Been intending to start a thread on this subject for some time.
Current affairs cover a wide spectrum - I will only post on how the market is likely to react short and near term, in other words it’s about the market’s opinion and not ours.
First up who I am - I’m a business person - this is my 41st year after having served a 7 year apprenticeship. I do business on the land border Euro/Gbp so buy and sell in Euros and Pounds since the inception of the Euro.
I ‘watch’ EG and attempt to take a view on it’s short and near term direction. To help with this I need to take a view on USD which in turn means looking at Gold and the stock/bond market - more later on this.
Keeping post short - tonight there was some disruption in Capitol Hill. On seeing this a quick reaction is to sell SPX and buy Xau/Usd - both are short term reactions since it’s likely that calm will return.
The market had sold Xau/Usd all day rigt down to Monday’s high and Christmas high so the events help a retracement that may have occurred as the trading nears end of session in any event - it just gives a little confidence. (see chart yellow line)
Likewise SPX had hit a dbl top with Monday’s high so there was an expectation of a retracement here as well, again the events just give sellers a little more confidence.
Tomorrow i will post about the effect of the Brexit deal on GBP and Euro - on how price has reacted and likely to act up ahead.
Edit - btw the sell off in Gold today was prompted by the US10yr - price of same fell since Asia session (Price down = yield up). The bond was a good indicator of risk sentiment for stocks who eventually took their cue and shot up.
Calm returned and SPX has long since surpassed the high and Dbl Top of yesterday - lesson here is that short term Current Affairs will only cause short term reactions.
M Scot Peck once wrote that he encountered a self made multi millionaire who recounted to the author of his early days in business and how he felt then that ‘the wolf was at the door’ meaning that his fledgling enterprise could fail easily and he would lose everything.
Scot Peck realized after talking at length that the businessman still believed that the wolf was there - even though he had millions.
One of the old trading masters likened the market to an unseen grey entity that has a unique personality. Mark Douglas wrote of ‘trading in the zone’ - a euphemism for getting in tune with that personality (market sentiment).
It’s possible to get to learn sentiment by watching price react to events/news. The market is like the guy with the millions - that wolf is at the door thus price will fall much quicker than it will rise.
The market, again like the millionaire, is money already accrued and it is seeking to accrue more. It will seek an accruing asset by default thus trends are born. It will dump an asset if it believes that the asset will no long rise in the future - thus if some item of current affairs is perceived as a game changer then the trend will end and the accruals will be liquidated.
Some guys are calling the senate results yesterday as a game changer - including Citi - and suggesting sell USD and buy Gold.
IMO it’s way too early to make that call, the market will decide only when it sees economic policy formation - then when it does it will be right.
I would like to say that the current economy has been greatly affected by the intruders who has joined the forex market. They are more than money looters, they have tricks that help them to appear as brokers yet they are not. They have destroyed the forex market and now even those who were trusted have lost their customers due tio that fear of loss.
Citi: “Bottom line: The outcome of the Georgia run-offs is very significant in two ways: i) by increasing the scope for policy changes, including even more fiscal stimulus and ii) strengthening the MMT (money-financed stimulus) theme in the US and globally,”
Back in Nov 17 they went into great detail on why BTC would ‘sky rocket’ in Dec - they were spot on.
Aye, in all industries there sharks - retail fx attracts ‘marketeers’ many of whom are expert in what they do - fleece the unsuspecting.
But it’s not a new phenomenon - back in the late 1800’s early 1900’s same thing - caused Wyckoff to use the social media of his time (written word) to educate and warn people.
Many brokers offer ‘education’ - an idea once suggested by Wyckoff - he was laughed off the stage at such a notion.
Remember this - a retail participant is most often trading against the broker - when the client loses the broker wins. So is the ‘education’ geared towards more trading with more losses or less trading with more wins.
Yes, the counterparty to many retail trades is the trader’s own broker. But that does not mean there is some kind of aggressive battle between the two. Although a broker can manipulate its spreads it cannot diverge very far from the actual market prices. So it is wrong to assume that the broker is pushing its prices one way against one trader and in another direction with another trader in order to hit their respective stops. In most cases the trader is perfectly capable of losing money without any help from their broker!
But, in the context of this thread, I think it is fair to say that trades that are counterpartied by a broker do not actually reach the real forex market at all and are so small that they would have no impact on it whatsoever even if they did reach it.
Certainly, the overall size of the speculative market is sufficient to cause at least intraday noise (which is probably what causes the losses of many small-time retail traders with their 10-pip SLs, etc.). This is readily apparent when one notices the significantly reduced activity during, for example, a US holiday and the geatly increased activity following a major data release.
But I don’t believe these issues have any great significance in terms of impact on the market when compared with national and/or international current affairs.
Beginning of that policy will be announced early next week - will be not dissimilar to the EU approach to covid recovery - so worth watching how the market reacts come Monday.
Ok quick post regarding GBP and the current affair of the FTA with the EU and how that has affected price in the recent past.
First up since brexit involves both EU and UK why am I not talking about the Euro?
Reason is that in the recent months when talk of a deal was negative GBP was impacted most and when talk was positive GBP was again impacted most - price (the market’s only language) says that FTA (free trade agreement) affects GBP most.
The barometer regarding the fta was best represented by Eur/Gbp price action.
The obvious question is why has EG not fallen following the fanfare of the fta on Dec 24th last?
In fact price has remained pretty much at the median for 2020 - below:
One reason is due to the fact that both the UK and EU are still in a crisis mode dealing with COVD-19 so what’s most important for central banks right now is currency stability.
Economic conditions are already poor due to the pandemic, so they do not want to add more factors, such as exchange rate volatility, that could cause conditions to further deteriorate.
Post-COVID, what will influence FX rates will be central bank balance sheet differentials, as well as fiscal policies from governments as they try to restart their economies.
In the near-term, until the global pandemic is under control, the major central banks will do all they can to suppress any FX volatility.
Very valid points - in matter of fact covid hospitalization numbers in my own area are just coming in right this very minute and they are horrifying to say the least.
There is however one thing to take on board - the market’s focus is always up ahead, thus the continued rise in stocks in the face of equally horrifying numbers worldwide. The market sees vaccination as the route out.
Anything that might cause a change in this focus would cause selling on a fairly large scale - there have been some noises regarding the SA variant - hopefully just noise.
Will post re the fta tomorrow and why EG is quiet right now.
Free Trade Agreement suggests that trade UK/EU reverts back to pre-brexit where trade flows were free of any impediments, VAT (sales tax), duties, quotas and tariffs. This fta is not that.
There is no reverting to the vat arrangement and the zero tariff and quotas element applies only to UK made goods. Therefore ‘rules of origin’ now apply to UK/EU trade meaning that goods deemed not to be manufactured in UK face tariffs.
Rules of origin are complex - the country that the last major process took place defines the country of origin - simply importing a product and say changing the packaging doesn’t cut it - pre-brexit no such rules applied.
Thus many UK exporters to EU have found that their product is now subject to tarrifs.
