All of the forex positions were closed on June 5th due to data out of the UK, the United States and the Bank of Japan. The fund is up 67.32% year-to-date. The market dictates opportunity and we continue to not like the reward:risk ratios that are available at this point. So, it was time to go on vacation and wait for the market to change.
What Brexit Means For the Forex Markets
The market’s view changed after a phone poll from the UK showed a 4% advantage to ‘Leave’ the EU.
The previous phone polls from the UK had consistently showed the ‘Stay’ vote with a comfortable lead. Phone polls tend to be more reliable because of how the callers are selected while online polls are easier to manipulate.
We had confidence that EURGBP was going to continue lower and that Brexit was being over-sensationalized by the media.
This all changed when the phone poll reversed eight percentage points and gave the ‘Leave’ vote the lead.
The EURGBP short trades have paid over $800 during the last few months but the data changed and the position needed to be closed.
This could only mean that more volatility was going to enter the market. If the UK leaves then the forex markets are going to get crazy. This is a once in a 30 year event which means there is no reason to be in the market because you are likely to lose money. The fund is waiting for a resolution and will trade accordingly.
The Fed Will Not Raise Rates
Data out of the US has been mixed. This week had stronger Retail Sales and PMI but the risks remain in Europe from Brexit and a slumping economy while manufacturing numbers from China have been signalling more trouble in Asia. The end result is that a rate increase will cause more stress in the international markets.
The BOJ Wants A Public Vote To Support More Easing
Japanese leadership have signaled they want to ease but inflation is not increasing fast enough. The upcoming election will hopefully embolden Abenomics but the USDJPY will drop until the public reelects Abe. There is no reason to short USDJPY. The pair has moved too low.
For the time being, The Disco is open but staying on the side
lines until the “dust settles” with Brexit, The Fed and the BoJ.