Morning Commentary: No Man’s Land

Foreign Exchange - Morning Commentary

No Man’s Land

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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
No Man’s Land is a term that has existed since medieval times to denote disputed territory. During World War I, the term was re-coined to describe the terrain between opposing forces, particularly where fronts were static and motionless. It would appear, based on today’s price action,that we have entered a zone of No Man’s Land where bullish and bearish forces have reached a temporary stalemate with neither side being able to advance.
Bullish and bearish forces seem to have reached a temporary equilibrium point with neither side willing to advance further. Almost all asset classes have seen small ranges overnight with uncertain price action either in slightly bullish or bearish directions. Investors and traders have been on the sidelines due to uncertainty over the next steps regarding Brexit, the continued U.S. government shutdown, and progress regarding the U.S.-China trade talks.
Price action during Q4 was brutal on both pocketbooks and psyche, and the residue from that period has carried over into the New Year. Investors and traders, whether traditionalists or AI and algorithmic, have had difficulty in reading the market as market correlations that once worked well are no longer connecting creating whipsaw price action and frustration.
An absence of key U.S. data due to the government shut down is not helping in understanding the state of the U.S. economy. The spillover from the shutdown is not just domestic; Canada has postponed releasing their trade data indefinitely due to the U.S. government shutdown. Markets will remain largely range bound in the near term and investors and traders will be tip-toeing around the edges and largely doing no more than necessary.
  • Regarding the currency markets, the EUR/GBP relationship has been one of the few directional plays over the past week or so. Weak economic data out of the EZ, combined with dovish comments from ECB President Draghi and perceived silver linings regarding PM Theresa May and her ability to negotiate a soft Brexit, have led the euro and British pound to move in opposite directions. EUR/GBP has fallen for six straight days.
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