The market is still leaning towards a deal
I've been bullish on cable and betting on a Brexit deal. It's been a great trade, but that doesn't mean it's going to be the right one.
Sterling bulls are in a rare position where they can back away here and take some decent profits. Maybe that means missing out on a jump to 1.36 on Monday but it also avoids the risk of a drop to 1.30 or worse. It's not an easy-money trade either way. The prize in trading for pride is poverty.
This is truly a gut-check moment. I believe it's in everyone's best interest to
make a deal so I believe it will happen but traders need to constantly ask the question: What if I'm wrong?
I have to hand it to Boris Johnson, he's an amazing negotiator. He's a notorious bluffer and loves to take it to the absolute limit. That was his playbook from Day 1 and here we are and he's doing exactly what we all expected. Yet it's still somehow convincing.
There would also be a certain poetry in it breaking down. The Brexit vote signaled the end of the globalization era and this would be the first ugly breakup.
The final argument for discretion at the moment is that we might get the headlines when the market re-opens in Asia on Monday. Now that might mean paying some wide spreads in a thin market but I think that's easily worth it for those paying attention.
I also like to ask, what's the trade that would hurt the most? That's often what happens.
In this case, it's that this deal breaks down and cable rallies anyway, maybe after a dip as shallow as 1.30. Ultimately, trading on WTO terms wouldn't be the worst thing in the world and they could probably hammer out a light deal in short order. Sterling is still deeply depressed and -- like the US election -- any kind of certainty or finality is better than indefinite headline risk.
I don't think I'll take that bet, but it's something to think about.
