It’s a mad, mad world, but trade in it we must.
There’s lots to be optimistic about as we head into the weekend. Trump apparently isn’t planning to physically assault Japanese PM Shinzo Abe when the two meet on Friday and the export numbers out of China overnight were solid.
Meanwhile, Trump’s hint that some announcement or other regarding tax reform is imminent has put the reflation trade back on course and, paradoxically, the decision by the U.S. Court of Appeals for the 9th Circuit to uphold the freeze on the new President’s travel ban is probably short-term bullish as it’s evidence that Steve Bannon doesn’t get to institute an autocracy just three weeks into his presidency (and no, there are no typos in there).
Still, taking a position headed into Trump-era weekends is a dangerous game to play. Twitter tape bombs still have an impact even if Nordstrom proved you can live to fight another day after a negative Trump tweet.
Here with some further color on the dynamics described above is former FX trader turned Bloomberg contributor Richard Breslow.
Via Bloomberg’s Richard Breslow
There’s a very good reason a lot of trading models track close-to-close prices and try to filter out the vagaries of intra-day shenanigans. At the end of the day, so to speak, it’s how things finish that matter. Especially to your P/L.
- This is more important than ever as the current noise factor is positively deafening. Causing short-term forecast errors soaring. I can only hope traders have been adjusting their position sizes in response. It’s an environment where false breaks of important chart points have become commonplace. And has caused traders to make bad extrapolations based on what turn out to be spurious signals
- If end-of-day prices matter much more than intra-day ranges, close-of-week levels take on a heightened importance. The willingness of traders to carry risk over the weekend has diminished as the risk of improvised explosive tape bombs has increased. How things end gives us a peek into where things are being tactically marked to market
- This really does matter because we can’t even agree whether we are seeing trends, reversals or two-way action. In this polarized world, it isn’t surprising that so many continue to refuse to change their views, adamantly insisting everyone else is being irrationally stubborn. Hint: not every asset class need move in continuous lockstep
- So what do things look like as Friday unfolds? Very different than they did earlier in the week
- USD/JPY didn’t continue to implode. In fact, that stop hunting raid below 112 merely set-up the strongest print of the week — and a move back above the 21-day moving average. What was portrayed early on as Abe about to be taken behind the woodshed is now being extolled as the start of a beautiful friendship
- More interestingly, the dollar index made a new high on the week today, retaking its 21-DMA. And Presidents Xi and Trump finally had that phone call, which went better than expected
- Incidentally, the Chinese trade number was a blockbuster for both exports and imports. Not the lackluster report expected. And the Shanghai Composite is back above that very important 55-DMA
- Gold has made a new low on the week. UST yields have decided they don’t need as much of a safe haven concession of a couple of days ago
- The imminent death of the euro never happened and it’s so far held important support
- Where will it all end up? I’ve no idea. But as this week winds down, markets are trying to get out of Dodge on a sanguine note. Perhaps aided by the fact that the appellate court reminded everyone that there remains a rule of law