Long Gold/AUD (From 1-Mar to 7-Mar) – Comment on US tariffs
Stopped out on 7-Mar
Real-Time AmpGFX – Bought Gold/AUD (Tue 3/6/2018 5:50 PM MT)
Bought half unit Gold/AUD at 1720.02
Comment
We were stopped out of short AUD and EUR positions on Tuesday, reflecting a rebound in risk assets as N.Korea made overtures towards denuclearization, and the market appeared to think that Trump may back-pedal of steel and aluminum tariffs, supporting risk assets.
This morning news that Gary Cohen was resigning has diluted the expectation of a Trump back-pedalling on tariffs.
As we had already discussed in relation to our short AUD position earlier, the AUD should be at risk of falling as tariffs weaken the steel industry, and the risk of retaliation undermine risk appetite.
Australian GDP was weaker than expected in Q4.
The USD has tended to weaken on tariffs news. We don’t necessarily agree with, but it seems to be how the market wants to see it. Some have noted that in the previous episode of steel tariffs in 2002, the USD weakened.
The USD may also be undermined by building developments in the Mueller investigation and the approaching mid-term election race.
The USD could rebound on strong employment data on Friday. However, this may not have a net impact on gold/AUD.
As such, we bought gold/AUD, rather than selling AUD/USD this time.
We were already long gold/AUD in ¼ unit ahead of today. I have rolled this into the position taken here.
Positions
Short one-third unit TYM8 at 120-10; s/l 120-23+
Long 3/4 unit Gold/AUD at 1713.09; s/l 1692.47
Real-Time AmpGFX – trimming risk-off trades (Fri 3/2/2018 2:35 PM MT)
I bought ¼ unit of CAD/JPY at 82.02
I sold ¼ unit of Gold/AUD at 1703.07
Comment
This trims the half unit positions to ¼ positions in both these (risk-off) trades taken on Thursday after the tariff story.
US equity markets have improved on Friday. The market may be calming down its initial response to the story. The tariffs threaten growth in some sectors, and there is a risk of retaliation. But the details of the tariffs are still not known, and the market may be torn between anticipating a trade war and wondering if Trump may walk back the scope of the tariffs over the weekend.
Currencies are hard to call at the moment, CAD/JPY and USD/JPY are near key support zones, so it may not be a good time to be holding a short CAD/JPY position.
The USD was breaking topside resistance just ahead of the tariff story, so it is hard to be sure that it will revert to a bearish trend. The US employment data next week may reinvigorate the USD again.
On the other hand, Trump has tweeted that a trade war is easy to win, the US does have a big trade deficit, so he may well be right. He does appear to be highly focused on improving US trade advantage. So I am not expecting him to walk back on tariffs, and trade protectionism is likely to remain a theme.
As such, I have kept a bit of exposure in these risk-off trades for the time being.
I have also tightened the stop losses on the remainder of these trades.
Positions
Short one unit AUD/USD at 0.7796; s/l 7773; t/p 7658
Short one-third unit TYM8 at 120-10; s/l 120-23+
Long ¼ unit Gold/AUD at 1698.65; s/l 1692.47 (raised from 1679.47)
Short ¼ unit CAD/JPY at 82.81; s/l 82.67 (lowered from 83.77)
Real-Time AmpGFX – Comment on Gold/AUD (Thu 3/1/2018 2:26 PM MT)
News on steel and aluminum tariffs today are causing considerable market uncertainty. A key area of concern is retaliatory trade restrictions threatened already by the EU and Canada.
The equity market (outside of US steel producers) is sharply weaker.
The USD is weaker on the news, across the board, contributing to a rebound in gold.
Interestingly, the US stock market appears to be bearing the brunt of the reaction in equity markets. Declines in other market ETFs is milder.
The market may see the US potentially being retaliated against, while other countries might trade more freely around it. As such US companies have more to lose.
The largest global producer of steel is China. While China apparently exports less than 1% of its steel to the USA, there is a risk to China steel exports to other countries. If other exporters of steel to the USA face lower returns from the US market, they will complain to their governments to protect against steel imports.
Steel tariffs in the US should reduce confidence in the Chinese and global steel industry, outside of the USA. As a major exporter of iron ore and met coal to Asia, Australia might be viewed as suffering some collateral damage from a trade war in the steel industry.
Ultimately the world needs steel, and demand for iron ore and met coal may not be significantly affected by tariffs in the steel industry, but it may induce uncertainty and disruption to established supply chains.
More generally, while the USA equity market appears to be suffering most from the tariff discussion, the US appears to be taking a more protectionist attitude to trade, and risks in US equity markets and fears of weaker trade to the US and broader trade protectionism is a threat to the current strong global growth narrative. This should pose a risk to emerging market assets and commodity exporters, while the market should be more interested in holding a safe haven asset.
I note today that Bitcoin is bouncing sharply. Perhaps this is a sign that it is taking on an increasing role as a safe haven asset. I don’t have access to trade bitcoin futures at this stage, and the market for COINXBE is closed. The price action for XBT has turned more positive again.
Our short EUR position was closed on stop (the trade was in profit).
Positions
Short one unit AUD/USD at 0.7796; s/l 7773; t/p 7658
Short one-third unit TYM8 at 120-10; s/l 120-23+
Long half unit Gold/AUD at 1698.65; s/l 1679.47
Real-Time AmpGFX – bought Gold/AUD (Thu 3/1/2018 1:33 PM MT)
Bought half unit of Gold/AUD at 1698.65
Comment to follow