In the last 6 months would you have rather have been a trader or a traditional investor? By traditional I mean being long-only securities. That answer should be easy, as trading would have provided far more opportunities and been far more interesting than the fear that gripped the long-only community.
Let’s quickly look back at how this year started. The 2nd half of 2009 saw risk being rewarded as stocks rebounded from their panic lows. EUR/USD hit a low of 1.24 in March of 2009 and wound up trading above 1.50 late in the year. That optimism carried through as 2010 was underway, providing for more gains in stocks with the Dow Jones trading above 11,200 in April. The currency markets were starting to show some strains in that optimism as EUR/USD would be back trading in the 1.30s in April. This is what I refer to as a gap in the risk correlation. Meaning that EUR/USD was headed one way and stocks another. To me this is a signal; others will say that the correlation is weak. Whether or not this is a signal is for you and ultimately the markets to decide.
The optimism really started to show strains late last year when Dubai had their own debt crisis, but in hindsight that fear was almost laughable as to what was going to happen in Europe. Still, it wasn’t until a seven day span in April that saw both the BP Gulf disaster and Greece debt debacle take center stage. The rest is well-known, as neither hole has been plugged yet.
Fast forward to today and that optimism has been swept to the wayside. There are still a few bulls out there, but their correlation to managing long-only portfolios is usually very high. From Obama’s inability or even lack of interest in creating jobs, to China’s negative economic news post the G-20, to the fiscal austerity measures in Europe, the reasons to be negative right now are rising.
This begs the question, though, is all the negative news already priced in? If you are a contrarian, you have to sense that opportunities are ahead. Usually when everyone is on the same side of the market, the probability of a squeeze rises. Still, if Obama is already in November campaign mode as he continues to blame the prior administration for everything, and Europe and China are no help, then being a contrarian at this point might prove to be a pricy proposition.
Let’s just look at the last 3 years to see what opportunities were in the EUR/USD market. Below is a table showing some typical prices from each month.
The table shows that from 2007 to 2009, there were equal or more opportunities in the 2nd half of the year than there were in the first - and the first half of the year was no laggard for traders!
History does repeat itself (Dow Jones 10k is one example). History has proven that opportunities lie ahead and my guess is that the second half of the year will prove to be just as opportunistic for currency traders as the first half of 2010 was.
This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.
Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.