Exotic; Great for Cocktails Bad for Traders

No strategy works 100% of the time!

Over the past few weeks the common currency unbeknown to many traders has saved their capital from being totally eroded!

How has it done that? Well, it has finally started to react to macroeconomic activity and provided some basis for traders to (mostly) make money. I had started to read the tell-tale suggestions on social media that traders could start to see value in cross currency trades in pairs that are not usually featured or traded, for example, AUD/CHF or CAD/JPY. There is of course, nothing wrong with those crosses and there are, or have been, several instances when there are specific reasons that trading them works. For example, when there are conflicting drivers for each leg of the pair and a move gets magnified.

Trading these crosses is not to be a panacea to not making money or a lull in the pair(s) that your strategy is designed to profit from. Patience is a part of anyone's strategy or should be.

That is why there is a smile on the trading face of those who trade the euro as a combination of Mario Draghi and vastly increased liquidity had kept the currency on a tight leash for what had seemed an eternity.

A close to six percent fall for the Euro in a month has created the volatility we desire but it has happened in a relatively controlled manner which also is a hit with our risk management strategies.

What’s Italian for Brexit?

Don’t you just love Italian politics? Radical doesn’t even come close to describing them!

The new Government which is a coalition between Five Star (weren’t they an eighties pop group?) and League, a Party who make Nigel Farage appear to be Brussels biggest fan, is now coming close to being able to Govern after what seems like an eternity of haggling. While it is not quite a case of “the lunatics taking over the asylum”, other potentially radical politicians will be looking on with interest, particularly in Athens and Madrid.

In typical Italian fashion they cannot yet agree on who is radical enough to be Prime Minister.

But when they get that sorted out, they plan to ask the ECB to forgive two hundred and fifty billion euros of debt and then put forward proposals that will allow members to opt out of the single currency.

The recent fall in the value of the Euro has largely been in reaction to the dollar’s rally but should the anti-EU policies of Rome take hold and the threat of Italexit (I knew all along!) become a reality, then the effect of the threat of departure of a Eurozone member, as opposed to the UK who never appeared to be “Full Members”, could be devastating.

What is the next stage for Crypto?

The almost continual wrangling over the value of Bitcoin, the incessant threat that Governments are “looking into” the uses of blockchain and cryptocurrencies and the constant setting up of interest groups and seminars are starting to dilute interest which is vital to the eventual success of something that needs positive publicity.

It is a double-edged sword to say that the whole idea of decentralized exchange of value that moves away from fiat currencies provides freedom and flexibility since it may need “official” acceptance linked to major institution like the IMF or World Bank to see it really blossom.

The next step beckons but it is more of a leap than a step, yet the question remains how will it happen? Revolution or evolution.

I read an article on Social Media the other day in which the writer, without making any suggestion of how it will happen made three obvious points; 1) Bitcoin needs wider acceptance, 2) The security surrounding cryptocurrency use, while understood by those involved, needs to be clearer and 3) pricing needs to be less volatile.

To me that is just a total waste of everyone's time. Highlighting what we all know to be the issues around acceptability doesn’t make them go away it just highlights a premise that the industry doesn’t know how to solve them.