Good morning,  hope you had a good weekend

Having spent my entire career in the Financial Markets and witnessed financial events that could only be said happen once in a lifetime, I find the current environment one that leaves people scratching their heads wondering where the next “inspiration” will come from.

Let me put your mind to rest. While I have no input or the like from those in power, I do know one very simple thing. FX markets are driven by the CB’s to a large degree. I say to a large degree because when I have witnessed CB intervention for what ever reason, it is generally doomed to failure purely because at times there is just not enough reserves to take on the market. While intervention is short lived and has the desired effect, after a number of days or even hours, the momentum is lost. Then there is verbal intervention and more importantly “faceless/invisible” intervention. Basically the CB all get together and quietly agree where they want their currency and then use other Organisations/Large Banks to quietly put this in motion.

Where am I going with this, quite simple really. Look at EUR/USD…whats wrong with it? I’ll tell you, the BIG FIGURE!! 1.3655 as I write this is laughable. Not to mention every trader out there is looking to short the EUR from 1.3675/1.3750, I just question why the EUR remains so “strong”. It ain’t  doing the EU any good that’s for sure.  So to accomplish this let’s say hypothetically the FED and ECB agree that while the US get’s back on it’s feet let’s leave the EUR propped up and then when the time is right let the USD fly giving a boost to EU exports (that are so crucial right now). The point I am trying to make is if one study’s the FX Options market you will know that current levels of volatility (all time lows) represents an environment of limited opportunity and trend. The more difficult it is to second guess the move the more stable the currency. The more stable the currency the easier it is for the CB to control the flows. So I salute the CB Governors for doing an exceptional job. They should all be knighted for their contributions economic stability.

This Thursday (3rd July) sees NFP/US Employment report and ECB meeting. Intra week volatility will be buoyed by this especially with vols are critically low levels. Teh market will generally behave like sheet and try ride whatever wave (big/small) to make money. I do not think we will see any “out of the ordinary or shock” numbers on Thursday and therefore remain cautiously optimistic that the EUR will remain trading sideways within a narrow range. 1.3750 is my top. My bottom, well you know what it is…and what it should be.

GBP/USD will in all likelihood follow the EUR but not in as much vigour. This will keep EUR/GBP on the back foot all week before seeing a resumption of the GBP strength.  As I have suggested previously if you are a buyer of Foreign Currency (EUR, USD etc etc) I still think these are very attractive levels. If you can wait as it is not urgent, I think you will get a better opportunity. Then again a bird in the hand is worth 2 in the bush!!!

Have a GREAT week ahead

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