week. An interesting trade of the week was the performance of the Aussie dollar on Friday evening/Saturday morning where it sank to .9968 before the market thought the Japanese disaster was overdone and pushed the USD back to the new ‘normal’ of AUD above 1.0100. Our clients remained buyers of the AUD and GBP to the USD, though many pulled the plug with healthy profits on Friday.

Phil Horner Head of Sales Trading

SPI longs nowhere to be seen
We continue to see bearish signs for the local SPI200 index in what was a very choppy trading week. Similar to the AUDUSD, the SPI200 suffered a huge drop on Friday and saw lows of 4577 before stabilising higher to finish the week at 4637. It is rare to see our traders now taking any long term buys on the futures index and instead will opt for 10-20 points or will look at the other hot products such as WTI and gold.

The week ahead
The following week should see a turn away of focus from fundamental economic data and more towards geopolitical worries. With so much for traders to be on their toes about (Middle East, Japan etc) it will be hard for our clients to take any long term positions unless the outlook clears up a little bit. We have seen traders try and ‘catch a falling knife’ and try to pick the top of commodity markets week in week out, particularly gold, silver and oil recently and few have been right. One of the big events of next week will be the FOMC meeting where the Fed may give an indication of the strength of the economy and possible interest rate comments, and we will also see how CPI and PPI is effecting the world’s largest economy. Many will expect this to be high from the large spike we have seen in oil, which may push to Fed to move earlier than most analysts had estimated. Clients have said that the markets have pushed too high for too long, and are due for a correction, perhaps this is the week.