This week started with a bang in the sense that the Mayor of London during the weekend said that he supports the BREXIT camp. It was such a shock for markets as the GBP opened lower across the board with gaps being present on all currency pairs. Needless to say that the volatility continued into the London session as well and throughout the week as the 1.40 eventually was broken and the pair traded into the 1.38 handle area as well.
This week traders continued to trade the EURGBP to the upside like he did last week as well and so far so good in the sense that the pair is trading above 0.7900 and it is unlikely that it will not try to break the 0.80, so those call options are looking ok. Traders also tried to buy some dips in the GBPUSD with end of month expiration dates (next Monday) and after the dip below 1.39 it jumped back to 1.40 but was met only with sellers from that place. It is not clear yet what Brexit will mean for the United Kingdom, but one thing is sure: volatility is going to surround these markets for quite some time now and when trading binary options this means we should pick bigger expiration dates for our options.
Euro Preparing for Draghi
The ECB (European Central Bank) is going to meet in two week from now and the focus will be on the weak inflation that came in Europe this week. Not only that the monthly levels are showing deflationary threats, the year on year levels are declining as well with the core number moving lower.This will force the ECB to act and analysts expect the central bank to deliver another rate cut even further into the negative territory and most likely the quantitative easing program will suffer some changes as well.
It means it is dangerous to go into the ECB meeting with a bullish bias on the Euro pairs but until then he traded only call options. As mentioned above, EURGBP was traded to the upside but also EURUSD and EURJPY. The week started with the two pairs moving lower and lower with no bottom in sight but Wednesday brought the much expected bounce from 1.0950.
Analysts still think the EURUSD needs to move above 1.1150 area at least and it should do that until the ECB meeting in two weeks from now, so current 1.10 level is just perfect for more call options, either with end of week or end of February expiration dates.
Brent Oil Broke above $35
It was a busy week for oil as well as brent was trying for quite some time now to break above the all-important $35 level. The low has been made with the market forming a zigzag and now we need at least a move into the $45 range. It means more upside is due on oil and from analyst’s point of view the $40 level is the line in the sand or the bull-bear line when it comes to trading.
Traders bought call options on oil all month with various expiration dates, starting from end of week to end of month and this coming Monday should see the monthly expiring in the money if prices stay above $35. As a consequence of the moves in the oil market, the USDCAD pair was diving quite aggressively and this was really good for the put options he bought during the month.
NFP in Focus Next Week
There is no secret anymore that the Federal Reserve of the United States has a dual mandate: to keep inflation below or close to two percent and to create jobs. The idea behind job creation is that the more close one gets to full employment, the more pressure on the money markets will rise and in turn inflation will rise as well. In order to spend it one must earn it and this is how inflation may pick up. There is no sing of it yet in the United States but the NFP (Non-Farm Payrolls) next Friday will offer us a glimpse to see if we get closer to full employment or not.
My take is that market is not really focused on that as it is more focused to see what the Fed is doing with the tightening cycle, but that is just another story. It remains to be seen first how the month of February is ending before looking at the prospects for March, but so far it looks like March is going to be as volatile as February. Starting with next Tuesday though, we have the possibility to trade end of month options and that should abate the danger of trading in volatile times.
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