What is going on...POTUS has become the largest market distraction since well.... anything. Its been quiet difficult the past month due to the geopolitics everywhere from France, to Germany, Italy, US etc etc. So how should we play the market when the usual correlations are not driving and the whim of politicians make it difficult to know which way markets are likely to move.
Quiet simply markets work on fear, the fear of the unknown. So without throwing the baby out with the bathwater, we need to look for the largest unknowns and where we surmise the largest fear factor is. For example, if we look at Brexit we are only at the very beginning of a transitional phase. The full impact of the economic realities of Brexit is yet to be felt and how they will manifest themselves in jobs, inflation, housing, trade agreements etc is at this stage, a very large unknown.
On the other side of the pond we have Trump who is an extreme wildcard. Of course coming from the business side where the first 90 days matter, he is applying the same principles to running the country and I think we can all agree he has made quiet an impact to date. Temper this with the actions of FOMC and where we thought the $ might be a month ago has certainly changed.
So to counteract this in our trading we scale back notionals a bit and go with short term momentum. Now is not the time to go all in but rather act tactically to dart in and out quickly and where we may have looked for 90 pips we might look for 40. In terms of pairs, stick with the majors and skew toward those where they are not under to much political stress - think kiwi, aussie etc. Traders will be searching for something to latch onto to give direction and we should do the same.