Binary bets of the week: Taper Tantrums or Something More Severe and Aussie Rebound

3 mins. to read

by Dave Evans of

Taper Tantrums or Something More Severe?

Any parent of a toddler will know what they should be doing in theory. In theory, they should never give in to their darling child’s tantrum and valiantly hold out against handing over the iPad. In reality, there are times, particularly at the end of stressful car journey when many parents will do whatever they can to keep things on an even keel – even if that means being subjected to another hour of Peppa Pig on loop.

Recently the markets have tested the nerve of financial institutions such as the Fed and ECB with a dramatic slump from the September highs. This slump was in part arrested by officials offering some form of placation to markets, with St. Louis Fed President Bullard suggesting that the Fed should consider delaying the end of its Quantitative Easing problem. Just today, ECB board member Coeure hit the tapes saying that the ECB will start its asset purchase program within days, while adding that extra measures could be taken if required.

These words appear to have had some effect as markets stabilise going into the European close on Friday. Markets have wobbled and officials have blinked again it seems – This in some way explains the near relentless rally that we saw until September. Markets were confident, almost complacent that the Fed would keep dishing out the medicine. The recent sell off coincided with months of hard words from the Fed that tapering would come to an end. But there is a question as to whether markets really believed this.

Daily chart of the S&P 500

The focus has now turned to the ECB, especially as many commentators believe that the real benefit from US Quantitative Easing has come to trouble European nations. The question is whether the ECB has the size or the unified will to pick up the baton from the US. Even if it doesn’t, then perhaps some good old central bank jawboning could be enough to see markets through to calmer waters.

As we’ve seen numerous times throughout the financial crisis, such reassurance and promises of future action has been enough to see market stabilise.

Long term, markets are still over valued by historical standards according to various valuation metrics. But in the short term there is potential for a relief rally. Markets have got some of the reassurance that they needed, which may be enough to gloss over the poor economic fundamentals released this week.

A good way to play this is a HIGHER trade predicting that the S&P 500 will close above 1900 in three days for a potential return of 111% if successful. Or put another way, betting that the S&P 500 will rise and close above 1900 on Monday the 20th could return £20.82 for every £10.00 staked.

Aussie Rebound

The Australian dollar has not been immune to the recent stock market volatility, with global slowdown fears a particular problem for this China proxy. The AUD/JPY in particular has been closely correlated with the movements of stock markets, especially as the Japanese yen acts as a risk barometer.

With the S&P potentially set for a rebound, there could be some upside for the AUD/JPY as well.

A good way to play this is a HIGHER trade predicting that the AUD/ JPY will close above 94.25 in 3 days time for a potential return of 289%. Or put another way, betting that the AUD/ JPY will close above 94.25 at the close on Monday 20th could return £38.85 for every £10 staked.

Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.

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