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The markets are (possibly) set to be as choppy this week as much as they were last week. The choppiness could materialise in the Forex market as two major Central Banks of the world take the spotlight. On Tuesday, the US Central Bank will be evaluating their response to the pandemic before members of the Senate panel on Covid aid. On Wednesday, the BoE will update the market as to its evaluation of the British economy and its monetary policy.

Tuesday is when it all begins

In his first outing since lasts week's FOMC, Fed Chair Jerome Powell will (virtually) head to Capitol Hill to address Washington politicians on Tuesday. The topic of discussion will centre on "lessons learned" regarding the Feds response to the global pandemic and its economic consequences.

Investors are currently trying to parse fact from fiction regarding what they hear from the Fed and what the market reports. Of particular concern are contradictions between the Fed's outlook for inflation, the Fed's massive money printing regime, and the rise and subsequent fall in commodity prices.

Last week's FOMC only served to increase interest in Powell's public appearances. Last week's FOMC was notable for the Fed's change in 2021 inflation projections, as well as expected long-term inflationary pressure. For example, the Fed's 2021 inflation projections rose from 2.4% to 3.4%, while it now expects two interest rate hikes by the end of 2023.

A brief reprieve is granted the USD until Thursday when we can expect to see May Orders for Durable Goods, GDP annualised (Q1), as well as the Bank Stress Test report from the Federal Reserve System.

It will be interesting to see if the USD's bullish turn last week will continue when the markets open this Monday. Further, I wonder if Powell will be drawn on any topic outside the stated reason for his Senate testimony. If he can be drawn to speak on topics outside the scope of the meeting, the USD bullishness could easily be boosted or damped by Powell's next outing.

 

GBP Forex traders: Clear your Wednesday schedule

Great Britain's FOMC equivalent is due this Wednesday. We will learn about any impending changes to The Bank of England's (BoE) monetary policy and discover any change in its stance regarding the factors affecting the GB economy.

It is unlikely that significant changes will be announced to BoE monetary policy on Wednesday. Nor is it likely that the BoE will take a hard stance on the country's economic outlook. The BoE could easily use the uncertainty created by the Government prolonging the country's lockdown, as well as and the evolution of the Delta Covid variant in the country to avoid making any changes to its projections. But, anything that indicates that the BoE will deviate from its existing monetary policy, or outlook in any economic sector will be carefully watched by the market.

What to watch this week: Central Banks, GDP, and Confidence

Several reports are arriving this week that are of huge interest to forex and CFD traders. The USD, against major trading partners, could be materially affected by the Monday’s report on Orders of US-made Durable Goods. The rest of the week will see a spattering of Central Bank interest rate decisions and Confidence reports from the US, Japan, and Switzerland.

Read the full story at fxstreet.com

Stocks Settle As Powell Signals Continuing of Easing

Indices across the board sold off today, making it the 5th session in decline as many investors and traders take high valuations as a good time to take profits.

NASDAQ in Candlesticks, S&P 500 in Orange, Dow Jones in Teal

Stocks will continue to live in an accommodative environment

We have seen Stocks rally in an environment where money is cheap, 1 Trillion dollars of fiscal policy for the United States is not enough, and where the Federal Reserve is buying back 120 Billion Dollars’ worth of bonds every month. Pair this influx of liquidity with many investors and traders being able to save due to lockdowns across the world, and you have yourself a buoyant asset market. And it seems like we will be living in this environment for the foreseeable future.

Chairman of the Federal Reserve Jerome Powell signaled that it would continue to keep monetary policy loose and their bond buyback scheme consistent. With that said, he signals a positive outlook for the U.S economy in 2021. A question on whether rising treasury yields signals an improving economy, Powell replied, “In a way, it’s a statement of confidence on the part of the market that we will have a robust and ultimately complete recovery.” This is interesting as an optimistic viewpoint from the Fed may signal that they may tamper accommodative policies in the near term

However, some analysts are wary about the Fed portraying too much optimism. Steve Friedman, senior macroeconomist at MacKay Shields, stated that “We’re not out of the woods yet when it comes to the virus, and the economy also remains quite far from a full recovery.”

What are you looking at in the markets?

USD/JPY Looking For 100?

We have seen a clear downtrend in the USD/JPY since the U.S peaked in early April. The Coronavirus saw a rush to the cash, specifically the Greenback.

However, with the financial markets roaring back to life since then, the love for the Greenback has faded. Furthermore, many Japanese investors bringing back their capital out of U.S stocks back into their home currency, the Japanese yen. This has pushed the pair lower, with it currently sitting at 106.

