Speculative Prospects and Temptations Via Perilous Opportunities

Desire to Gamble on Perceptions and Risk Management

The markets have acted in a polite fashion as of early trading via Asian and European perspectives today. After this weekend’s proclamation that talks between the U.S and Iran didn’t attain an agreement, there probably weren’t many folks in financial institutions who were surprised by the outcome. Thus the theme, no action is the best action may be holding true as folks simply watch.

While the USD has picked up some momentum in Forex this morning, the gains by the USD against other major currencies have not been significant. However, the near-term will remain tenuous and day traders with a taste for adventure may believe opportunities lurk.

Western Cape Sky

The temptation to take advantage of market situations which hold the prospect of volatility will be strong among many. If a trader were to bet on the right direction and catch momentum from a Forex, equity index or commodity move in WTI Crude Oil, large profits could be found. The realization consisting of ‘what can be gained can also be lost’ must be considered too. Greater velocity in prices means there are risks that must be considered.

USD centric strength this morning has been rather polite, and suggests that if financial institutions are forced to shift their behavioral sentiment greater movements will occur. This sets the table for speculators who want to bet on a chosen direction per their perspective regarding what will unfold in the coming hours and days.

The U.S White House is talking tough and threatening to blockade the Strait of Hormuz, but nobody really has a clear picture of what that means entirely, nor if it can be done. The Iranians continue to talk tough and say they are in control of the Hormuz. It does appear this body of water will be a chief ignition switch per an escalation for the Middle East conflict.

The ceasefire which was declared last Tuesday is one week old as of today. The ceasefire agreed upon last week was for 14 days, meaning there is one week left if both sides hold their fire. There are no guarantees tranquility will prevail. If the U.S does go ahead and try to seize the Strait of Hormuz’s sea navigation, this could spell a sudden and loud end to the ceasefire which in theory still exists.

Forex, gold, equity futures have shown no real shockwaves as of today following this weekend’s failure to find a peaceful path forward. Traders who have the ability to be patient and hold onto positions may be able to take advantage of moves that could develop. Serious risk management will be a key part of any wagers taken. The use of very conservative leverage is advised too. Traders also have a hurdle they must consider regarding overnight charges via their brokers if they wish to pursue trades that carry over into the next day.

So what will happen? If the Iranian war becomes loud again there is a real chance the USD will become stronger. The EUR gained quite well against the USD since the announced ceasefire and it looks like it remains in what may be considered overbought territory, particularly if fiery rhetoric turns into missiles being launched again.

However, as some analysts have pointed out, there is a chance the worst of the news and its negative impact has already been traded into the marketplace. There is a temptation to believe USD centric strength in Forex, and price action in the S&P 500, Nasdaq 100, Dow 30 and its international counterparts have already suffered massive negative selloffs and that any declines that take place now will be met with reversals higher. Yet, betting on this type of shifting sentiment by day traders is akin to throwing darts at a moving target, because the volatility and timeframes will prove difficult for those betting on momentum spikes. And things in the Middle East could actually get worse.

Thus, day traders should remain cautious. If they want to wager on noise developing into a violent rupture again in the Middle East they might be proven correct. The near-term remains dangerous. Day traders have an opportunity to catch a news cycle that delivers the turbulence they believe may happen. Stop losses need to be used though, in case the Middle East saga takes an unexpected turn. It is unlikely that peace is going to suddenly break out, but rumors about Saudi Arabia is talking with the U.S about a more coordinated regional enclave that involves the U.A.E and Israel is creating attention. Yet, the fog of war via verbal interludes which seem improbable, and realities that are pushed to the limit hold no promises either.

Wagering on what is going to happen over the next few days and into next week in the Middle East is a gamble. And this may explain a lot of the sideways price action seen early today, and the rather pragmatic conservative approach by financial institutions as they play a game of wait and see.