FXTM information and reviews
OctaFX information and reviews
XM information and reviews
FXCC information and reviews
Libertex information and reviews
FxPro information and reviews

A traders' week ahead playbook: selling rallies in risk

20 June 2022 Written by Chris Weston  Pepperstone Head of Research Chris Weston

We start the new week with sentiment in pieces – can we push higher in risk after Friday’s S&P500 options expiry? History would suggest we can, but while liquidity will be poor today (due to the US observing Juneteenth – US cash markets are closed, futures partially open) much depends on whether traders and funds roll their puts into far lower strikes, or whether dealers cover their hedges (meaning buying back S&P 500 futures shorts), in turn, driving the equity market higher. My base case is the S&P 500 trades into 3300/3400 over time but that call is obviously not this coming week – trading wise, if I'm buying risk it's for a scalp or a day trade, but swing is out of the question and I want to be in front of the screens when holding exposures…sleep is a good thing.

As it is, all the distribution of probabilities points to equity markets likely to be sold on any rally – the job of the trader is to understand how far these rallies can go before getting set into shorts. The moves in crypto over the weekend are a case in point that former liquidity beneficiaries cant find a friend, although we’re seeing the likes of Bitcoin now back above 20k - the weekend focus on crypto on social media has been wild and there is literally no one who is bullish, and if they are then they don’t want to publicly declare their hand. It feels like if this is to rally then it's short-covering over organic buying.

A 5.6% decline in crude on Friday (WTI crude fell 8.6% on the week) is a silver lining and the weekly chart of US 5yr Treasuries suggests exhaustion in the rampant bond sell-off – if the equity market is to rally we need a lower crude price, not just in spot but throughout the futures curve, and bond bulls need to drive down yields too – perhaps then we can squeeze to 3900 in the US500, but that is a stretch, and gold will like lower bond yields.

One to watch as we focus on Jay Powell's testimony to Congress this week, where Powell will be grilled but continue to push for credibility in his myopic inflation fighting stance. In FX markets, the CHF was the superstar last week, and the momentum players are long the 'swissy' and eyeing follow-through -GBPCHF is a favourite from clients who were magnetised to the movement.

Anyhow, while the investment community manage drawdown, the trading community get set for another wild week – I want to be long risk this week, but I'll let the market guide – it feels so wrong to be long as I know there is more pain to come – either way, having an open mind, reacting to price and let the market guide will always serve any trader well. So, what's on the docket this week? I’ve put a few thoughts together on event risk this week.

Implied volatility matrix – with the event risk mentioned above, here's the implied volatility (priced by options) and the expected movement. I like to use for risk and mean reversion purposes, but it offers a guide on the expected movement on the week in some key FX/XAU pairs. Interest rates expectations – with the markets so interested on upcoming central bank meetings, I’ve looked at interest rate pricing. Here’s my matrix on the upcoming meetings and what’s priced into markets by way of priced hikes. I feel this helps traders manage event risk far better. As an example, we see 70bp of hikes priced for the July FOMC meeting, 56bp for the next RBA meeting.

Looking ahead at the key event risk – here we list the marquee event risks on the docket over the next 6-8 weeks. These are the events that the market will look at front and centre and above all others. Be aware of these, they mean everything to markets.




Forex and Cryptocurrencies Forecast for September 26-30, 2022
Forex and Cryptocurrencies Forecast for September 26-30, 2022

Last week, all the attention of the markets was focused on the FOMC meeting of the US Federal Reserve, which took place on September 21. The probability of another rate hike by 75 basis points (bp)...

26 Sep 2022

Trading the SPDR S&P 500 ETF Trust
Trading the SPDR S&P 500 ETF Trust

The Standard & Poor’s (S&P) 500 Index measures the market capitalisation of the top 500 US largest corporations. Many traders and investors use the S&P 500 Index as a benchmark...

23 Sep 2022

Gold pauses as traders await Fed decision
Gold pauses as traders await Fed decision

The anticlimactic performance of gold continues as the prospect of aggressive rate hikes by central banks around the world amid heightened inflationary pressures...

21 Sep 2022

Developing a forex trading plan: All you need to know
Developing a forex trading plan: All you need to know

All forex traders have different backgrounds, market views, risk appetite, thought processes and expectations. Therefore, traders should not just blindly follow what other traders do...

20 Sep 2022

NordFX: Forex and Cryptocurrencies Forecast for September 19-23, 2022
NordFX: Forex and Cryptocurrencies Forecast for September 19-23, 2022

The World Bank said last week that risks of a recession in 2023 are growing amid simultaneous tightening of monetary policy by the world's leading Central banks and the energy crisis in Europe...

19 Sep 2022

Gold gains traction on the back of weaker dollar
Gold gains traction on the back of weaker dollar

The precious’ recent rally from its near year-to-date lows could be attributed to the broader dollar weakness observed in the past week, even though it remains elevated near its 20-year highs...

14 Sep 2022

Editors' Picks

HFM information and reviews
IronFX information and reviews
FXCM information and reviews
NordFX information and reviews
Vantage information and reviews
FP Markets information and reviews
FP Markets

© 2006-2022 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.