In these Northern hemisphere summer months, a typically quiet period for market movement, there has been a number of events that have created more volatility than usual in the markets.
We have had the French Elections, terrorist attacks in Paris, Manchester, and London and then a completely surprising outcome to the general election in the United Kingdom. Added to all this are the pending Brexit negotiations that are still hanging over our heads, making projected market movements more difficult when using only the most basic technical analysis.
Let us first consider the impact of recent terrorist attacks and how they affect the markets we trade day in and day out. Just one attack, not to mention the numerous attacks we have witnessed recently, has the impact of creating enormous commercial, political and social nervousness. In this environment, markets do not behave in the way we would anticipate them to. Large institutions become nervous to make investments in unstable environments which affect whole economies and their currencies; throwing them out of their traditional patterns. We should always trade with care and caution but at times like this we should be particularly cautious and make every effort to avoid taking an avoidable risk.
Speaking of risk, equity management becomes even more of an issue when trading unstable times like this. We should be looking to minimize our risk for increased reward.
With the recent spate of surprise results in national elections, starting with Trump in the U.S., Macron in France and most recently, the poor performance of Theresa May in UK, we are again faced with instability in the markets and seeing the markets behave differently to their normal patterns. Caution is again required when doing technical analysis in this unstable political environment. It has already become evident that one loose comment from a politician or one major policy speech can have a major impact on where the markets are swinging. Trade with caution.
Events of the week
To begin this week we have had a substantial amount of fundamental news that has had an effect on the GBP. GBP has risen on the back of higher than expected (a four-year high of 2.9%) inflation numbers released this week. After a prolonged period of GBP weakness following the Brexit vote and the higher cost of imported goods with a weak GBP has filtered through to fuel inflation. The bigger players might have been able to predict this, but smaller traders are oftentimes less equipped to be able to factor this into our trading in any form other than reactionary. We cannot be too cautious about what we are looking at when so much volatility is around. Like we were taught to cross a road as small toddlers, “look left, look right and look left again before we try to get across a busy street,” the same can be said about a volatile market!