Top 4 Financial Assets Should You Be Watching This Week

top 4 trading assets

What are the deeper implications of a Brexit?

The United Kingdom’s decision to break from the European Union is likely a mixed blessing. There are risks and benefits associated with this highly contentious decision. Financial markets have been upended by the volatility of late, with equities markets enduring a sharp sell-off in the aftermath of the Brexit. The GBP plunged to a 31-year low, while the FTSE 100 index soared. The seemingly contradictory nature of the GBP’s performance and the main stock market index actually makes perfect sense. Since the FTSE 100 index features companies whose earnings are largely generated in overseas markets, the profit potential thereof is greater when repatriated back to the United Kingdom. Traders have been going long on the FTSE 100 index, short on the FTSE 250 index, and selling the sterling en masse.

Volatility is Good for Speculative Trading

Traders may be speculating on short-term volatility, but investors are gearing up for the long haul. They are going to be buying up pounds when they feel confident enough about the GBP/USD currency pair bottoming out, and those pounds will be worth substantially more as stability returns to currency markets. In much the same fashion, companies listed on the FTSE 250 index are also moving towards fair value and they are also ripe for the picking. Over the long-term, equilibrium tends to win out so this current bout of spasmodic price movements will eventually work itself out. There are even analysts who believe that any country or countries that attempt to downplay the significance of the UK vis-a-vis Europe will in fact harm themselves more than they do the UK.

The Week Ahead

Right now, the focus is on bringing about a modicum of normalcy to UK politics. With the Prime Minister’s resignation announcement reverberating through the UK political spectrum, both Tory Party MPs and Labour Party MPs are in a state of confusion. The Labour Party does not present any effective opposition to the Conservative Party, but a coalescence around new leadership will change the dynamic in coming months. It is against this backdrop that we examine the range of assets most likely to be impacted by current market conditions. Binary options traders can certainly profit off the volatility by going long on assets whose prices are expected to spike and short on assets whose prices are expected to decline

1 – Currency Pairs – the GBP/USD pair will continue to move lower

gbpusd

The GBP/USD currency pair is currently trading up 0.3000% at $1.2952. The 1-day appreciation on Friday, 8 July was 0.26%. Over the past 5 days, the GBP/USD pair has depreciated by 2.50%. Over the course of 1 month, the currency pair has plunged by 11.04%, consistent with the expectations of analysts and speculators. If we extrapolate over the course of 1 year, the GBP/USD pair has depreciated by 12.37%. It is interesting to point out that the sterling has been peppered by dramatic declines since the 1980s when data was readily available. Under Margaret Thatcher, the recession sent the GBP/USD pair from well over 2.4 to parity.

The currency pair then enjoyed a robust period of growth for approximately 10 years levelling out at around 2.0 to the greenback before plunging on Black Wednesday in the early 1990s to around 1.4 to the dollar. A period of consistent consolidation saw the GBP rallying up towards the 2.0 mark against the greenback before the credit crisis in the United Kingdom resulted in the Bank of England slashing interest rates. It was around that time that the GBP was trading at a similar exchange rate to the greenback. Between 2009 and 2016 (the beginning of the year) the GBP was consistently between 1.4 and 1.6 against the dollar. Now with the Brexit crisis, we are going to see the GBP testing fresh new lows, perhaps plunging beneath the 1985 low.

2 – Indices: The S&P 500 Index is Looking Bullish

sp500

On Friday, 8 July, nonfarm payroll employment data was released. Jobs increased by 287,000 in June 2016 – substantially higher than the downward revision of 11,000 during the month of May 2016. Recall that the Verizon strike skewed the employment numbers in May, but June figures are substantially stronger. This naturally boosted bullish sentiment on Wall Street as evidenced by the sharp uptick in the S&P 500 index. Analysts were forecasting jobs growth of 175,000 in June. The main areas of growth were hospitality, social assistance, financial activities and healthcare. The S&P 500 index broke through its record levels during the day on Friday, totally recovering from the Brexit woes that plunged it to new depths.

In a surprise move, US government bonds also gained in popularity on the back of an improved outlook for the US economy. Typically, government bonds move in the opposite direction to equities markets, but investors across the board are looking for safety at this time. On Friday, 8 July, the SPX gained 1.53% or 32 points to close at 2,129.90. The 5-day performance of the index has shown an appreciation of 1.44%. Whether the S&P 500 index can continue to climb is dependent on the fallout this coming week from the Brexit saga. From the US side, the economy is holding its own as evidenced by strong nonfarm payroll jobs growth and a resurgent USD.

3 – Commodities: How Is Crude Oil Doing?

crude

For months on end, the world was watching with bated breath as Brent crude oil and WTI crude oil plunged further into uncharted territory. However, since the OPEC meeting in Doha and at subsequent meetings, stabilisation has come to oil markets. This is important as the oil price plunge was a serious reason for recessionary fears in the world economy. Recall that with historically low oil prices, transportation costs, fuel costs and associated costs of production have been artificially maintained at low levels. This makes it difficult for inflation targets to be reached.

Analysts have been following the oil price since the end of May and it appears as if a downward trend is taking root. Recall that oil was trading in a tight range between $45 and $50 up until recently, but Brexit woes and the anxiety created as a result of it has seen the oil price plunge. Analysts recommend a strong sell rating on crude oil futures for delivery in August 2016. Based on moving averages and technical indicators, a strong sell rating abounds. Here are some other important technical indicators: