Ransquawk

The “money making” Quarter

When I worked in banks, the second quarter was always considered to be the “money making quarter”. In Q1, the start was generally slow and insufficient trends were established to give traders either the time or inclination to take large positions.

The third quarter was the “vacation quarter” and followed on from equity traders whose motto was “sell in May and go away”. Maybe a little early but the sentiment was the same!

With bonuses being discussed in the fourth quarter, that was always the time to hang on to what you had in the “protected” quarter.

This year Q2 has provided many many opportunities not only to make money but to lose as well although such has been the volatility as second chance has been available too in many cases.

Overall sentiment has clearly favoured the dollar although President Trump has now managed to bluster his way into a corner where he is now being dictated to by Pyongyang.

Well actually he is being dictated to by Beijing but that isn’t mentioned in polite conversation!

The pound and common currency are both being negatively affected by economic sentiment with growth in the UK and inflation in the eurozone both dragging the currency lower as one of many factors.

Brexit can no longer be avoided

It seems that the world champions of kicking the can down the road this year will be the UK Government, managing to avoid making and firm proposals on the future relationship after Brexit. There are, naturally, a few honourable mentions, like the ECB for avoiding the debt overhang and Treasury Secretary Mnuchin deciding that trade talks with China were best placed “on hold”.

All that will change, supposedly next month when the “firm” and “concrete” proposals for post-Brexit relations will be released. This of course pre-supposes a few things; i) that the Cabinet can finally decide, ii) the proposals are acceptable to Parliament and perhaps most importantly, iii) they work for Brussels, which is far and away the most unlikely to happen.

With another election coming in Italy, A vote of no-confidence in Spain which, if passed, would lead to an election and the possibility that Theresa May will upset her Northern Irish support so much that they withdraw leading to a n election, Q3 could be renamed the “political quarter”.

It is now well understood by markets that since inflation is benign, that short term rates are on hold in the UK, US and eurozone despite small pockets of expectation over Jerome Powell’s ability to look forward rather than back. Pre-emption is now a dirty word particularly since Mark Carney got caught out over inflation data and growth in the UK.

Balancing act still proving successful

I am often accused of ignoring technical factors driving currencies. My argument remains the same (it is one of my few consistencies), I do not consider technical analysis as a driver of currency. It cannot create momentum, although it can measure it, it cannot drive sentiment, or provide a surprise, as data can.

What it can and does do is provide two vital services, it can decide, almost single handedly, when to open and /or close a position. It also can help to decide whether a position is “worth entering or not”.

For example, if some reasonably newsworthy happens but the market is within a few points of a major support or resistance level it will (and should) deter most people from taking a position.

Of course, if we are thirty points for a triple top (or bottom) and a Nick Leeson or Long-term capital were to occur then tech’s mean nothing. However, if a major takeover of a UK pharma firm by a U.S. entity is announced then the triple will remain unbroken and will provide a useful piece in the jigsaw that is the FX market.

I try to present a balanced commentary and not favour one currency over another despite strong views, but I am afraid in the fundamental versus technical battle, there is only one winner, and this is always fundamental.

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Ransquawk