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March 17, 2018 | Trading Desk Notes – March 17th

Senior Vice President and Derivatives Portfolio Manager. Victor began trading financial markets over 45 years ago and has held a number of senior executive positions during his career as a commodity and stockbroker. Over the years he has provided considerable market analysis via radio and television and at financial conferences. His primary brokerage business is providing corporate accounts with risk management services using exchange traded derivatives. He actively trades currencies, interest rates, precious metals, stock indices and commodities for his own accounts.

I started this week with a clean slate (I was skiing at Whistler last week and didn’t want any open positions) but I had a list of trades that I hoped to make if the opportunity presented itself.

Top of my list was to get short CAD and I did that Monday when CAD rolled over after last week’s little bounce. Dovish comments from Poloz on Tuesday re-focused the market on interest rate spreads (current and expected) between Canada and the USA (2 year spread now over 50bps) and that pushed CAD lower. Broad USD strength later in the week and Trump’s NAFTA comments increased the pressure and CAD ended the week at 9 month lows against the USD…down 5 of the last 7 weeks.

CAD is weak against a broad range of currencies…not just the USD. YTD it is down ~4% against USD,~6% against EUR, ~7% against GBP, ~3% against AUD, ~ 8% against MXN, and ~10% against JPY. This “across the board” CAD weakness points the finger at Canada-specific problems (self-inflicted poor fiscal policies, lack of competitiveness, domestic debt levels, etc.) The falling CAD is acting as a “release valve” or “shock absorber” for the Canadian economy…which is what should happen with a floating exchange rate. I think CAD may have much further to fall.

 

Next on my list was to get long the USD and I did that by shorting Gold on Thursday. (Gold and EUR have been moving up and down against the USD in virtual lockstep so shorting gold was more or less the same thing as shorting EUR.) This is an “anticipation” trade…I anticipate that if gold falls a few more dollars it could trigger a wave of selling that would take prices much lower. On the weekly chart gold had its lowest close since December.

 

A big part of my USD bullish bias is the anticipation that the Fed will “widen the spread” over the ECB. Right now it costs ~3% annually to be short USD against EUR. (Given the HUGE speculative long EUR futures position a lot of people seem to be willing to pay that cost but…IF the Euro starts to break down from current levels I think those specs become sellers.) Jerome Powell has his first FOMC meeting as Fed Chair next week. I think the currency and credit markets have been “quiet” ahead of this meeting because it could mark a “sea change” towards tighter Fed policy…and thus higher US interest rates and a higher USD.

Also on my list was to short the US stock market. My bias is that the sharp break from All Time Highs in early February was a big deal and not just another Buy The Dip opportunity. With that in mind I was looking for a spot to get short if the latest rebound ran out of steam. I bought OTM S+P puts on Tuesday when the Nasdaq made new All Time Highs and then registered a daily Key Reversal Down. At the end of the week I’m marginally ahead on this trade but my conviction level is low (the market had a great opportunity to break but, so far, hasn’t taken it.)

 

Last on my list was to short Crude Oil. I bought OTM puts on Wednesday when it looked like WTI could break below $ 60 (and perhaps set off a domino-like selling wave) but I covered the position for a small loss on Friday.

PI Financial Corp. is a Member of the Canadian Investor Protection Fund. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or the authorize someone else to trade for you, you should be aware of the following. If you purchase a commodity option you may sustain a total loss of the premium and of all transaction costs. If you purchase or sell a commodity futures contract or sell a commodity option  or engage in off-exchange foreign currency trading you may sustain a total loss of the initial margin funds or security deposit and any additional fund that you deposit with your broker to establish or maintain your position.  You may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position.  If you do not provide the requested funds within the prescribe time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult to impossible to liquidate a position. This is intended for distribution in those jurisdictions where PI Financial Corp. is registered as an advisor or a dealer in securities and/or futures and options. Any distribution or dissemination of this in any other jurisdiction is strictly prohibited. Past performance is not necessarily indicative of future results

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March 17th, 2018

Posted In: Victor Adair Blog

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