April 2014: A Classical RORO Month.

The behaviour of the global markets so far in the month of April is a great example of how the financial markets are traded as a whole and you can learn a lot by reviewing the global market action. The Risk Off, Risk On (RORO) trading strategy was the play of the month.

Trading action for the month kicked off on Friday the 4th with the release of the US Non-Farm Payroll data. As is usually the case with high impact US economic data/news releases, the markets initial reaction was a whiplash on the EURUSD, USDCHF as well as the Dollar Index, with price immediately spiking in both directions as institutional traders (aka the big boys), used that opportunity to run the stops of traders who trade news releases using straddles or range breakout strategies.

Although the NFP caused indecision in the currency markets, the other markets reacted decisively as the US Bond markets (10 year US Treasury Notes) and Gold markets spiked upwards while the US equities markets tanked as seen in the sharp selloff of the S&P 500 index. By the close of Friday, it was clear that global markets sentiment was risk averse as seen in the flight to safety from equities towards bonds and gold. Risk is off!

See below the daily charts of the Dollar Index, EURUSD, USDCHF, 10 Yr US Notes, Gold and Yen.
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By Monday 7th it was clear that bonds, gold, euro and yen remained safe haven status against the dollar and US equities and the dollar aversion continued throughout that week.

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On Monday the 14th the markets seemed to think that the dollar was ready for a comeback so gold and bonds started to sell off while the dollar index and S&P500 started buying for another one week. This would have been a great time to close the initial trades in profit and then reverse and take the exact opposite trades. Why? Because Risk is back on!
And then on the 23rd, Bonds and Gold stop selling off and start to buy again. Why? Risk is back off! This is why I said April was a classic Global Macro RORO setup…every trader’s dream!
In summary, whenever Bonds and Gold are rallying while Equities and Dollar Index are selling simultaneously, take those trades confidently!

Well, it’s Sunday 27th and the markets would soon open in a few hours so I am looking to see what the sentiment would be, come Monday 28th. Those who trade harmonics or waves would say that we are in the CD wave of the impulse move AB which started on the 4th and ended in the corrective retracement BC of the 14th and has since resumed on the 23rd. As such, we would expect the rally in bonds and gold as well as the correlated sell off in the dollar and S&P500 to be sustained, as the 3rd wave is usually the longest! So my bias for the week is long US Bonds and Gold, short dollar and equities, however, be on the lookout to switch and reverse if the markets give you reason to do so.

In conclusion, the purpose of analysis is profitable trading and wow, last week was a fantastic trading week for me. Beyond merely analysing the markets in hindsight, I took some trades based on the above strategy, to show just how profitable global macro RORO trading can be, if executed professionally. See one of my trade statements for last week… nice, right? The markets are not always this predictable (I think the US Russia tensions contributed to such market clarity) so I have learnt to maximise such moments and achieve above average absolute returns, regardless of market direction!

I will keep blogging and sharing my market sentiments and trading progress but if you would like me to coach you or your investment team in greater detail on my proprietary market analysis and trading strategies, do not hesitate to get in touch with me. I am a full time FX trader and wealth manager who has been trained by some of the best and oldest global markets traders out there, both foreign and indigenous. I can help you improve your investments and trading profits by showing you how to stay on the right side of the markets!

Your feedback is most welcome! Please mail me: olufukeji@gmail.com

Yours in the quest for success and significance!

Olufukeji Adegbeye CWM.

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