The “money making” quarter continues

In banks trading rooms, the four quarters of the year are known as: Q1 – The Preparation Quarter, Q2 – The Money-Making Quarter, Q3 – The Vacation Quarter and Q4 – The Protection Quarter.

In the first quarter, traders tend to get a feel for what happened the previous year and what is likely to happen. Proprietary traders tend to start to add to existing trades or remove those not working, as well as adding backing to completely new ideas.

In the second quarter, the market gets into its stride, pretty much as we are seeing this year. M&A activity tends expand, again, as we are seeing this year. Turnover tends to increase, liquidity is plentiful and corporate activity presents opportunity.

In Q3, it’s holiday season, liquidity falls, opportunities present themselves, but most traders are taking vacation and tend to miss out as their replacements act conservatively.

In Q4, those close to making targets become a little risk averse wanting to hang on to what they have, those who are miles from their target accept defeat, but a few become a little gung-ho, increasing position size and risk appetite. These are the guys who tend to crash and burn.

Then we reach year end and it all starts again with a clean slate.

This year is a classic

Q1 saw the market getting a feel for the themes of the year. Brexit remains the prime driver of Sterling and all other activity is a branch of that. Benign neglect pervades ECB Monetary policy with Mario Draghi happy to allow the common currency to find its own level if growth is close to trend and inflation under control.

The surprise of the quarter and one of the markets singularly most spectacular drivers has, of course, been the turnaround in the fortunes of the dollar. It proves just how powerful sentiment can be as a market driver.

It is something of a “perfect storm” that just as global risk appetite started to rise given events in China Syria and the Korean Peninsula, Brexit rose its head o hit the pound and the Euro was left to its own devices.

The market has seen money making opportunities come and go as the rates ebb and flow. There has been little respect for technical levels and as such traders with a tech. Strategy have needed to pay greater attention to their bots and algo’s.

Only a little over 30% of the quarter has passed so let the opportunities come to you. Tighter stops and more generous profit orders are the right way to go as the market has been seen “turning on a dime” and it’s worth running profits a little deeper but using trailing stops to add protection.

Opportunity Knocks

Already in Q2, we have seen two complete reversals of fortune as both the dollar and pound complete a “volte-face”.

Which trend is more likely to last? I cannot make my mind up, but I see more legs in the move lower for the pound. Brexit is now reaching a crucial point and with the UK Government in disarray (again) Brussels will see an opportunity to “move in for the kill”. Michel Barnier has shown a degree of skill not available to Theresa May in placing the onus singly upon the UK to come up with not just a proposal for the “Irish question” but for the entire future relationship. From this issue stems all the political economic and monetary policy woes facing the UK at the moment and most likely for some time to come.

Can we trust Trump yet? The cries of “Nobel Nobel” may be a little tongue in cheek but he has managed, it seems, to bring a semblance of hope to the Korean Peninsula but at the back of our minds we can still hear a little voice saying, “is this guy for real?”

It mustn’t be forgotten that Trump has no political background and relies on his business instincts. He is a deal maker not a negotiator and that is how the U.S. will be run for the next two and a half years or so.

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