Top Trade Idea for 2019: Long Pound, Short US Equities, Long Gold
Often, I am asked where a currency or market will be at a specific date into the future. My response will almost always start with “I don’t know.” Everything in trading is a probability. There are no certainties, and to assume where a market will be and at a specific time is to whittle down the probabilities of success to almost ensure your assumptions will be disproven. That said, there are certain events with such significant weight that markets will inevitably change as they unfold or after they pass. Brexit is one of those events. Considering how volatile the discussions have been through 2018, it is reasonable to anticipate further switchbacks in these negotiations through the opening months of 2019. I have little interest in attempting to trade anything more than very short-term opportunities in the Sterling as they arise through that uncertainty. However, when there is a clear resolution, the lifting of uncertainty will allow for a trend – though that could be ambiguous to direction. A no deal will likely see the Sterling drop further, but once early trade deals are struck with key counterparts, the currency will start to recover from a further depressed level. If there is a compromise – and this is true of most scenarios in this middle ground – the Pound will start to rise over the subsequent months as it is implemented. If there is a second referendum, some degree of uncertainty will remain until the vote is tallied. Revoking the initial Brexit will lead to a Sterling rally while reaffirming the initial decision would push back the time frame for the eventual recovery – the only scenario I wouldn’t expect a more systemic Pound recovery. There are no explicit times or levels in this, but that is the nature of trading – the less obvious the key levels and timetable, the more significant the ultimate move. For pairings, my preference runs less towards those explicitly risk oriented and more dependent on liquidity: GBPUSD and EURGBP.