This contrasts with the countries' main stock index, the Nikkei 225, which has reached all-time highs touching 30,000. The last time it got close to 30,000 was in 1991, where the index touched 26,000.

If you held the Nikkei 225 from 1991 till the start of 2021, you would have been down 0.4%. In comparison, if you have held the S&P 500 from 1992 till the beginning of 2021, you would have been up around 1000%.

USD/JPY Playing Well In The Channel

USD/JPY downtrend has been following a consistent channel

We can see the USD/JPY adhering to this downwards channel diligently, with a breakout in around June. We are currently witnessing a breakout similar to that in June, and if history is a guideline for the future, we may see the pair retreat back into the channel, possibly hitting the 100 mark in the middle of March.

Japan – A Currency Manipulator?

Many Asian nations, including Japan, have been accused of manipulating their currency, specifically to the downside.

It is estimated that foreign exchange reserves held by 12 Asian nations total more than 6.5. Trillion dollars, up 500 billion to counter the effects of the Coronavirus. Asian countries buy up foreign currency using their own, flooding the market with a flush supply of their currency, pushing their currency's relative value lower. This benefits their exports, as it would be cheaper to purchase their goods in other countries – beneficial when your country is dependent on exports, and you are in the middle of a Pandemic.

This could be why there has been a steady downtrend in the U.S dollar against the Japanese Yen. We saw a steady rise from the start of 2020 in Japan's foreign currency reserves from 1.34 Trillion U.S Dollars to 1.4 Trillion U.S Dollars, an increase of 660 Billion U.S Dollars.

Week ahead - Fed Interest Rates, GDP

We have a relatively light data week ahead regarding the amount of significant data points coming out. However, the economic events are extremely significant in determining the state of their respective economies. Hope you all are staying safe. Here is your week ahead.

Fed Chairman Jerome Powell set to speak this week ahead

Tuesday, 26th January – United Kingdom's Unemployment Rate

United Kingdom's Coronavirus situation looks like it's seeing the light at the end of the tunnel.  With Vaccinations fully underway, paired with strict lockdown measures, daily cases have fallen from their peak in early January.

However, that's not to say they're entirely out of the woods yet. The 7-day average continues to be at unsustainable levels, around 37,000. Furthermore, with a new Coronavirus strain proving as much as 1.5x more transmissible, the National Health Service struggles to cope. Soldiers have been dispatched to move patents and equipment around London hospitals, showing how overstretched the health system is in the United Kingdom.

The critical thing to note is that the UK's Coronavirus situation is just starting to improve. They are nowhere near the stages of their economic environment improving. This should be considered when looking at the UK's unemployment figures this week ahead, with analysts expecting quarterly unemployment figures to rise to 5.1%, up from 4.9% the quarter before. There is a high possibility that the unemployment rate is higher than this, and my prediction is that it will be given the state in the United Kingdom. We may see numbers up to 5.3% this week ahead.

Wednesday, 27th January – Australia's CPI Figures

Source: Bloomberg

Australia continues to maintain a good grip on the Coronavirus after a devastating second wave in the middle of 2020. A decrease in rental income in inner cities alongside increased savings in many households has pushed restaurant and café prices higher, alongside commodities such as lumber to record highs. With interest rates at 0.1%, the RBA is having a difficult time spurring inflation. However, the Australian Bureau of Statistics predicts a rise in CPI by 0.3% due to the rise in childcare costs.

Wednesday, 27th January and Thursday 28th January – Federal Reserve's Interest Rate Decision and United State GDP

A new President at the helm of the United States hasn't deterred Federal Reserve Chairman Jerome Powell from the mandate of the Reserve Bank: Employment and Inflation. In the past couple of meetings, the central bank has reiterated that it is committed to using all the tools available to support the US Economy. Analysts are expecting the FOMC committee to leave rates as is, at 0.25%. Furthermore, Quarterly GDP figures for the US are set to be released this week ahead, with Bloomberg analysts predicting a 4.2% expansion in the last three months of 2020.

Friday, 29th January – Germany's GDP Figures.

With Germany under lockdown till 14th February, a positive economic recovery coming shortly has all but vanished. The country did relatively well in halting the spread of the virus in the first wave – however, they have not been able to contain the second wave. Germany recently surpassed the grim milestone of 50,000 deaths, as many German citizens are refusing to self-isolate, prompting the German government to force them into detention centers.

