12/07/2015 – The Top 4 Financial Assets To Trade This Week

Next week, the Fed FOMC meeting will conclude with a decision regarding interest rates. If Janet Yellen and Stanley Fischer have their way, the Fed will move swiftly to hike the interest rate from its current level of 0.25%. The consensus forecast for the Fed Interest Rate Decision is 0.5%. The interest rate decision will be announced at 7 PM GMT on Wednesday, 16 December 2015. There have been sweeping improvements in the US economy, with unemployment dropping from 10% in 2009 to 5% in October 2015. The non-farm payrolls data for October came in at 271,000 jobs (revised to 298,000) and for November at 211,000 jobs. This has bolstered confidence in the performance of the US economy, which now stands as the most resilient and robust developed economy in the world. Much of the strength currently seen in the US economy has already been factored into a wide range of financial assets including stocks, indices, commodities and currency pairs. Most all the financial activity taking place this week will be focused on the Fed decision next week.

1 – Currency Pairs: Consider Going Short on GBP/USD Pair

On 10 December 2015 at 12 PM GMT, the Bank of England Monetary Policy Committee (MPC) will vote on an interest-rate hike. The consensus estimate is 1/9, and the previous figure was 1/9. The current interest-rate in the UK is 0.5%, and while many in the US are expecting a rate hike when the Fed meets on the 15th/16th of December, there are doubts as to whether the Bank of England will follow suit. The British economy dovetails with much of what is going on in the US economy, but it is firmly betwixt the US economy and the European economy. As such, there is a feeling that the Bank of England will not act now to raise interest rates. As a result, the GBP/USD pair will possibly lose ground as the likelihood of a rate hike in the US is stronger than that of the UK.

2 – Commodities: Consider Call Options on Gold this Week

It’s always tough to call gold, given the precious metal’s volatility. However, there are some encouraging signs for the yellow metal, especially after it gained 2% and snapped a 6-week losing streak on Friday. Earlier in the week, the price of gold hit a 6-year low. Over the short-term, I would definitely be receptive to call options on Gold, given that all aspects of the Fed interest-rate hike have already been factored into most financial assets by this stage. Whatever the Fed decides to do will have a muted impact on major financial assets next week. The gold rally began on Friday, and is likely to continue today, so it makes sense that February gold futures on the COMEX are up.