Weekly Binary Options Briefing 7/01-08/2013: Fed Comments Re-Iterate September Deadline
Binary Options Trading Recommendations for this week – Markets Information and Trading Tips
Federal Reserve comments re-iterate September deadline for quantitative easing decisions. Fed needs to see improvement in employment before reducing stimulus. Seven-month streak of monthly S&P 500 gains broken. NFPs could determine tone in stock sentiment for month of July.
Weekly Binary Options Briefing: Fed Comments Re-Iterate September Deadline
Stocks attempted a late-week rally but still closed below some important technical levels after another Fed Governor (Jeremy Stein) made comments suggesting that the “line in the sand” for US policymakers would be in September in determining whether or not to begin reducing its monthly purchases of Treasuries and mortgage-backed securities. Currently, these purchases total $85 billion each month, so the next question will not only be whether or not this number will be reduced – but also to what extent. Aggressive reductions will not be viewed favorably by stock markets (both in the US and globally), and will also generate a bigger sell-off in high-yielding and riskier currencies (i.e. the Aussie, Pound and Euro).
Last week, the S&P 500 ended a seven month winning streak, dropping 1.5% in the month of June. More broadly, the S&P has gained 13% for the first half of the year but the tides have turned since the Fed began signaling an end to its quantitative easing stimulus. This became clear with Ben Bernanke’s public comments on May 21, and the S&P has dropped nearly 4% since then. Because of this, it will be highly important for options traders to monitor US employment data to determine whether or not these losses are set to continue.
The Week Ahead
In the week ahead, we will see reduced volatility in the early parts of the week, as traders remain on the sidelines ahead on the monthly Non Farm Payrolls and Unemployment Rate surveys. The Fed’s target Unemployment Rate is 6.5%, so this week’s data will be critical in assessing market sentiment with respect to the next moves from the US central bank. NFPs are expected to show a slight dip to 165,000 (after the 175,000 seen in May). The Unemployment Rate is expected to hold steady at 7.6%, which is still well above the Fed’s target. If we do see a weaker number, declines in stocks are likely to be short term in nature, as it will lead to increased speculation that the Fed will opt to maintain its QE programs and postpone reductions past September.
My Trade Ideas (Trade on CommuniTraders):
1. Last week’s EUR/CHF trade closed in the money and while there is still significant upside in this pair, I will need to see some evidence that the EUR/USD is stabilizing before entering into new positions in the EUR/CHF. With a significant amount of Dollar-sensitive data on this week’s calendar, I will also be holding off on USD positions until the Non Farm Payrolls are released. Instead, I will be holding a bullish position in the AUD/JPY, which has found support at a key 50% Fib retracement and should see strong upside if the USD/JPY breaks above 100. Buy weekly CALL options in the AUD/JPY at 91.50, but consider closing these positions early if they are in the money going into the NFP release.
2. For stock trades, I will look to play the weakness in Oracle Corp. (ORCL), which has shown consistent earnings weakness and is now breaking important technical levels. Oracle’s last results showed fourth quarter profits of $3.81 billion ($0.80 per share), which was a worse than expected improvement from last year’s numbers. The stock has posted a modest bounce after breaking the 50% Fib retracement of the rally from $25, so I will use this strength as a selling opportunity. Buy one-month PUT options in ORCL at $30.80.