With Germany in a dire state alongside a shortage in vaccines, Health Minister Jens Spahn told a local German Newspaper that the government had purchased a new antibody-based drug to fight the Coronavirus, costing the government over 400 Million euros for 200,000 doses.  Analysts had estimated a 4.4% growth in GDP – however, due to the second lockdown, there has been a Sharp revision downwards to an estimated 3% GDP growth.

A lighter week ahead. However, still an eventful one for sure.  Trade safe, and stay safe.

Nothing can scare off Investors.

It has been 15 days into the new year, but it feels like a year’s worth of events has already occurred. Most notably:

Strip what happened in 2020 out of the question, and this would be run a racket on the equity markets. However, it seems like nothing can scare off investors in this day in age.

Equity Markets in the United States continues to edge higher, with the Dow Jones and the S&P 500 up 0.1%, with the NASDAQ saying as is. European equities too end slightly higher, with the DAX 30 edging up 0.4%. With turmoil continuing to disrupt the world, why are investors continuing to plow money into equities?

Interest rates providing no real yield

With the Federal Reserve stating that they “are not even thinking about thinking about raising rates,” alongside the introduction of their new tool of letting inflation run higher than their mandate portrays that low yields are here for the foreseeable future. The time to raise rates “is no time soon,” Powell states.

Federal Reserve's Interest Rate

This has forced many managers to search for yield across equity markets. However, this can’t be the only reason, as real yield has been low for the past couple of years, even before the Coronavirus. Mario Draghi, former ECB President, was known for saying that “for rates to be higher in the future, they need to be low today.”

S&P 500 in Blue, Dow Jones in Teal, NASDAQ in Orange

Specific equity markets make sound investments.

Many companies continue to thrive even amidst the Coronavirus, notably technology firms such as Salesforce, Facebook, and Slack, alongside retailers such as Walmart and Amazon. Their current price premium reflects their ability to generate free cash flow in recessionary periods. Today, value equities in the industrial, financial, and energy sectors led the edge higher today.

The word “reflation” has recently been the buzzword as of late, providing an extra boost to equities. Scott Knapp, chief market strategist of CUNA Mutual Group, stated that “everybody acknowledges the high valuations, but most people say yes – but the stimulus?”. He further continues stating that “Markets are anticipating that reflation is under way.” Reflation may help the backbone of the US Economy, the consumer, to thrive once again and pull the US economy out of the slumps.

Investors mindset of “things should get better eventually, right?”

Motley Fool, an advocate for long-term, stock-picking mantra, believes that “time in the market, is better than timing the market,” alongside the belief that profitable businesses with high valuations should still be invested in. With a massive influx of retail investors, it would not be surprising that many of them share the same mentality.

Are you plowing your money into stocks?

Week ahead - Central Bank speeches, CPI's

This week is relatively light regarding data coming out from countries. However, investors and traders will be focusing on one essential item – clarification on the Pfizer vaccine's efficacy and timeline. Anthony Fauci stated that the Pfizer vaccine has an "extraordinarily high degree of efficacy – more than 90%, close to 95%" and that the U.S. may begin offering the vaccine to priority groups at the end of December. This hope of a vaccine before year-end boosted risk on sentiment last week. But further clarification of the vaccine's timeline may solidify its move upwards, not to mention an additional step back to normalcy in the world.

Let's hope that the vaccine comes sooner rather than later, so we can focus on rebuilding the economy instead of listing deaths like a statistic. Here is your week ahead.

Coronavirus Cases continue to rise around the world.

Wednesday, 18th November – U.S. Retail Sales

As we put the U.S. election behind us, traders and investors' focus starts turning to the U.S. economy's health. Dubbed as the backbone of the economy, the United States consumer helped lift the economy pre-Coronavirus, helping support equities with higher valuations. The balance between households who were able to save their incomes due to lockdown and the households who could not keep their jobs became the critical question of whether the consumer will become the backbone of the United States recovery. However, with stimulus checks slowly drying up, alongside the Coronavirus worsening in the United States, analysts predict U.S. retail sales growth to slow around 0.5%.

Wednesday, 18th November – Speech form the Governor of the RBA, BoE, and the BoC

Australia
After beating a brutal second wave, Australia is on its way to a long and grueling recovery. Further supporting the recovery is the RBA cutting its interest rate from 0.25% to 0.1%. Analysts will be focusing on Governor Philip Lowe and his explanation on implementing lower rates and whether it will translate to lower retail rates. This contrasts with how New Zealand's implementation of lower rates in which they released a new tool to enable banks to lend at rates near the interest rates. AMP Capital Chief Economist Shane Oliver stated that he expects Governor Lowe to reiterate the Australian Economic Recovery as "bumpy and uneven" and that the bank stands ready to do more.

