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Giles Coghlan

We caught up with him ahead of his upcoming forex seminar on what to expect from the global markets in 2020. He was kind enough to give us a sneak preview of some of the material he’ll be covering with advanced traders at the Dukes The Palm Hotel in Dubai on February 21st.

Why does oil drop in a risk-off environment?

We’re barely into the new year and have already experienced two back-to-back news cycles that have greatly influenced the price of oil. Each has pulled the price in opposite directions and has provided some key insights into how today’s energy markets react in a risk-off environment. At the beginning of the year, we saw oil rallying on the back of an escalation in US-Iran tensions.

The rally was destined to be short-lived as a rapid de-escalation against a backdrop of oversupply saw the price plummeting to levels lower than those prior to Qasem Soleimani’s death. After breaking new yearly highs, the price has plummeted on the back of new fears that the coronavirus is at risk of becoming a global pandemic.

The possibility of a more protracted US-Iran conflict is an instance of a risk-off scenario supporting the price of oil due to fears of a shock in supply. Recent coronavirus fears are an example of a risk-off environment leading to a sell-off in oil due to worries of reduced demand.

Which is the dominant narrative? We would have to lean towards the second as coronavirus comes with huge implications for global growth, impeding as it will the flow of both materials and people in a global climate where growth is already slowing, and oil is in oversupply.

How will Brexit negotiations impact the GBP?

It seems that the Sterling’s woes are to show no sign of abating through 2020. As the sugar high of Boris Johnson’s re-election and a call to “get Brexit done” begin to wear off, the picture is far more sobering than short-term market moves indicated. A slew of disappointing economic data from the UK paints a picture of a nation still massively in the grips of Brexit uncertainty, as well as lack of confidence in the economy’s short-to-medium term prospects.

In January we saw the GDP dip further into negative territory, industrial production also turned negative, along with lower than expected CPI readings and poor retail sales figures despite the expected Black Friday rush.

With no signs whatsoever of a clean break from the EU or the inauguration of a new era of prosperity for the United Kingdom, the mood on the ground seems to be one of keeping a tight hold on purse strings, lowering overheads and preparing for lean years ahead.

All this is almost certain to have knock-on effects on the wider economy as well as other measures of economic health. The BoE stood pat last week, opting to keep interest rates where they are in the face of growing pressures to cut rates. This pressure will undoubtedly continue to mount, especially if upcoming economic data continues to disappoint.

Where is gold going in 2020?

In many ways, gold remains the big question mark for 2020. The yellow metal’s performance regularly has traders scratching their heads. They’re often excited to witness increasing geopolitical upheavals only to be disappointed at unconvincing price spikes that lack follow-through.

The beginning of 2020 has been no different, with many news items in the headlines to support the bull case but a price that seems to have been struggling to initiate a new leg up. Gold’s price charts are rife with contradictions.

So far in 2020, the price of gold has been trading at levels last seen in 2013 with coronavirus fears failing to push the price back to the highs reached earlier in the month with Iran dominating the headlines. We’ve also seen all-time highs in many gold pairings, except the one that truly matters most (XAUUSD).

Are we overextended following a 40% run since August of 2018? Or are we just getting started as the gold bugs would have you believe? This will be an interesting story to follow closely throughout the rest of the year as sentiment pulls in one direction and certain fundamentals pull in another. Reduced US recession fears are definitely exerting downward pressure, as well as the fact that Russia is expected to greatly curtail gold buying throughout the year, and China’s own purchases are currently on hold.

How do you recognise changing market sentiment?

Being quick to spot potential shifts in sentiment and knowing how to act can be a great addition to any trader’s toolset. There are two key points to keep firmly in mind when employing sentiment-based strategies; select which sentiment is most prone to shifting, and acting on it while it’s still fresh, without resorting to chasing the resulting move.

A good current example of this is the Bank of Canada continuing to fly in the face of many of its peers to maintain a non-dovish stance. In some ways, it’s the perfect example of a possible sentiment-based setup. Why? There are three main reasons. Firstly, the information regarding the Bank of Canada’s stance is widely known to the public.

Secondly, there is a widespread sense that the clock is ticking until it will be forced to come in line with its western counterparts. Thirdly, the kind of data that’s likely to initiate such a change in policy is constantly streaming in, so it’s just a matter of the right data coming in at the right time, thus forcing the central bank’s hand.

We recently witnessed a setup like this that failed to materialise. Had recent CPI data come in negative, this would have been the perfect catalyst for a CAD sell-off as the market would have expected the Bank of Canada to cut rates, which would have exerted downward pressure on the currency.

As we’ve seen, this didn’t come to pass, however, the potential setup remains in place and traders looking to short CAD on a change in sentiment will remain glued to the country’s economic indicators until the incoming data fits the play.

What else can traders expect in your upcoming seminar?

We’ll obviously go into much greater detail on all the above topics, but there’s a great deal more to discuss. We’ll go into the US-China Phase 2 trade deal and point out what important features to look out for. We’ll draw parallels between the coronavirus and the SARS outbreak of 2003, looking specifically at what SARS has to teach us about possible market reactions to coronavirus.

Beyond this, we’ll also be looking at the currencies and commodities that traders may want to be short or long in a risk-averse environment, and conduct a deep dive into central bank minutes, what they tell us and how to read them. I’m very excited for another opportunity to touch base with a host of professional traders and share what I’ve been researching with them. We’re going to have a good time.

By Giles Coghlan, Chief Currency Analyst at HYCM

Register now for the advanced trader seminar taking place in Dubai on February 21st to find out everything you need to know for 2020.

About HYCM

HYCM is the global brand name of Henyep Capital Markets (UK) Limited, HYCM (Europe) Ltd, Henyep Capital Markets (DIFC) Ltd and HYCM Ltd, all individual entities under Henyep Capital Markets Group, a global corporation founded in 1977, operating in Asia, Europe, and the Middle East.

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