eToro Weekly Market Review - 8/22/2014

The Markets Work in Mysterious Ways

Welcome to a new week. In the aftermath of last Friday’s NFP, we can tell (once again), that the market works in mysterious ways. If you look at it from a simplistic point of view, the result of only 209k jobs added to the American Job market (against 288K last month or a consensus of 233k), should have boosted every single pair confronted to the USD, starting with the EUR/USD, and the reaction was not so harsh.

We had a peak after the announcement and then a correction that endures until now. The way I see it is like a box of matches. If you take a match from the box, and rub it against the sandpaper, the normal situation is that the match should ignite, but this doesn’t happen every single time: sometimes its head breaks, sometimes the material on the matchstick head is moist, and in other occasions the sandpaper is wearing off.

In these cases, most probable scenario is that the match won’t ignite. It’s the same with the markets: The normal reaction would have been a strong sustained recovery of the EUR/USD, but in this case (only to add some pressure to Mr. Draghi), the matchstick lost its head.

This week has some interesting events in the markets, especially after the background of the last weeks. One of these interesting events is Thursday’s rates decision at the BOE (Bank Of England). The British Pound (known among traders as “The Cable”), has been consistently losing gas, and today is almost at the same level of june the 12th, when at a press conference Marc Carney gave some leads about a possible rates hike in the near future.

Despite Carney’s curbing his own words in several occasions, traders are under the strong impression that the rumor was true and that the conditions are given to rise the Interest rates this very week. Knowing Carney, both scenarios are possible, but looking at the developments of the last weeks raising the rates looks like the logical/responsible thing to do. In any case high volatility is more than assured.

The other big event of the week (casually also on Thursday), will be the ECB rates decision and press conference by Mario Draghi. Lets face it: The actions taken by European central bank the 5th of June have not shown the expected reaction from the markets. Even more, Inflation keeps dropping and the Euro keeps going stronger.

It’s time for Super Mario to use the arsenal he claims to have in order to stop the situation, but our experience says that Draghi’s timing is completely different to the rest of the world’s. The element of surprise is a huge sponsor of high volatility and this is what we are going to have next Thursday.

Those who saw the movie “The social network”, based on Mark Zuckerberg and Facebook’s story, might remember that quote, when Eduardo Saverin (Zuckerberg’s first business partner and friend), freezes Facebook’s bank account and the network crashes.

Zuckerberg talking to Eduardo on the phone says “Okay, let me tell you the difference between Facebook and everyone else, we don’t crash EVER!”. Well, it seems Facebook’s worst nightmare is back, because last Friday (as reported by Fox News) the social network site suffered a brief outage in the early afternoon across both its web and mobile platforms, the cause of which was not immediately clear.

When users visited the site online, they faced an error message that read “Sorry, something went wrong,” in some cases, while others saw a white “Connection error” page. Even the biggest names in the internet can have a bad day.

Today we have a VERY calm day at the markets, with no interesting events to move the markets and you all know what that means: Low trading volumes that can produce volatility from the least expected things. If you want to trade today, keep always an eye on your positions, and if you are early birds, you would like to trade the always interesting Australian Interest rates decision and posterior press conference, starting at 4:30 GMT tomorrow.

Article Written By: Herman Dermer