Ransquawk

Well-trod Ranges also provide opportunity

The FX market has entered a range-bound period where most of the drivers that we all identified at the start of the year have now matured and while we all search our charts for the “next big thing” our EA’s and robots slip into range trading mode.

That is no bad thing, it allows us to take stock and revise strategy and risk management profiles ready for the next major move.

So, what will that move be? What will be the catalyst for change? Here are a few ideas:

  • The Bank of England turns more dovish and rate hikes are “off the table
  • Mario Draghi acknowledges that inflation is picking up.
  • Jay Powell displays a more proactive side

And besides Central Banks?

  • Talks between Trump and Kim confirmed.
  • Brexit. Good or bad for Sterling? Who knows
  • Italian Government with right wing, anti-Brussels policies
  • Inflation rises globally (even in Japan)

Those are the radical events, but the global economy is starting to pick up without any doubt. Looking back as global growth improves historically, the dollar starts to rally as its reserve status drives demand. But, are we entering a new era? Will the dollar be hampered by the twin deficits? As ten-year rates start to move higher does the Euro come into its own? Does China make a move? That is why is market is so fascinating we just never know what we will wake up to.

Until then, 1.2260/1.2420, 1.3720/1.4000 and 105.80/107.80

Brexit about to get ugly.

Sterling has held up well despite “the truth that no one speaks”. It is just a matter of time before the realization of what is going to happen to the UK economy, possibly only short term but immediately following March next year.

It really makes no difference just how wonderful or otherwise life will be for the UK outside Brussels control, short-term there is going to be turmoil and the economy will suffer.

Given that real growth is around 0.5% a recession is highly possible. Business investment is unlikely to pick up in such a scenario which could lead to rising unemployment, a fall in wage inflation is possible and as Sterling falls, consumer inflation driven by a rise in producer prices will rise leading the possibility of stagflation; a dream for economics students, a nightmare for the economy.

If nothing else, volatility will rise and that should please traders. But, what are the possible scenarios for the one-year horizon?

  • Hard Brexit. Does the Government have the mettle?
  • A General Election and a Socialist Government. They then must live up to their Goldilocks Brexit plans
  • A hard Irish Border. Irish economy in tatters
  • A second vote on Brexit. Either a new referendum or a vote on the deal that is agreed.

Krakow Here I Come.

I will be leaving my home later to travel up to London to catch my flight tomorrow to Krakow to attend FX Cuffs. I am personally looking forward to the whole summit and meeting people from all areas of the industry.

It is a testament to my colleagues at Comparic.pl that such an event attracts so much interest.

I am looking forward to hearing the speeches of several highly experienced speakers who will be attending. I am presenting on Saturday afternoon and would be delighted to share my experiences with anyone attending.

I will be speaking about my experiences in the FX market and hopefully painting a picture of what went on “behind the scenes” during some of the events that not only drove markets but shaped the very fabric of the developed world.

I hope to see and meet as many people who read my regular submissions as possible. I look forward to receiving comments, sharing experiences and getting to understand what drives you to do what you do.

Leave us a comment!

Ransquawk