Weekly Binary Options Trading Briefing 17-24/12/2012 – Stock Markets Drift Lower as Fiscal Cliff Skepticism Continues

Binary Options Trading Recommendations for the upcoming week –  Market Information and Trading Tips

Equity markets were range bound for most of the week as counterbalancing events kept investors from establishing large, market-moving positions.  On the positive side were the manufacturing data releases out of the US and China along with the next injection of Quantitative Easing stimulus enacted by the Federal Reserve.  But the fact that we were not able to see any meaningful pushes higher in stock markets is a clear indication that investors are skeptical with respect to the potential outcome for the US Fiscal Cliff negotiations.

        To be sure, the deadline for a US budget agreement is fast approaching and investors appear to be taking risk off the table (exiting previous long positions in stocks) in order to avoid any major shocks into the end of the year.  The actions by the Federal Reserve to extend its easing strategies in monetary policy (in increasing its bond purchases) should also have a dragging effect on the US Dollar, and this was evident against many of the majors this week with the Dollar falling to its lowest level in seven months against the Euro.

Preparing for Potential Year End Outcomes

        At this stage, traders should be positioning themselves for the two potential outcomes we will see into the end of the month.  First, we will see some important macro data out of the US this week (key for gauging longer term direction), with Treasury Inflows (TICS), Housing Starts, Personal Income and Spending, and Third Quarter GDP figures all scheduled for release. 

        Going forward, binary options traders should be looking to prepare for two potential outcomes, with the US government reaching a budget agreement before the Dec. 31st deadline, or a continued stalemate and a lack of consensus.  The latter scenario could create massive volatility in holiday thinned trading conditions, as markets will be less prepared to absorb any sudden surge in buy and sell orders.  If history is any real indication of what to expect, we are likely to see policymakers wait until the absolute last moment before committing to any agreement (and concession to the other side), and in this more positive scenario we would likely see a moderate drift higher as markets return to normal activity next year.

My Trading Recommendations in 50 words

1.Last week’s gold trade was not filled, as market volatility continues to slow but I will open another order for weekly CALLS into 1680 on the dual argument that safe haven assets will benefit from any prolonged Fiscal Cliff Skepticism and from any Dollar weakness encouraged by Federal Reserve bond purchases.  Gold will be one of the primary beneficiaries if the Fiscal Cliff outcome turns negative, so upside potential far outweighs downside risk.

2. The USD/JPY has not seen much in the way of pullbacks recently but with prices still well below my year end target of 85, I will be looking to buy weekly CALLS on a move back to 83.20.  Remain watchful of the outcome in Japan’s parliamentary elections and the next BoJ meeting, as the Yen is likely to trade off of official comments and policy statements, rather than near term economic data.

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