Hold Onto Your Hats and Sit Back


JUST GETTING STARTED - I've spent a lot of time talking about US trade policy, protectionism and soft Dollar implications and there is nothing going on out there that would have me thinking this story is fading away. It actually feels like it's only just getting going and what that means is we haven't really seen the impact it will have on the currency market. While I'm not entirely sure what it all will do to the risk correlated currencies, I fully expect this policy will have an appreciative impact on the major currencies. This is because the US Dollar no longer wants to absorb inflows from flight to safety bids as openly and warmly as it has done to this point. Clearly, risk off price action will weigh heavily on risk markets, which means that for risk correlated currencies, any US Dollar selling pressure from US trade policy will be offset by selling pressure in these currencies, as they are liquidated for safety. But the major currencies, and particularly the ones that don't have such strong anti-appreciation policies like the Pound and Euro (ie both Yen and Swiss Franc don't want the appreciation), stand to appreciate quite a bit as they absorb the redirected safety flow.

cartoon july 12

DON'T DO THAT - As far as the trading goes, it continues to be a big game of wait and see. We certainly are busy already with the existing exposures and aren't starved for new opportunities, but at the same time, there hasn't been a lot of action setting up shorter term positions of late. This can make for a frustrating climate for many a trader and the traders that often end up handling this the best are the ones who have been doing it for a long time already. These are the traders that understand how markets work and that there are pockets of time when things are super quiet. The answer during those times is to keep doing what you've been doing. To sit back on your hands and to wait it out. The marker ALWAYS comes back. When we're in the thick of it, it can feel like forever. But what feels like forever right now, will look like nothing more than a blip when looking back months down the road. Perspective is a valued commodity in the profession of trading and I thought it would be a good time to bring this point home in case anyone out there is getting an itch to click a trade into play that isn't really there to be traded. That would be a shame.

We haven't even begun to see the impact US trade policy will have on currency markets.


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