Another week, another trend

Seen it all before? Seen what?

Part of the lasting fascination of the FX market even to an old pig like me is that the more it changes the more it stays the same or in fact, the more it stays the same, the more its changes.

When we are living through the interminable hell of trying to understand and follow the market it seems that every day is the same but in retrospect, that is generally not the case.

Looking back, the first quarter of 2018 was relatively standard but underlying that was the potential for an upheaval that we had to wait for Q2 the experience. This has been a humdinger so far with, I am sure some very happy, but equally several miserable traders.

When I attend, or speak at, conferences of seminars, I love to talk to traders about what drives them. Not the underlying desire to make money but the fundamental drivers of their strategy.

From that it is easy to build a picture of what the reaction will be to various factors in the market.

Over the past few weeks the market has been as close to “topsy turvy” as it is possible to be. We have had dollar positives followed immediately by dollar negatives.

The market has become optimistic about a soft Brexit and a rate hike in the UK only for those expectations to be dashed “at a stroke”. The Swiss France and Yen have gyrated to on “risk-on/risk/off sentiment but it is the common currency that has caught my attention.

Mr “Understated” proved right again

Mario Draghi must have a vice. He is just too perfect. He has served seven of his eight years almost in the blink of an eye. He has certainly earned the right to be considered as more than a compromise candidate, as his two predecessors were.

The nature of the market that it is now peopled by a generation who never experienced anything other than the single currency so believe it to be “enshrined”. Its path has been anything but smooth and the debt overhang from the financial crisis still lingers like a bad smell. It would be a pity if Draghi’s legacy was tarnished after his departure as no other Central Bank Head has ever had to battle to save its very existence.

The recent fall in the value of the euro may have been a lot to do with the current global macroeconomic and geopolitical situation as globalization grows but the fall in the euro while being as spectacular as that of Sterling appears to be more “managed”. Maybe that is because the weakening euro is in the interests of the region and carries no inflationary spectre.  

I can imagine Sr. Draghi late at night with a small glass of Grappa (probably his only vice) in his hand smiling contentedly that, once again, caution on rates and accommodation has proved to be right.

Don’t just sit there, BUY!

When watching the path of Bitcoin over the past week, I am reminded of the scene at the end of the movie Trading Places where everyone is scrambling to sell orange juice futures. The only difference is that, as we all know, at some level orange juice futures will have a commercial value.

Unfortunately, the same cannot be said of Bitcoin which has no tangible means of valuation. The only value to the seller as far as the layman is concerned is the cost of the electricity used to mine the coin itself and since that is a variable and something that has been used it is a bit like saying the value of oil is based upon how much it costs to extract from the ground.

As I sit writing this, Bitcoin is trading at a little over five thousand five hundred pounds. Yes, I know I should value it is dollars, but I am a Philistine. It’s a bit like the Eur/Gbp or Gbp/Eur rate I insist that it is currently around 1.14 not the ridiculous 0.87.

Anyway, the crypto warriors are out in force again, not satisfied with ridiculing one of the world’s most revered investors they are insulting the intelligence of the investing community falling over themselves to find reasons to buy an asset with i) no intrinsic value ii) no lender of last resort and iii) no “bottom” before zero.