Several years ago, I was given some sound advice about trading. “If in doubt, stay out!” It seems intuitive and it’s what I’ve done for the last 3 weeks.
There are tens of thousands of day traders who ignore this basic mantra and perhaps use another one. “You’ve got to be in to win.” That may be more relevant to buying a lottery ticket but doesn’t really stack up when (shall we say) most governments (let alone traders) are clueless about what to do re Covid-19.
Oil is a case in point. I’m not going to attempt to explain how oil prices can go negative in this article, just to highlight that a few bold speculators who thought oil was cheap following Saudi/ Russian bravado found out that oil (as the May contract expired) was less than worthless!
Stock markets have faired quite well. Money has found its way into Zoom and Amazon and also Tesla! I can understand perhaps why traders would be bullish Zoom and Amazon. I’m less sure about Tesla. But then stocks are not my specialty. I profess some limited expertise in currencies.
With respect to currencies, I wish to rewind a few weeks to the Worldwide interest rate situation as it was then, factor in a bit of oil, and lastly a bit of geo-politics.
We all know that most economies have embarked upon massive monetary stimulus as workers are furloughed, families are isolated and small and large businesses are given some basic sort of protection. There will obviously be some exceptions to the rule, but in general I see this as somewhat of a level playing field across the globe.
G7 (currency pair) interest rates are mostly trading around zero with Japanese yen and Swiss franc negative. Australian, New Zealand and Canadian interest rates are trading at 0.25%. The biggest cuts came from the US and Canada followed by New Zealand. If we compare currency levels in various currency pairs before and after interest rate cuts, then this may be a pointer as to which currencies could strengthen/ weaken relative to previous levels.
Rock bottom oil prices are good for China, India and Japan (large importers) and perhaps less good for Canada, Saudi Arabia and Russia. India and China still offer healthy carries if traders buy into CNY and INR.
Then it comes to who gets out of this mess first. My guess is China. Which is probably good for Australia.
Lastly, in an election year, having used up virtually all stimuli available, the US president in my mind may turn his attention to currencies and in that regard talk down the dollar.
So, my tentative first steps favour a weaker US dollar with small exposures to Australian dollars, the CNY and the INR.
Good Luck and Good Trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
