Weekly Binary Options Trading Briefing 24-31/12/12 – Euro Reverses Earlier Rally on Increased Market Uncertainty

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

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   Asset markets saw a volatile close in last week’s trading as the S&P 500 fell to lows of 1390 before snapping back and the EUR/USD continued to push lower after hitting its highs at 1.33.  The main story was again the US Fiscal Cliff negotiations and cancellations of critical budget votes led to comments from prominent politicians suggesting that an agreement before the end of the year is becoming increasingly unlikely.  

To summarize, gridlocked policymakers in the US must construct a budget resolution before the end of the year in order to prevent an automatic installation of more than $600 billion in tax cuts and spending reductions.  If this agreement is not reached (and these drastic budget changes are implemented) most economists expect the US to slip into a recession in the first half of next year and post declines in GDP of at least 0.5%.  Of course, this story has been in the headlines for months but most of the moves last week were not seen until a vote on proposed tax cuts was cancelled, creating an additional element of uncertainty. 

Reactions in the Currency Markets

        Increases in financial uncertainty typically lead to large purchases of safe haven assets (Gold and the US Dollar are primary examples).  These flows tend to put a large drag on risk currencies (like the Euro and those in emerging market economies), and in those associated with a high yielding interest rate (such as the Australian Dollar).   The Euro has seen strong rallies in recent week (helped by improvements in Greek credit ratings) but if we do not see a clear Fiscal Cliff resolution before the proposed deadline, it is likely that we have already seen the highs for the year.  

        Typically, the final week in December is marked by major declines in price volatility (in all asset classes) but this time, there is a chance that we will see an exception, as there is rarely an event risk as significant as the Fiscal Cliff that so clearly coincides with this time frame.  Binary options traders should expect to see prices move in accordance with the final outcome – a negative result sending stock markets lower and Gold and the US Dollar higher, a positive outcome like pushing the benchmark indices and currencies like the Euro to new monthly highs. 

My Trading Recommendations in 50 words:  

1. Here we will look to balance risk by recommending one Fiscal Cliff related trade and one with less exposure to the final outcome of that story.  Last week’s Gold trade finished out of the money as markets waited until the end of the week to react to a negative result.  The rationale behind that trade is still intact and we will look to get in again at these cheaper levels with one week CALL options at 1650.  Downside risk is around $25, upside target price roughly $70 higher.  Risk for the trade comes with a positive Fiscal Cliff outcome.

2. Next, we look at transportation companies likely to benefit from improved retail sales and online shopping.  JB Hunt Transport Services (JBHT) is one of the most well positioned companies with its improved earnings and recent dividend increases.  Look to buy CALLS at current levels (58$) with one month expiries.  The longer time frame in this trade will help to shield it from some of the volatility stocks might experience into the end of the year.

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