Tough trading conditions bring need for flexibility

At the start of every year it is popular to devise a list of the themes that will drive the currency market in that year and to fit around those theories likely trading scenarios and strategies. We are now fast approaching the end of the first quarter and a review of what has been happening and how our ideas have panned out if probably necessary.

No one can say that it has been plain sailing in this quarter trends short lived and reversals have, in several cases broken support or resistance levels as if they never existed, which I suppose they never did!

The dollar index has continued to plumb the depths of its lows but seems to have found support around 88.50.

The Euro and Sterling seem to be suffering from the same pattern with differing drivers. The market is prepared to overlook the most serious drivers for each currency until they start to make headlines.

In the case of the UK it is, obviously Brexit that is the dominant driver and for the Euro it is monetary policy. Everything that that happens to those two currencies can be distilled to those main factors. While they are not in the news both perform adequately and then a Brexit press conference takes place or an ECB meeting and the rug is very definitely tugged from beneath them.

Employment conundrum continues.

It was all going so well. The employment data was starting to reveal where inflation was going to come from and the Fed was about to embark on a four-hike strategy. Then just when we all wanted to buy dollars as the interest rate differential started to widen again, it’s back to square one.

Friday’s employment report for February despite being delayed by a week was unable to confirm or otherwise just what the Fed’s policy will be on interest rates although the shrinking of the balance sheet should continue. With a headline that was the highest in close to two years the dollar should have rallied but the market is now becoming used to the unreliability of the NFP which is both subject to adjustment and contains both hard data and estimates.

Also, the wage inflation data is starting to rival the headline for importance. Last month’s 2.9% rise was revised lower and the February data was lower again. This held the dollar in check and brought doubt to what the Fed will do to find hard evidence of inflation. Jay Powell is going to want to see steady growth in both CPI and wage inflation before he can countenance a series of rate hikes

Brexit; will it ever end.

Another week another disagreement!

No one thought Brexit was going to be easy, but did anyone really envisage where the problems would come from? Theresa May must be ruing the day one of her advisors walked into her office and uttered the immortal words “a General Election would be a good idea”. Even with a majority in Parliament, Brexit would have been tough but maybe not as tough as it is has become. Mrs May is finding it impossible to create a policy and set of proposals that will pass scrutiny by her own party and its allies let alone Brussels.

The electorate are becoming tired and bored with the constant backwards and forwards and the clear refusal of the Government to create a set of proposals that it will stick to and present with a united front. Instead we have seen a series of wish lists culminating in the latest release of a list of what the final agreement must contain which a freshman politics student could have written.

The British people are entitled to expect more from its elected representatives but the older I, for one, get the more I realize that they don’t have the answers and are unlikely to find any in the time available.


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Alan is a highly experienced banker with an in depth knowledge of Corporate Banking, Treasury and Trade Finance. He has had a varied career in Global markets, Risk management, FX Trading and Sales & Interest Rate Management. He has managed sales teams mentoring his team in both markets and marketing.He has been published in a number of journals and has appeared daily on radio to discuss market movements and events. His first novel was recently published.