Forex Market Commentaries - Triple Witchin

Triple Witching On Freaky Friday Can't Put A Spell On A Bad Euro Bet

Dec 16 • Market Commentaries • 2057 Views • No Comments

‘Triple Witching’ is an event that occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December. This phenomenon is sometimes referred to as “freaky Friday”.

The final trading hour for that Friday is the hour known as triple witching. The markets are quite volatile in this final hour, as traders quickly offset their option/futures orders before the closing bell. If you are a long-term investor, triple witching will have a minimal impact on you. If you’re intraday trading, or a scalper then perhaps take the day off and use your computers to do some last minute Internet shopping..

A stopped clock is sometimes not even right once a year, perhaps it’ll take two years
The euro will sink to parity against the dollar as the European sovereign-debt crisis shrinks investor appetite for the 17-nation currency, according to John Taylor, founder of the world’s largest currency hedge fund. “It should be a lot lower than it is,” Taylor said in an interview on Bloomberg Television’s “Street Smart” with Lisa Murphy. “It’s a distinct possibility” that the euro could weaken to trade on a one-to-one basis with its U.S. counterpart in the next 18 months, he said.

Taylor got it badly wrong when he predicted in January this year that the euro would fall below parity with the dollar this year. The shared currency has dropped 2.7 percent this year as the region’s leaders bailed out Portugal after providing rescue packages in 2010 for Ireland and Greece and attempted to rein in rising sovereign debt yields. The euro gained 0.3 percent to $1.3014 at 5 p.m. in New York. The currency is trading 8 percent higher against the dollar than its average value of $1.2042 since inception in 1999.

Europe
Italian Prime Minister Mario Monti faces a confidence vote in Parliament today to speed passage of a 30 billion-euro ($39 billion) emergency budget plan aimed at spurring growth. Monti has said the measures, which include an overhaul of the pension system, the reinstatement of a property tax on primary residences and measures to boost growth and fight tax evasion, will help protect Italy from the spread of the debt crisis and bring down record borrowing costs. The Treasury had to pay 6.47 percent to sell five-year debt on Dec. 14, the most in more than 14 years.

“The package has some limits, a significant part of it is based on higher taxes, but it’s absolutely indispensable,” Emma Marcegaglia, head of employers’ lobby Confindustria, said yesterday in Rome at a presentation of the group’s new economic forecasts.

Fifth Recession
The euro-region’s third-largest economy has slipped into its fifth recession since 2001, Confindustria said. The group forecasts the Italian economy will contract 1.6 percent next year, after predicting growth of 0.2 percent in September.

Italian bonds gained for the first day in four yesterday after Spain sold more debt than forecast at a bond sale, easing concern about demand for new debt. The yield on Italy’s benchmark 10-year debt fell 23 basis points to 6.567 percent. Before the Spanish sale, the Italian yield rose as high as 6.82 percent, approaching the 7 percent threshold that led Greece, Ireland and Portugal to seek bailouts.

“We are confident that markets will react positively to the efforts Italy is making, maybe not tomorrow, but the reduction in borrowing costs that we anticipate in the coming months will help spur the economy,” Monti told the Finance and Budget Committees of the Chamber of Deputies on Dec. 13.

 

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Overview
Stocks in Europe have risen, paring a weekly loss. U.S. index futures and commodities have climbed and the yen weakened as better than expected U.S. data published yesterday signalled that the world’s biggest economy may be strengthening.

The MSCI All-Country World Index gained 0.3 percent at 9:20 a.m. in London, trimming its decline this week to 3.5 percent. The Stoxx Europe 600 Index increased 0.4 percent and Standard & Poor’s 500 Index futures rose 0.6 percent. The yen depreciated against all 16 major peers tracked by Bloomberg. India’s rupee jumped 1.5 percent as the central bank introduced measures to curb currency speculation. Zinc led commodities higher.

Stocks may be more volatile than usual today as futures contracts and options on equity indexes expire in a process known as triple witching.

The gain in S&P 500 futures signalled the U.S. equity benchmark may extend yesterday’s 0.3 percent advance. The S&P 500 has lost 3.3 percent in 2011, the second-best performance among 24 developed markets after New Zealand.

Currencies
The dollar has appreciated 1.9 percent in the past month, the best performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 1.7 percent and the yen has advanced 0.7 percent.

The yen fell the most against higher-yielding currencies, dropping 1 percent versus the South African rand and 0.9 percent versus the New Zealand dollar. The euro was 0.1 percent stronger at $1.3027 and climbed 0.2 percent to 101.53 yen. The dollar was little changed at 77.89 yen. The dollar and the yen declined against most of their major peers as evidence the U.S. economy is gaining momentum eased demand for havens.

The U.S. dollar declined 0.1 percent to $1.3033 per euro as of 6:36 a.m. in London from New York yesterday. The currency has strengthened 2.7 percent this week, the biggest advance since the five days ended Sept. 9. It was little changed at 77.89 yen. The yen dropped 0.2 percent to 101.52 per euro.

The 17-nation euro is headed for a 2.6 percent loss versus the dollar this year and a 6.4 percent decline against the yen.

The so-called Aussie climbed 0.6 percent to 99.85 U.S. cents, after touching 98.61 yesterday, the lowest level since Nov. 28. New Zealand’s dollar, nicknamed the kiwi, advanced 0.8 percent to 75.97 U.S. cents from yesterday, when it sank to 74.62, also the least since Nov. 28.

Market snapshot at 10:30 am GMT (UK time)
The Asia Pacific markets experienced mixed fortunes in the Asian session. The Nikkei closed up 0.29%, the Hang Seng closed up 1.43% and the CSI closed up 2.11%. The CSI is down circa 27% year on year and down circa 35%, (approx 1000 points) from its 2011 peak of 3372 on the April 13th. The ASX 200 closed up 0.47%. European indices are with the exception of the UK FTSE down in the morning session. The STOXX 50 is down 0.28%, the UK FTSE is up 0.57%, the CAC is down 0.25% and the DAX is down 0.01%. The SPX equity index future is up 0.54%. Brent crude is 10 cents a barrel and Comex gold is up $17.10 per ounce.

Economic calendar releases to keep a weather eye on when New York opens
The Consumer Price Index (CPI) in the USA measures the average price of a fixed basket of goods and services as might be purchased by consumers and provides a guide to the rate of inflation – the CPI is, in fact, the most extensively monitored inflation indicator in the US.

A Bloomberg poll of analysts shows a median expectation of 0.10% (month-on-month) compared with -0.10% previously. Excluding food and energy the estimate is for 0.10% (month-on-month), unchanged from the previous release.

Year on year the CPI was predicted to be 3.50%, the same as the last update. Excluding food and energy the forecast is for a figure of 2.10%, the same as the previously released figure.

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