Talking Points:
• There is considerable opportunity heading into the New Year from risk trends to rate forecasts to trade crises
• Between an over-leveraged speculative exposure for Brexit and strong link to risk trends, my favorite pair is GBP/JPY
• Looking for opportunities for a long time frame - such as a top trade for 2017 - doesn't mean throwing timing out the window
See the schedule for the weekly fundamental webinar in the DailyFX calendar of events.
There is plenty of trading opportunity to be had in the coming year depending on what develops. Fundamental themes are primed while technical patterns are plentiful and provacative. Among the top thematic asymetries in probability and potential (yess, those are distinct but complimentary states) are risk trends, monetary policy tide changes and growing protectionism. From there, though, we need to identify measures to see when such currents change and thereby provide opportunity. It is also important to distinguish what trade best represents the opportunities.
Fundamentals rarely grow to be 'over extended'. The times in history where economic conditions are running away with reckless abandon or are in utter disarray are few, far between and short-lived. However, speculation constantly over-extends itself. There are two themes that I think show particularly acute exposure: with Brexit and the risk chase. In my view, the Pound carries the greatest opportunity of the majors in 2017 in no small part due to the disaster pricing the market has implied with the currency's bearings. For risk trends, the reach has grown so pervasive that it is seen as common enough to perhaps justify itself fundamental disconnect - it doesn't. The selection for these two themes draws many options, but my preference comes at their intersection with GBP/JPY.
It is important to appreciate that when looking for long-term opportunities, we do not just throw timing out the window. My view for opportunity supports the bullish view for this cross, but it is not something I would want to just jump into. There are very important milestones that need to be met before it looks ready. Critical is a pull back in risk before that bullish view can have any hope of a steady bullish opportunity. I run through my favorite opportunity with the cues that can be expressed through many other markets and pairs in the recording of this year-end Webinar.
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