FX Macro Strategy

  After March's markets meltdown, we saw the reflation trade taking place, long Equities and Metals, and short US Dollar, in FX the commodity currencies benefited the most from this narrative, and that's played well until this month, when the Dollar index DXY reclaiming its 94 status, the S&P 500 lower for the fourth consecutive week which is the worst since August 2019, and Gold down 10% from its August highs. Well, what the hell has happened ? First, from a macro view I think the reflation theme has changed to the growth theme, in other words, investors were expecting a strong third and fourth quarter, but the recent resurgence of Covid-19 cases in Europe has halted that optimism, the UK announced more lockdown restriction, France shutting down bars and restaurants in the city of Marseille and the same thing for the Spanish capital of Madrid and health experts say we should expect a second wave of Covid-19 infections in the winter. Second, the Economic data has been a bit...

Sterling was the worst performer of G10 currencies in the last two weeks, but what's next? I still do think that in the long term the pound will struggle more than its peers, because of Brexit deal headwinds and the recent lockdown restrictions that PM Boris Johnson has addressed will certainly have an impact on the UK economy, but in the short term though I do believe that the panic is over and we're due for a pullback,   the best way to express this idea is through a GBPCHF long, here are my five reasons why? 1) As I mentioned the recent downward move in the Pound is now too extended, and we've reached the oversold territory on the RSI, 2) Governor Bailey assured the market that negative interest rates are in the toolbox but it will not be implemented in the next few months, 3) As the furlough program comes to an end in October, UK finance minister, Rishi Sunak has announced the new jobs support scheme that will run for about 6 months, 4) In the recent months the Swiss Fr...

1/ European PMI's: the Euro zone has been recovering better than expected, even though the last CPI numbers were disappointing and went into deflationary territory, with next week's PMIs numbers we'll see if the recovery is still intact or if it start to lose momentum, it's important also to note that Covid 19 cases are starting to rise again especially in the southern countries like France and Spain and that would weigh on consumer and business confidence, so next week's PMI's will be a great indicator to monitor the Eurozone recovery path especially after the resurgence of COVID 19 cases in recent weeks if the numbers come below 50 which is the expansion territory that could see the EURUSD heading towards 1.17 level. 2/ Governor Bailey Speech: on Tuesday governor Bailey is due to speak at a webinar hosted by the British Chamber of Commerce, the topics include the Bank of England’s decision to significantly expand quantitative easing and what further steps are ...

The Best Fundamental Strategy to use in Forex trading: Today I want to talk about what I consider to be one of the best medium to long term fundamental strategies in the foreign exchange market which is "Central banks monetary policy divergence", this is a strategy that has been used decades ago by big institutional traders, and it's still effective right now! First of all why Central banks are very important to FX traders?  Well, simply because they're the only institutions who can control the money supply of their currencies, and they do that by raising or lowering interest rates or by using more unconventional tools like quantitative easing which means buying government bonds, So what is a Monetary policy divergence : As the name suggests, basically it's when you have a different stance from a certain Central bank to another one, the extreme and easy example would be if you have a Central bank who is in a hiking cycle meaning that's willing to raise interes...

  Five reasons why i'm bullish on the US Dollar in the short term: 1) The Fed has announced average inflation targeting at the Jackson Hole but did not provide any inflation-outcome-based forward guidance so now they're sitting on the sideline, 2) Trump is making a comeback in the national polls and we could see the greenback rally into the US election,    3) After the start of the reopenings the US data has been outperforming and beating expectations relative to the rest of the world,   4) Based on the CFTC reports the Euro longs are so stretched now and climbed to nearly a decade tops, 5) Technically last week the dollar index DXY broke out of the trend channel and did hold after the retest, In conclusion, i don't think the market is ready to liquidate all USD shorts yet and there are certainly reasons why this is not the case, but at least we're due for a pullback in the near term.    Article by Halim Haddad,