Hanging in the Balance for FX Traders… Brexit, Trump’s Tariff Threats, and the EU’s unprecedented Plea

From the RagingFX Trading Desk…

Dominating headlines for this week include Brexit, China, and Germany. Here’s is our take for the weeks ahead…

On the Brexit front we anticipate an extension to the March 29, 2019 hard deadline for at least another year. The EU will be holding their elections in May, which will hamper a second referendum attempt. Keeping the status quo, at this juncture, we believe is what is best for both sides, which will most likely secure Theresa May’s role as PM for the near future.

This past weekend Germany caved after witnessing Theresa May’s historic Parliamentary loss of support for the current Brexit proposal. Merkel’s supposed successor, Karrenbauer, issued an unprecedented, emotional plea from the CDU asking the UK to reconsider reentry. The $120b investments and more than twice that in trade exchange value between both countries are weighing heavily on the minds of German leaders.

If you agree that Germany holds the purse strings for the EU, this gesture has significant ramifications politically. If cooler heads prevail, both sides will seek remedies behind closed doors that should buy more time for negotiations.

What does all this mean for FX traders?

Going forward, we see a global recession triggered by the tariff war between the US and China. This morning the latest IMF global predictions concur. China’s debt levels will continue to rise as the government continues to release more funds into the economy. The resulting inflation will depreciate the Renminbi against the US Dollar. In addition, the slowing Chinese economy will dampen commodity demand, which in turn, will hurt emerging markets, all of which will eventually lead to urgent bail outs of their respective dollar denominated liabilities. Those governments saddled with Chinese loans may have little recourse, since the IMF will not recognize Beijing’s competing alternative, the Asian Infrastructure Investment Bank.

In this economically declining scenario, the USD will remain strong at least for a few more quarters due to the current economic momentum. On the mid to long term, we would not be surprised to see the Euro reach parity with the USD as the EU seeks to rebalance its tariff-stricken industries.

© 2018 Tom Kadala

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Betting on the Brits – …my FOREX-related story

A couple of years ago I was asked to cover a trading desk at a prestigious firm in London. What transpired in the first week was quite humorous, since neither party really knew the other all that well.

During one of our daily banters at lunch break, I asked one of their top traders if it was possible for a random freelance writer, like me, to become an expert Forex trader like him and his colleagues, …in say, less than two years time? They chuckled, but soon the question turned into a friendly wager between us. They were willing to teach me the art of their trade, if I agreed to stay in London for a few months longer. Without any hesitation, I agreed. What I failed to tell them, however, (since they never asked) was that aside from freelance writing, I was also a seasoned programmer with over 25 years experience.

For the next three months, I watched two top traders work the Forex markets masterfully. In the evenings I diligently programed what I had learned into a versatile algorithm. To keep up with the trading lingo, I poured over technical trading manuals, took copious notes on their many trading styles and strategies, and carefully observed their trading behavior under many different circumstances. After a few days in the trading room, I quickly learned how these circumstances could vary widely.

Each morning we met briefly to review global events and discuss trading opportunities. Every meeting derived a different outcome. For example, one morning interest rates moved up in Australia causing investors to dump Euros and buy Australian dollars. The ripple effect triggered a similar outflow in Emerging Markets whose respective currencies sometimes reacted with greater amplitude. Within seconds, my two mentors were skillfully working the South African Rand and the Turkish Lira using Gold as a potential hedge. The Euros that were sold earlier in the day were bought back, all at a precisely calculated, risk managed profit. Later that week, changing oil prices, commodity prices, invasions, trade disputes, earnings, GDP, non-farm payrolls, hedge funding currencies, political elections, and so many other factors including the prospects for a Grexit and Brexit, weighed in. In an unpredictable manner, each event contributed to an uncanny sense of ‘controlled mayhem’ in the trading room.

Despite the daily ensued chaos from the markets, these two cool cats maneuvered skillfully through the maze pinpointing with incredible accuracy, areas with high-probability arbitrages. Like the rails on a train track, their unflinching trading discipline was solid and consistent, day in and day out. They reminded me of two sturdy pillars standing firm against a fierce tornado. It was truly amazing to watch and absorb, not just for what it did for their trading results, but more for the many ways it could be applied to daily life decisions.

Perhaps, my greatest takeaway from the entire experience could be summed up as follows:

“Add clear thinking, risk management, and a disciplined approach to any
problem and the odds for a successful outcome can be greatly improved.”

Simple? Yes, but very difficult to achieve on a sustainable basis, at least for humans, but not so for a pair of fast computers and a cleverly written algorithm. What happened next surprised us both. See for yourself at http://www.ragingfx.com.

So, you might ask, who won the wager?

As it turned out, we both did. …because we had unwittingly hedged our respective bets! They taught me everything they knew, while in two years time, I created an amazing algo that digitized everything they had taught me!

© 2016 Tom Kadala