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Can we survive liquidity Tsunami?

FOREX_Evolution_Mr-markets_FXPIG
A happy medium

Evolution. A good thing? Not always. The Foreign Exchange market has evolved to such an extent over the past ten years or so that it is now beginning to become “untradeable with the naked eye”.

For an “old pig” like myself, quoting prices to five decimal places is mind blowing, and the depth of liquidity makes my eyes water. It is not a case anymore of needing Mo Farahesque stamina to be a successful day trader, you now need Usain Boltesque speed as well.

Can the market sustain itself without becoming little more than a computer game? Banks have to a large extent given up on trading as a money-making strategy, preferring to concentrate on flow, where the pure volume makes them less risky income.  

Depth of market, particularly in the euro means that algo’s can be left to their own devices happily making prices that banks know cannot hurt them.

Brokers in the retail market turn their client’s heads towards crypto but the spreads there are too wide for the average day trader, so in the short/medium term where is the happy medium?

It is trading methodology not asset class that needs to change. Look at smaller position sizes for a longer period to find a little value. Move away from purely chart driven trading and open your eyes to the fundamentals.

Feast your eyes on the fundamentals!

The past month has given us a veritable smorgasbord of money making opportunities. There is even a bit of positivity emerging about President Trump. If we gloss over the obviously planted cries of “Nobel Nobel” at his public appearances, Trump has given us China, Syria, Russia & Korea all in varying degrees, drivers of a stronger dollar.

Have we seen the long-term bottom? Maybe but given Trump’s capacity for surprise and his seeming indifference towards the twin deficits even if he is doing the right thing for the wrong reasons over trade, nothing is off the table.

The opposite is of course true for Sterling. A fall of close to 6% in under three weeks has its roots in a mix of technical and fundamental factors. Technically 1.4360 was a huge stretch given the (foolhardy) market (or more accurately hedge fund) expectations for a rate hike. Then Carney said a few things, Brexit threatened to blow up and, shock horror inflation started to fall.

Now, we are at 1.3600 and considering the other side of the equation. Is this level to much of a correction? No since it isn’t a correction. It is without doubt (in my opinion) a change of long term trend. The fall following the Brexit referendum was entirely reasonable. The subsequent rally, spurious at best, based upon irrational expectation that all would be well with Brexit.

There is value out there, but patience and deep pockets may be needed to take advantage.

Can’t sell Bitcoin? Buy it then!

While it is encouraging that Bitcoin is starting to rally again, approaching $10k, it does nothing for the underlying fundamentals that the only reason to buy it is that no one wants to sell it any longer. It is nigh on impossible to set a value for it and ask 100 people where Bitcoin will be trading in a week, a month or a year and you will get 100 different answers and absolutely no salient reason for their opinion.

While having different view on the value of a currency works well in fiat markets, it is not such a benefit in a market that is clearly driven purely by sentiment. Gradually charts are starting to be more believable and have a greater bearing on price, but it will take a seismic shift in market perception for traders to be able to deal confidently without the fundamental drivers.

Bitcoin is the umbrella or flagship currency for the entire crypto market but, of course it is other ICO’s that will become the mainstay of the market. Valuations will be easier as businesses mature, in much the same way as dot com did. I am sure that Jerome Powell will be able to resist pouring cold water on the market in contrast to Alan Greenspan’s irrational exuberance speech all those years ago.

A happy medium

Evolution. A good thing? Not always. The Foreign Exchange market has evolved to such an extent over the past ten years or so that it is now beginning to become “untradeable with the naked eye”.

For an “old pig” like myself, quoting prices to five decimal places is mind blowing, and the depth of liquidity makes my eyes water. It is not a case anymore of needing Mo Farahesque stamina to be a successful day trader, you now need Usain Boltesque speed as well.

Can the market sustain itself without becoming little more than a computer game? Banks have to a large extent given up on trading as a money-making strategy, preferring to concentrate on flow, where the pure volume makes them less risky income.  

Depth of market, particularly in the euro means that algo’s can be left to their own devices happily making prices that banks know cannot hurt them.

Brokers in the retail market turn their client’s heads towards crypto but the spreads there are too wide for the average day trader, so in the short/medium term where is the happy medium?

It is trading methodology not asset class that needs to change. Look at smaller position sizes for a longer period to find a little value. Move away from purely chart driven trading and open your eyes to the fundamentals.

Feast your eyes on the fundamentals!

The past month has given us a veritable smorgasbord of money making opportunities. There is even a bit of positivity emerging about President Trump. If we gloss over the obviously planted cries of “Nobel Nobel” at his public appearances, Trump has given us China, Syria, Russia & Korea all in varying degrees, drivers of a stronger dollar.

Have we seen the long-term bottom? Maybe but given Trump’s capacity for surprise and his seeming indifference towards the twin deficits even if he is doing the right thing for the wrong reasons over trade, nothing is off the table.

The opposite is of course true for Sterling. A fall of close to 6% in under three weeks has its roots in a mix of technical and fundamental factors. Technically 1.4360 was a huge stretch given the (foolhardy) market (or more accurately hedge fund) expectations for a rate hike. Then Carney said a few things, Brexit threatened to blow up and, shock horror inflation started to fall.

Now, we are at 1.3600 and considering the other side of the equation. Is this level to much of a correction? No since it isn’t a correction. It is without doubt (in my opinion) a change of long term trend. The fall following the Brexit referendum was entirely reasonable. The subsequent rally, spurious at best, based upon irrational expectation that all would be well with Brexit.

There is value out there, but patience and deep pockets may be needed to take advantage.

Can’t sell Bitcoin? Buy it then!

While it is encouraging that Bitcoin is starting to rally again, approaching $10k, it does nothing for the underlying fundamentals that the only reason to buy it is that no one wants to sell it any longer. It is nigh on impossible to set a value for it and ask 100 people where Bitcoin will be trading in a week, a month or a year and you will get 100 different answers and absolutely no salient reason for their opinion.

While having different view on the value of a currency works well in fiat markets, it is not such a benefit in a market that is clearly driven purely by sentiment. Gradually charts are starting to be more believable and have a greater bearing on price, but it will take a seismic shift in market perception for traders to be able to deal confidently without the fundamental drivers.

Bitcoin is the umbrella or flagship currency for the entire crypto market but, of course it is other ICO’s that will become the mainstay of the market. Valuations will be easier as businesses mature, in much the same way as dot com did. I am sure that Jerome Powell will be able to resist pouring cold water on the market in contrast to Alan Greenspan’s irrational exuberance speech all those years ago.

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