The week started quietly with a (US Labor Day) NFP hangover but ended with an ECB inspired crescendo. Following weeks of choppy trading, the return of September has produced much smoother price action. Our 13.96% return for the week reflected this with strong and accurate conviction trading resulting in Matrix’s most profitable 7 day run so far.
The first three days of the week, devoid of any important news, saw sleepy summer equity volatility continue. The US VIX opened the week at 13.88 and drifted down to 13.18 by the end of Wednesday.
However the ECB provided what we were looking for: an equity top and a return to clean volatile price action. The selloff started early Thursday and continued with a vengeance on Friday, with the SPX shedding 2.75% to close at 2121, the largest decline since Brexit. The VIX added 25% from its mid-week low. The DAX remains a more erratic and subdued version of SPX until it can break the 10388-10806 range.
Action returned in the oil market, which had put on 8% by Thursday afternoon, partly because of hints of Middle Eastern output cut co-operation, but largely because of the strong EIA stock level beat (-14.523 vs +0.225) on Thursday. However the end-of-week sell-off eroded half this gain maintaining a choppy 40-50 equilibrium range.
In currencies, Tuesday’s moderate US ISM miss (51.4 vs 55.0), gave traders the excuse they needed to short USDJPY, which was already showing technical negative divergence. The pair dropped 1% immediately on the news, and then another 1% by the end of day. The second fade in these circumstances will often recover on a piece of good news, and in this case it was EIA beat that exactly cancelled it.
But the main focus of the week was Thursday’s ECB meeting providing EURUSD with an adapted classic: “Buy the Rumor, Buy the Fact Oops SELL!.” With the ECB’s monetary options now limited and the continued uncertainty surrounding Brexit, they could not but disappoint. Draghi again confirmed continued quantitative easing until “at least” March 2017 as they seek to reconcile lacklustre growth with the dangers of over-extended loose monetary policy.
Sterling started the week well with a PMI beat on Monday morning and GBPUSD got a further lift from the US PMI miss the next day. It then plotted a mirror image of its price action, ending the week slightly below where it started helping EURGBP gain 1% to keep the hopes of a post Brexit trend alive.
AUD and NZD more or less followed the equity markets although Tuesday’s Dairy report enabled the Kiwi to make a 16 month new high of 74,80 before retracing to the previous 73.00 resistance suggesting it may be lagging behind the herd of crashing equities. Not a good place to be.
‘Back to School’ and lessons learnt? Following an erratic and challenging August, cleaner price action enabled us to report a 1253.88 point (8.62%) gain for the week, our best week since we started on June 3rd this year. Although the post NFP Gold ramp (based on a consistently profitable NFP fractal), and USDJPY/EURGBP recoveries assisted, our conviction of a SPX (DAX) top into ECB paid off an aggressive excellent risk return short. If September continues with this less erratic market action, then it bodes well for the sound risk/return – probability set ups that Matrix thrives on.
As Matrix approaches subscription mode, we are adding greater coverage and more markets (most notably EURUSD, AAPL and the Indian NIFTY this week) and preparing to implement many of the much needed changes to the current beta mode.
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