The Uncommon Denominator

FX Market provides something for everyone

Why do people get into trading foreign exchange? It isn’t peer pressure as it can be a lonely hobby, most traders deal in solitude. You don’t see guys out on a Friday night regaling their mates with stories of moving averages and oscillators.  It’s not to make vast pots of money. It can be, but the odds are stacked against. It is an educated man’s gamble so won’t interest those who would be attracted by a five team acca on a Saturday afternoon.

The reason is its variety. If you have a predilection towards investment but find the norm a bit boring, trading offers such a wide choice when it comes to methodology. It isn’t even technical versus fundamental analysis, it is so much more.

As the market has returned to something approaching normal this week, although the lack of “normality” can be a major attraction, I have been considering just what provides differentiation.

Choice of currencies; majors, minors, crosses or exotics. Choice of drivers; Central Banks, data, politics, global events. Choice of timeframe: scalper, day trader, hedger or long-term investor. The list isn’t endless but it does provide something for everyone!

I class the technical versus fundamental choice as a personality thing. Is trading an art or a science? If you consider it an art you are a fundamental trader using charts only to determine entry and exit levels. If it’s a science, the employment data means nothing, the charts tell it all!

What you see isn’t always what you get

There are traders who trade once a month, some once a quarter and even once a year. That doesn’t mean one trade, I mean they develop a series of trades that reflect their view, particularly quarterly or annual traders, of global events for that period.

Imagine January this year. The year doesn’t have to start in January but for the purpose for this demonstration…….

The easiest call to make would probably have been a far weaker Euro. Trump had just won and was promising a series of measures that would, by default not design, strengthen the dollar. The Fed was moving to a tightening bias having already hiked once. Nationalism was growing, elections in The Netherlands and France were expected to see a rise in anti-Eu and anti-Euro feeling. There were people saying that the French election could determine the very future of the common currency.

Brexit was a concern to the U.K., little more. There was optimism that the no deal better than a bad deal mantra would cower Messrs Juncker and Tusk into submission.

The long march to parity

So why did our once a year trader buy Euros? Is his name Buffett or Soros? Not necessarily. He saw a few things: What Trump really was; a blustering bully good at campaigning not so good at Governing. That the French radical as they are, weren’t about to elect what many called a fascist and that Britain needed to be able to trade with the EU and Barnier would be sufficiently tough to be a serious opponent when it came to negotiating Brexit. He may even have seen an election in the U.K. but there is no way he could have predicted the result. Everyone needs that bit of luck!

The Bank of England and the European Central Bank are very concerned about the value of the Euro against the pound. Parity is getting more and more mentions and the inflationary effect of that could be calamitous for the U.K as the economy slows. The ECB sees the value of the currency almost as an award for its monetary policies but as the currency strengthens, one by one the exporting nations will start to gripe.

Our Trader? He is waiting for January when he adjusts his positions. Parity would be nice but he is happy with what he already has!