Take-aways that won’t stay in Vegas
It was great to speak at the Traders Expo in Las Vegas earlier this month and to meet the traders who came out to the event. There were many knowledgeable presenters and I received questions from participants regarding what to do with the wealth of information. My take-aways: find the trading style that most interests and best suits you; concentrate on that style; educate yourself and build your skill set in that trading style. There are experts and mentors to assist you in this endeavor.

Don’t catch the knife
The saying “don’t catch a falling knife” in trading refers to attempting to pick a bottom for a falling asset/asset class. With the large draw downs in US equity indexes recently, this concept relates to the question: how does one know when to “buy the dip”? One factor to consider is volatility. The VIX index, the measure of volatility for the S &P 500, is still elevated currently. If you buy equities on a dip when volatility is elevated, you risk “catching the falling knife.”

Chart: VIX Index

source: Bloomberg

Fed Clues
There are important Fed events this week. On Wednesday, Fed Chairman Powell speaks at The Economics Club of New York. On Thursday, FOMC Minutes for the November meeting are released. Currently, a 25bp rate hike is priced in for the December 19 FOMC meeting. Market participants will be watching for comments regarding whether equity market swings have dampened the Fed’s resolve to deliver rate hikes in accordance to the Fed’s current projections. There is still a 77% chance that the FOMC delivers a 25 bp hike in December priced into the market. If that backs off or the market thinks that the FOMC will curtail rate hikes further out on the calendar, the USD could lose a leg of support. Watch the US 10 year yield post both releases to gauge movements in USD.

Chart: Current Implied Probability of 25bp rate hike at December FOMC Meeting

source: Bloomberg

A Date in Buenos Aires
The G20 Leaders meet in BA November 30 and December 1. All eyes will be awaiting headlines from Trump-Xi discussions about trade. In what is presumably a negotiating tactic, President Trump on Monday, reiterated that he expected to move ahead with a 10% to 25% tariff rate on an additional $267 billion of Chinese goods, as reported by WSJ. A no deal outcome will see certain equity sectors fall further, perhaps precipitously. FX will be impacted as well – discussed below. A positive outcome will likely see a relief rally in equities.

AUD Nervous
Ahead of the G20 Leaders Meeting, AUDUSD volatility has spiked (chart below). AUD is nervous about the outcome of the Trump-Xi talks. The rise in volatility means AUDUSD will be a “mover” on Trump-Xi trade headlines. Negative headlines or outcome will see AUDUSD fall given Australia’s economic ties to China. A negative outcome could also cause CNY weakening. It is worth noting again the correlation between AUDUSD and USDCNY. As CNY weakens against USD, AUD weakens against USD as well. Of course, positive headlines or outcome would see the opposite, AUDUSD would rally in relief.

Chart: AUDUSD 1 Week volatility is rising ahead of G20 meeting

source: Bloomberg

Chart: AUDUSD and USDCNY trading closely together

Note: USDCNY axis, right side, is inverted.  Line moving lower = CNY weakening vs. USD

source: Bloomberg

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