Jan 21st, 2016: Market Recovery Falters

• After an incredible day of volatility, markets are once again on the back foot. Yesterday saw US stock markets drop by nearly 4% before recovering to losses of just 1%. This morning Asian markets have slipped back into negative mode, potentially stunting any European recovery this morning. Movements on FX markets have been less pronounced, though no less intriguing. The US dollar dropped yesterday despite the evident demand for safe havens – it is the Japanese yen that appears to be picking up the baton of safe haven currency of choice.

• One of the many factors behind yesterday’s volatility was and is the ongoing weakness in world oil prices  as they sunk below $27 yesterday.

• Commodity currencies saw some of the biggest swings yesterday with the AUD/JPY sinking, only to recover to virtually unchanged. This morning, the bearish pressure has continued.

• Elsewhere, gold has joined the party, rallying where others faltered yesterday.

Coming up today: 

• Today we have the ECB bid rate at 12.45, followed by the press conference 13.30.
• Also at 13.30, we have US unemployment claims and the Philly Fed manufacturing index.
• US crude oil inventories are released at 16.00.

Trade Idea: 

• The British pound continues to under perform its peers, with the GBP/JPY extending it’s losing run. The recent market volatility and ongoing oil price weakness is likely to increase MPC caution.

• With further downside on the cards from here, a good way to play this is a LOWER trade predicting that the GBP/JPY will close below 165.00 in 21 days for a potential return of 129%.

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