A Real Eye-Opener

Markets don’t respect experience (or anything else)

No one should be surprised by the 90/90/90 anymore after the market suddenly turned far tougher than it has for some time.

Traders have become used to what I would describe as a “single impact” market where influences seem to come in regular ordered lines. We are now seeing a jumble of confused chaos where positions get whipsawed and what makes sense now looks like nonsense less than half a day later.

When I was an interbank trader, back in the day, this was the rule rather than the exception. It seems that as liquidity has become plentiful and that is a factor of the arrival of the Euro, as much as technological advances, trading has definitely not become any easier the drivers have become more easily identifiable.  

It is my contention that the “return of the Central Banks” is the main reason that we are suddenly seeing an increase in volatility. Following the financial crisis, they were prepared to be patient to let the medicine of ultra-easy monetary policy time to work. There is a whole new paradigm at work since no one knows in practice despite, reams and reams of theory being written, what he withdrawal of additional stimulus will mean in reality.

The Steve and Donald Show

Steve Mnuchin is an experienced Wall Street banker, Donald Trump is a businessman and reality TV host. One understands economics, the other understands tubthumping.

So, when Mnuchin basically says that the policy of the U.S. Treasury is for a weaker dollar to promote trade and Trump says he wants a stronger dollar and his colleague is being misinterpreted, who do we believe.

Well, it is a matter of interpretation. Mnuchin is correct that the dollar was getting way too strong as it was being looked at in terms of parity versus the common currency. Trump labelled Germany a currency manipulator for allowing the Euro to weaken. That should have given the market a clue about Trumps economics prowess!

Mnuchin’s view of a weak versus strong dollar is purely based on competitiveness. Trumps “strong dollar” is a macho “A-Team” type strength that is concept based on hype and the fact that the dollar is and should remain (in the President’s eyes) the world’s reserve currency.

So far, there is no winner in this debate although the dollar index still has some way to go to fetch the depths it plumbed in 2012/13 and it is still trading above its 100-month moving average. This just goes to show that weak and strong are relative terms when it comes to the Foreign Exchange market.

Meanwhile in Cryptoland

Remember Bitcoin? Last week it was the only thing analysts wanted to talk about it was even the major headline on Reuters news pages.

This week? Not so much.

Looking at the daily chart, I defy anyone to make sense of what we have seen over the past eight weeks. On November 29th, Bitcoin produced an odd candle with a long wick and a long tail but the open and close where virtually unchanged. I don’t know the technical term but for me that showed that a tentative interest had arrived and that led to a chart that reminds me of a schematic for a theme park ride.

Suddenly the cart looks normal again and that is what proponents of cryptocurrency want. Speculators of course want huge price swings and high volatility once they are only interested in a quick buck and this happens to be this week's prime moves. Perhaps they have gone back to Sterling of the Euro as they have provided a certain opportunity.

Investors are happier however, those with a long-term interest in the “fall of FIAT” are hoping that steady progress can be seen in the whole market and the concentration on a single coin or token fades as it did with dot com.