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The Trade After The Fear Trade

The euro peaked early and faded as we anticipated in yesterday’s IMT, we look at what’s next. The euro was the top performer Monday while the Japanese yen lagged. Australia and New Zealand are on holiday Tuesday.There are currently 8 Premium Trades in progress; 4 in FX, 2 in indices and 2 in commodities.

The question we’re asking ourselves now is whether the French election result was a one-day event or the start of something more durable. The close in EUR/USD was 1.0866, that’s the best since November.

What’s worrisome is that all the euro charts have eaten into the opening gaps. That’s a technical red flag. It suggests a quick squeeze or a fast money trade rather than a sea change in sentiment. At the same time, some consolidation is normal.

Ultimately, the market is more political than it’s been in a generation. At the moment, the political temperature is cooling off but it can shift quickly. Ignoring politics, the eurozone economy is showing some bright spots and EUR/USD is at a deeply depressed level. Like sterling, it won’t take much to get it moving to the upside. Will the ECB and Eurozone CPI later magnify or break momentum?

The election is also a reminder of the factor that fear plays in trading. Markets are an amazing method of price discovery but add a bit of fear into the equation and prices quickly disconnect from reality. The current era of political shifts will lead to many bouts of fear and not all of them will be unjustified but if we look back at Brexit, Trump and the French election, the fears have been exaggerated at times in each case.

Ashraf Laidi
Ashraf Laidihttp://ashraflaidi.com/
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.

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