United Kingdom
There seems to be some relief with the Coronavirus situation in the United Kingdom, as the death toll is slowing. However, deaths were at around 170 in the previous couple of days, showing that the Coronavirus grapples with the struggling country. The Bank of England recently held interest rates at 0.1%. However, they decided to expand its target stock of asset purchases to around $1.2 Trillion U.S. Dollars. Vivek Paul, U.K Chief Investment Strategist at BlackRock Investment Institute\, stated that "For an economy with the headwinds of rising Covid rates, a national lockdown. And a still-uncertain outlook on Brexit, a strong monetary and fiscal policy response is essential."

Canada
Canada continues to rack up Coronavirus cases with no end in sight. Canada recorded around 5,500 new cases, an all-time high, with Dr. Theresa Tam, Canada's top doctor stating that Canada is on track for 10,000 daily Coronavirus cases if Canada is unable to rein-in the Coronavirus resurgence in the coming weeks. Dr. Tam states "Fires are burning in so many different areas and now is the time to get those under control." The Senior Deputy Governor of the Bank of Canada, Carolyn Wilkins, stated that the Coronavirus's economic "scars" could be permanent without a concerted effort from all Canadians. Canada is also set to release CPI figures year over year for October the day after, with a market consensus of a slight decrease in the growth of the CPI to 0.9%.

Thursday, 19th November – Australia's Employment and Unemployment Rates

As Australia slowly opens up their businesses alongside Australia and New Zealand borders, businesses in Australia slowly grapple with a decrease in foot traffic alongside compliance with certain Coronavirus restrictions. With women primarily bearing the brunt of job losses in the early part of Australia's recession, Shadow Minister for Future Work, Clare O'Neil stating that "a tsunami is coming for workers in predominantly male industries" Australia is set to see a 30,000 decline in employment, alongside an increase in the unemployment rate to 7.2% from 6.9% last month.

Friday, 20th November – PboC's Interest Rate decision

China has been reluctant to implement significant monetary policy changes this past year, even during the Coronavirus pandemic, opting for quantitative easing and stimulus instead. As China is relatively ahead of its recovery compared to other countries, it is seen as the first to likely exit its emergency programs, potentially increasing the offshore Yuan. However, if there were a perfect time to cut rates, it would be now as China would be better positioned to take advantage of lower rates, propelling China's recovery. My theory is that the PBoC surprisingly cuts rates this week ahead.

Eyes on the vaccine this week ahead. Stay safe and Trade safe.

NZD/USD – What's In Store For The Kiwi?

The New Zealand dollar against the U.S. dollar is facing a critical fundamental event tomorrow: RBNZ's Interest Rate decision. New Zealand has been fortunate that the government's decision to go "hard and fast" has meant citizens have had relative freedom through Christmas and New Years'.

NZD/USD eying out RBNZ meeting

The NZD/USD is currently sitting at around 0.732, up around 1.37% over the past week. Bulls are looking for positive signs to take the pair 0.74 and higher, such as a lifting in the extraordinary bond purchases the RBNZ is engaging in.

NZD/USD Looking At Key Levels

New Zealand was also in a fortunate position that many of the country's citizens could afford. A lockdown and was employed through the lockdown.

With a mix of government support alongside jobs that enabled work from home, many citizens were in a position to save during the lockdown periods. Pair this with the Reserve Bank of New Zealand, removing loan to value ratios to stimulate the economy, and we have a legendary demand and house price increases across the board as investors and first home buyers take advantage of easy borrowing.

However, the RBNZ has realized that the temporary lifting of the loan-to-value ratio has done its course. They recently announced that they would place these restrictions back, requiring investors to have at least 40% of the house price they want to purchase as a deposit.

NZD/USD looking at any possible rate change

Now, analysts are looking at whether the RBNZ will translate viewpoint into monetary policy. As it stands, analysts predict the RBNZ to hold rates as is at 0.25%. If so, it is likely to state that they will be willing to keep rates well into 2022. A sudden rake hike makes signals the RBNZ may be more bullish on the New Zealand economy. Stephen Toplix, head of research at Bank of New Zealand in Wellington, stated that the RBNZ "simply must be less dovish" than it was in November because inflation has portrayed a more robust.. economy than was expected."

