Former FX trader Richard Breslow is back off the weekend and he’s got some things he wants to tell you.
Specifically, he wants to talk about the extent to which creating grand narratives around certain events may not be the best way to think about trading. This is a subject he’s broached many times before and it’s ironic in a way, because what he’s done over the past several months is construct a narrative about why it’s bad to construct narratives.
Anyway, he’s always worth a read and his latest serves as a kind of recap of the market’s reaction to “Super Thursday” and also to the tech carnage we got on Friday.
Here’s his full Monday note…
We love to create narratives. It’s why people are at their most loquacious selves in the build-up to what are always described as defining and lasting moments. Until, of course, the next one. Setting the scene, outlining the scenarios, defining the moment, all have the drama of investing without any of the consequences. Once the number prints or event unfolds, you’re on your own.
- Last week we experienced Super Thursday. Three phenomena took place that were sure to make clear how to trade European, U.S. and U.K. assets for at least the rest of the year. And we all know how that turned out. It didn’t even take until the next morning for everyone to start wondering what just happened: being utterly confused at the market reaction. And start expounding on the next synopsis
- Which is why we should really treasure the times when we don’t have premier occasions to distract us from learning where asset prices actually want to go. It’s only when the dust settles that you have a chance of seeing clearly
- In the U.S. the make or break event taught us that we’re running a marathon not a sprint. And you have to trade accordingly. Which leaves the dollar in an ambiguous situation. You can look at the dollar index charts and read into them whatever you wish. Last week’s low around 96.50 looks like both interesting support and a must hold level. Use it for both. We’ve spent over 3 weeks in a narrow range on the 97 big figure, but it doesn’t feel stable and needs a 98 print to get off the cliff edge
- We have a compacted Treasury auction schedule, including 10s and 30s, before the FOMC’s meeting announcement. How they go will say a lot for risk appetite and the desire for things American. Less about the Fed, which is still likely to be more hawkish on rates than the market
- Of course, all eyes are on technology big-caps and any contagion. Until we break Friday’s low, we’re just having an inside day, and you should treat it as such. The move lower told us two things. That in a trending market, loss of momentum can’t be ignored. You actually have to pay attention. And, despite what you’ve been led to believe, their international status notwithstanding, big companies haven’t yet risen to the status of safe havens in any meaningful sense
- Europe remains in vogue. A dovish sounding President Mario Draghi doesn’t make it any less attractive on any relative scale. Assume that all news will be taken with a positive bias for the moment. Or until 1.11 versus the dollar falls. Being back above 1.12 is an impressive feat
- As far as the U.K. is concerned it’s safe to say no one has a clue looking at any time-line beyond the immediate. There isn’t even a consensus on what people were voting for or against. And this confusion will be seen in the market as well. Sterling is likely to spend a considerable time flailing around its April 18 range. Getting out of there should be considered a break out
- Trading these markets is turning us all into wannabe method actors. We’re all desperately hoping someone will tell us what is our motivation