Keep an eye on the US dollar

Angus Campbell, senior analyst at FxPro, says next month and the quarter ahead is all about whether the dollar can maintain its momentum.

One of Angus Campbell’s best trade was buying the Australian dollar back in 2007. Courtesy Fx Pro
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Angus Campbell, the senior analyst at FxPro in London, says one of the main risks to the US dollar is if the US economy suddenly shows signs of faltering.

What is the asset class and geography you are focused on?

Having been established in Cyprus, our headquarters are in the United Kingdom. We have a global presence with clients from across the world, but there are certain jurisdictions where we do not accept clients, such as United States and Iran. The asset class we are focused on is foreign exchange, offering products and services in spot currencies. Our investment platform, FxPro SuperTrader, lists a number of spot forex trading strategies that execute trades in different major pairs, depending on what their signals provide them. At the moment we have one strategy that has an average weekly return of 0.24 per cent and it is exposed to the US dollar-yen, so we are closely monitoring the appreciation of the dollar, which is the trade of the moment. With the commencement of the fourth quarter we will see how this dollar strength plays out and whether it looks more or less likely that the dollar buying that started in the third quarter will repeat itself in the fourth quarter.

What is the outlook for the month ahead?

The next month and the quarter ahead is all about whether the dollar can maintain its momentum. For now that trade is a very crowded one and it is susceptible to a pullback, but when a currency moves to a new equilibrium, which looks to be the case with the dollar right now, it can be one-way traffic. This of course needs to be supported by strong US economic data, so we will be monitoring this very closely.

What are the main risks to the outlook?

The main risks is if the US economy suddenly shows signs of faltering. This will push back interest rate expectations and put an abrupt halt to the advancement of the US dollar. The Federal Reserve is slowly but surely becoming less and less dovish in its stance, so if we see that gradual shift changing and future statements remain unclear about when interest rates will actually start to rise, then the new dollar equilibrium could take longer to materialise.

What is the best investment at the moment?

The recent uptick in volatility has been caused by a building of nervousness among equity investors who are becoming concerned that with interest rate hikes around the corner and a slowing Chinese economy, the bull market for equities could be coming to an end. Most recently, the correlation between equities and forex has been breaking down, which means for diversification purposes the forex markets should be considered by investors. If there’s an equity market crash (which tends to happen every so many years and is a natural part of the investment cycle – it is always a question of when rather than if), then cash is usually king in terms of risk aversion, but for those investors who still want to be in the financial markets it makes sense to be in an asset class that isn’t highly correlated to equities.

What was the best investment you were ever involved in?

One of my best trades was buying the Australian dollar back in 2007 when it had just broken to new all-time highs against the US dollar. This is when the Aussie made a big breakout to the upside before Lehman in 2008, and I closed the trade well before then to avoid the totally extraordinary reversal of fortunes. When you get a long-term trend in a currency correct it can be very rewarding.

What was the worst?

This has to be one of the first investments I made when I was still at university. I invested in a media company at the height of the dot-com boom and needless to say I saw exactly zero of my initial investment.