EUR 21.76 For Business Accounts Only

The Weekly Track two-tails

- The Weekly Track – Two Tails by Bob Savage
http://trackresearch.com/articles/the-weekly-track-two-tails/

In the middle of January, many see markets as dangerous as volatility rises, correlations breakdown and the powerful trends extend for oil, the USD, equities and gold. Value concerns have returned but like a dog with two tails, the powerful treats of better 4Q earnings and ongoing global growth support the rush of money to risky assets everywhere. The break of the USD to US rates has perplexed many this week as the USD accelerated its downtrend after Mnuchin comments at Davos and after the ECB Draghi did less than hoped to talk down the EUR. The focus of rate/USD disconnect was in the JPY and CHF both of which moved sharply lower as fears about the US starting a larger trade war, talking down its currency and the role of central bankers playing with their reserves all culminated in a large technical breakdown to fresh 3-year lows. The question for many is when all markets start to pay attention to the USD weakness. Clearly, some have, as the German DAX, UK FTSE and Japan
Nikkei all suffered last week in part because exporters were hit on currency gains. This wasn’t true for China or many other emerging markets in part because fair value for those currencies remains far away. Value in FX is a hard thing to measure with PPP the best to offer, but hardly a good forecaster for the medium term. Value, growth, trend and momentum factors are all in play in January 2018 and as the month comes near to the end, many are extrapolating that as this month goes so goes the year. There will be the usual focus on how governments and central bankers respond next to these forces along with the questions of how speculators play out their positions and leverage. Perhaps the biggest fear for the month ahead in’t the groundhog and the repeating of January trends but the complacency that ensues from big gains with little to derail them in the calendar ahead. Until something changes, the market is like a dog with too tails, beyond happy.