Dollar Up on Falling Pound

Dollar Up on Falling Pound

The British Pound fell sharply this morning vs. the U.S. Dollar and the Euro, because at this juncture it looks like the Brexit vote will probably be delayed.

The vote was supposed to take place tomorrow, but right now there is some doubt that it has any chance of passing. The question remains, does the Prime Minister have a backup plan to deliver to Parliament.

Brussels has already put their best offer on the table, so if she doesn’t have a backup plan no one has any idea what the outcome will be.

When the story came out, the price of Gold sold off a bit as the Dollar strengthened and the British Pound took it on the chin.

That market awaits Theresa Mays comments at 10: 30 Eastern time. Right now, the Equity market is once again falling, buying is coming into the Bond market and the VIX Index is up on the swing again.

Geopolitical risks seem to be the driver of the markets at this time. It will be a while before we have news on a trade agreement, if at all, and until then there are plenty of other factors that can move the price of Gold.

According to the CME FED Watch Tool, the odds of a rate hike at the Fed’s December meeting is now at 73 percent and at the meeting after that, it stands just above 50 percent. Over the last few weeks, the odds of a continued rate hike has declined. This can only support future price hikes in the price of Gold.

Algos And The Markets

These days more and more market transactions are made through algorithm trading. So much so, that every time some significant news is released in the media or over the wires, crazy volatility can emerge.

To translate, this is what’s going on.

Algorithm programs are plans of an action aimed at accomplishing a clear business objective. These are trading programs that traders and programmers put in place to execute their trading strategies electronically. These programs can vary in many ways in different markets.

Recently, especially in the Equity Markets, we have been seeing wild volatility. Just this past Friday, right after the story broke that Peter Navarro indicated that if we don’t have an agreement with the Chinese after 90 days, the Trump administration will walk away from the negotiating table. Equity Markets didn’t like that news and a sell off occurred.

So why should you be concerned?

Because these programs execute trading strategies, either entering the market or exiting the market in lightning speed. Before the average investor can even read the headline, these traders already are positioned in the market. Sound like an unfair advantage? I think so. So how do the Exchanges stop this,
or even do they think it’s necessary? Sure, it can bring large volumes to the Exchanges and I’m sure there is no objection there.

Unfortunately, I have no answers. I just want you to be aware that these programs do exist and are the primary reason for the crazy swings in prices we see every day.

Have a wonderful Monday.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals for information and thought-provoking purposes only and does not purport to predict or forecast actual results. This editorial opinion is not to be construed as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein cannot be attributable to Dillon Gage. Reasonable people may disagree about the events discussed or opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. It is not a solicitation or advice to make any exchange in commodities, securities or other financial instruments. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisers with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.