Two Candidates for the Next Trade

THE MEANING - Right now, we're waiting to see how things will play out with the US equity market. Will we turn back up again and push to another record high, or will we finally see what should be a long overdue capitulation that lasts for more than a fleeting moment? The reason this is so fundamentally important, is because it means the markets will finally be breaking away from the comfort and immunity afforded to investors for nearly a decade, post the 2008 financial markets crisis. A drop in stocks will mean we are getting back to a place where markets aren't as predictable as they had been and volatility is once again a big player. This is everything we want to see as traders and so, the answer to the question is the difference between conditions that remain exceptionally challenging as a speculator, or conditions that become a lot more friendly.

cartoon feb 8

AUDNZD - I haven't see anything all that exciting as far as that next trade goes, though there are a couple on my radar that could potentially set up in the sessions ahead. We're no strangers to these possibilities, with one of them AUDNZD and the other GOLD. Of the two, AUDNZD is the one that has been incredible to us and I would love to jump back in to the long side if we get that shot. It's possible when you're reading this update we are already back in, and if we are, hang on and be patient. Ultimately, this market has been exceptionally well supported on dips for many many months now, and in my view, is taking its sweet time before eventually breaking out to the topside, confirming a longer term base. In recent days, Aussie data has been soft, while Kiwi data has gone the other way. This has added to the strain on the cross rate, but also puts the market in a great position to move the other way, with the Kiwi market taking in just about as much positives as it can get, while Aussie has taken in a lot of negatives.

Two markets I think could give nice trades in the sessions ahead.

GOLD - The other possibility out there is GOLD. I have a hard time seeing GOLD much lower in a global backdrop that is showing increasing stress around a path forward that has central banks normalizing policy and global sentiment deteriorating. While there has been some weakness on the back of a recovery in the US Dollar, I don't believe investors will be able to ignore the metal's supportive fundamentals in times of deep distress. Technically speaking, we have seen many setbacks over the past several months, but each time, the setbacks are intensely supported on dips. I would also add that we are living in a world where risk off flow may not translate into the same US Dollar positive flow that we have seen in the past. The market is worried about the US administration's soft Dollar policy and this could mean, other assets that have also benefited from risk off will find more demand as the traditional Dollar safe haven flow is diverted to these alternatives, one of which is clearly GOLD. But I continue to watch it all with interest and look forward to that next trade. Let's see where it comes from.

FX Positions Pointing in the Right Direction

Portfolio is waiting for follow through. The Friday closes set up an encourag...


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