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September 7, 2019 | Trading Desk Notes – Sept 7th

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.

The Canadian dollar up a cent this week trading at 76 cents after the Bank of Canada held rates steady on Wednesday and we posted an incredibly strong 81,100 gain in employment for  the month of August. This move higher in CAD brought it to the middle of the small 74 to 77 cent range it has traded within this year. So while CAD has traded slightly higher this year, it hasn’t had much of a move year to date, but that is because we always view CAD against the USD. When the reality is that CAD has been very strong this year. Out of the 30 top global currencies only 2 are stronger than CAD year to date. For example, CAD is at a 9 year high against the Australian dollar and an almost 2 year high against the Euro. This strength in CAD has been on the narrative that the Bank of Canada won’t have to cut rates the same way other central banks around the world have. This stability in policy and still high bond yield (relatively high that is) is likely to keep a bid into CAD. If this narrative holds, it is likely flows will continue into both USD and CAD which could see this period of extremely low volatility in the USD/CAD exchange rate continue. This narrative also shows demand for yield in sovereign debt, as both CAD and the USD are seeing strong bids.

 

 

 

We can see the same thing with Gold. Gold has been incredibly strong this year as we normally view it against the USD. However when looking at gold priced in CAD or EUR it is trading at all-time highs this week. Below are 10yr price charts:

 

 

 

 

Even more impressive was that Gold hit a new 39 year high against the Japanese Yen and new 6 year highs against the Swiss franc even as these safe haven currencies have been rising over the past 4 months on safe haven flows. Golds out performance against the strongest currencies reinforces the strength behind this move. While this move might be overdone on a short term basis, these strong moves tell me not to be short the precious metals looking for a pullback, but instead use that pullback to get in on the long side.

 

Looking at markets through a different lens than we normally do can help to explain why a market is moving, for example when you realize that CAD and the USD are moving somewhat in tandem you can analyze the factors thar are aligned and driving the currencies. You can also use a different lens to get sense of moves to come or the strength behind the move. For example gold first started to break out against weaker currencies which may have foreshadowed a move in other currencies and the ability of gold to rally against the strongest currencies show how bullish the move has been and the legs it could have.

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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September 7th, 2019

Posted In: Victor Adair Blog

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