To be clear, house prices and housing demand are not an exact bearing of economic growth. Nor is it a mandate for the Reserve Bank of New Zealand. However, rampant leveraging in higher loan-to-value ratios implicitly affects an order the RBNZ does preside over: employment. To RBNZ, riskier loans place higher pressure on borrowers to make higher payments, possibly putting them into a position of insolvency from the smallest change in their financial conditions.

NZD/USD - A pair to watch tomorrow.

Revival of the dollar?

A revival of the Dollar? As we get closer to the election, investors and traders can see one thing in the future – uncertainty. Therefore, we can see market participants start preparing for the unknown.

Dollar index is up almost 1%

As debates and the election come up, statements will be said, and policies will be announced to sway the markets significantly. Over the past five days, the Dollar index has rallied 1.28%. The demand for the Dollar may be pointed to investors and traders building up a cash position in their portfolios for two mains reasons
• To take advantage of significant markets swings; and/or
• Want to hedge against market slumps

Dollar been getting some love

Many institutional firms are backing the recent rally in the Dollar. Franseca Fonsari, head of currency solutions at Insight Investment, pointed to the election having the "potential to be a significant market mover" and that it would "probably [be] wise" to run lower levels of risk.

Furthermore, Shahab Jalinoos, Head of Currency Strategy at Credit Suisse, echoed Fonsari's comments. He stated that the U.S. election is a key risk that his team considers in predicting a stronger dollar. It is important to note, Shahab has been a bear for the U.S. dollar near the start of August – a point in the dollar decline where it had already depreciated around 7%.

Another currency strategist at Bank of America, Ben Randoll, also pointed to the "substantial economic and event risks ahead" and that he expects a "dollar rally into the election and possibly beyond."

Long term trend for the dollar still downwards?

As you can see – analysts are quick to turn their opinion around on a recent turn of event. All three analysts point to the election being a catalyst for the U.S. dollar while remaining bearish viewpoints before the rally. However, it has been clear for quite some time now that the election will be upcoming. Therefore, this is an excellent example of constructing your own analysis and validifying that analysis using technical and fundamental analysis. It's obvious to call a bull run when you're already in one.

I talked about the Dollar earlier this month, and how long term trends such as Inflation, Federal Reserve's Q.E., low-interest rates, and Gold's rise are headwinds pushing the Dollar further downwards. I stated that "Investors [and traders] do not want to hold it" – which I still believe is the long term trend. Future markets show this – showing that most investors and traders are still not betting on the Dollar rallying on the back of a "save haven" trade. Furthermore, put options on the Bloomberg Dollar spot index are still net short, showing a bear consensus.

Uncertainty is coming – stay safe, trade safe.

NASDAQ ranges as Coronavirus licks 30 million

Much of the excitement that fueled the rise in equity markets has fizzled out on a recent downbeat and neutral news on the Coronavirus development.

NASDAQ 100 has been ranging

From its March lows, the NASDAQ 100 has returned 83.26% from its peak at the start of September. This legendary market rally came from Jerome Powell and the Federal reserve’s loosening monetary policy in March. However, Powell’s dovish stance yesterday, hinting that he is willing to keep rates near zero till 2023, has made traders and investors realize to support these lofty valuations, even in tech stocks, we will need more positive developments regarding the Coronavirus.

Market indices have retracted on lofty valuations from its peak in early September, with the NASDAQ 100 retracting 10%. The Bank of International settlements attempted to quantify how much of the rally this year has been driven by rate cuts, and they estimate that “close to half and a fifth of the rebound in the US and Euro area” were due to the rate cuts.

Interesting problem regarding the NASDAQ and the other indices

The problem regarding the equity markets is interesting. If there is no good news regarding the Coronavirus (vaccine, decreasing Coronavirus), the Market won’t do anything. However, if the Fed does not provide a “more than expected” dovish stance on their meetings, the Market will assume accommodative environments will disappear, forcing a sell-off. Simply put, the Market wants good world conditions, alongside accommodative financial conditions. We currently are in the best accommodative conditions for equities, which is a larger factor than the global conditions. Any improvement in the global environment will see the Fed cut back on accommodative policy, possibly hurting equity prices.

Central banks back the idea that low rates spur asset prices upwards – an intended consequence in monetary policy. However, this year’s rally is something that central bankers don’t want to admit they were responsible for, mainly because they don’t want to validify the Powell “put,” instilling excessive risk in investors mind.

Currently, the Market has been ranging in a clear consolidation. Only a clearer Coronavirus pathway will push equity markets further.