Daily Alert – Friday 11th December 2020: Dreadful and difficult week, although profitable

Mark NugentDaily Alert, Dec 2020

Daily Alert – Friday 11th December 2020: Dreadful and difficult week, although profitable

What a dreadful week. Monday saw moderately risk-off sentiment as the Brexit talks headed into their “final” week, after a weekend of negative press reports. Tuesday to Thursday saw indecisive sentiment. Friday has returned to moderately risk-off as of 1700 GMT.

UK PM Johnson and EU Commission President von der Leyen had dinner on Wednesday in Brussels. No progress was made although talks will continue to Sunday night. If there’s ever a time to announce bad news, it is when the markets are closed, for example, on a Sunday night. As the sentiment after the dinner crystalised on Thursday, the GBP sank. It has fallen 1.7% since the Thursday open. That’s a lot for a currency.

On Thursday the ECB expanded their QE programme by an extra EUR500bln and extended the period over which the purchases will be made from end 2021 to March 2022.

On the weekly charts – equities are down; oil and GOLD are flat, lacking drivers; JPY is up (the JPY has followed the sentiment precisely all week); all three commodity currencies are up (no idea why); the GBP has taken a kicking; the EUR rises on the extra stimulus and the USD is slightly up despite the relief bill being stuck in internecine tribal politics, Covid running rampant, a miss on Unemployment Claims and the country being, well, just broken.

I place almost all of my trades on a Monday or Tuesday night, few on Wednesdays and Thursdays and none on a Friday. On Monday, trading the sentiment-driven strong JPY was not attractive as the commodity currencies were not behaving. I only go long on equities and that requires positive sentiment, so equities were not attractive. I wanted to short GOLD on positive sentiment but we didn’t have any. I wanted to look at a strong EUR but the index was flat on Monday. Tuesday to Thursday was indecisive and that is not conducive to trading. We have some sentiment today but it’s Friday (occasionally I will place a pending order as you will see below).

I did place a trade this week and it was not on my trading themes list. In Monday’s trading plan I said I wanted to place a pending trade on GBP strength in preparation for a free trade deal being agreed. However, on Thursday night I shorted the GBP. Why? With negotiations continuing until Sunday night, I thought it was unlikely they would reach a head, either way, before then. The mood on Thursday got so dark I felt it would endure until the Friday close. I paired the weak GBP with the strong EUR (extra QE) and bought EURGBP. It got to 2.5x risk in the money intraday but has reversed a bit. I will close it before the day is over for a modest profit.

Trade of the week was shorting the GBP against, well, anything, although 20/20 hindsight says doing so on Wednesday night was the optimal entry.

I am going to place a long and short pending order on GBP before tonight’s close on the possibility of clarity one way or another on the Brexit negotiations on Sunday which will be reflected immediately on the Sunday night open. I am not going into detail as I DO NOT recommend you do this. It can easily go wrong as entry prices and stops can be missed when prices move rapidly. I’m doing it for fun. It’s a wee bit like gambling and I am OK with losing.

I’m having fish for my dinner tonight, with a nice Burgundy. Have a great weekend and I’ll be back on Monday.

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