Catalan short on the Euro
By Peter Rosenstreich
We remain bearish on the Euro: the current EUR/USD rally to 1.1780 is an opportunity to reload short positions. Why?
Markets are underestimating the risk of Catalan independence. Nobel prize-winning economist Richard Thaler’s pioneering work on ‘irrational’ behaviour could guide us. Or, we can just remember the wrong predictions about Brexit. We suspect the Catalans have hardened their resolve for independence. Separatists are hinting at a unilateral declaration, which Spain’s Deputy Prime Minister, Soraya Saenz de Santamaria, says would trigger a clause in the constitution to dissolve key Catalan powers and put the central government in control of the ‘renegade’ province. The act of declaring independence would confirm that the separatists no longer consider the central government to be legitimate – this would endanger a ‘market friendly’ resolution of the conflict.
Wishy washy dollar
By Arnaud Masset
Amidst conflicting signals, the USD is moving up and down against other currencies, but we think the greenback will strengthen medium term.
Investors are struggling for a clear view of the dollar. On the monetary side, Federal Reserve Chair Janet Yellen’s re-election is far from certain. President Trump will within the next weeks give his decision as to a successor ranging from Kevin Warsh, Gary Cohn, Jerome Powell and Janet Yellen. On the political side, tax reform looks to be on the cards, but there is tension within the Republican Party about it between Trump and Senator Bob Corker.
After recovery in the second half of September, the dollar reversed itself and started the week on the back foot. The dollar index fell as low as 93.43 before inching up to 93.54 in late Asian sessions. The dollar lost against most of its peers, including the AUD (-0.35%), the SEK (-0.32%) and EUR (-0.26%). Emerging market currencies were also up as risk sentiment improved. The South Africa rand, Mexican peso and Turkish lira reversed losses and surged 0.55%, 0.30% and 0.45% respectively.
Institutionals buying silver
By Yann Quelenn
Silver has strongly bounced back since the start of October and is back above $17 per ounce. On a pure technical standpoint, the metal is trading above its 100-day moving average with definitely more upside potential.
Gold and silver have been weighed down by the many ‘paper’ contracts banks have used and abused over the last decade. According to the most recent 13F filling from the US Securities & Exchange Commission, JPMorgan, Commerzbank and the Swiss National bank have increased their stake in Wheaton Precious Metals (formerly Silver Wheaton). This reveals changing fundamentals: it may be a reflation trade to drive precious metals’ prices higher.