Q. Dear Josh, are the investigations into Goldman Sachs by the FSA and the SEC likely to have an impact on bank regulation?
A. The main activity in the markets last week up until Friday’s relief rally was to sell the banks. This was despite Goldman Sachs, Morgan Stanley and Citigroup all reporting much better earnings than were predicted by the market.
The SEC investigation into Goldman Sachs, which may not be successful, could just be the trigger President Obama needs to overhaul how the banks make profits. Greater regulation has always been an issue for the banks since the start of the credit crunch.
What is feared now is that the investigation into Goldman Sachs by the SEC and the FSA could speed up this issue.
Q. Dear Josh, I trade euro-US dollar. Do FX traders stick to the same currency pairs or is it a good strategy to trade different pairs?
A. My first thought is this: if you are making money in one pair, why change? Spread betters rarely look to change a winning strategy. Of course, if you are struggling to master a particular currency pair, then this may warrant further investigation of other currency pairs until you find the one or a few that suit you.
One of the key reasons that traders like foreign exchange as an asset class is that there are fewer distractions. There is only a set number of major and minor FX pairs while equity traders can pick from thousands of different stocks.
I also think it is important to remember that what might be a historical pattern for one currency pair can be completely different for another.
The type of information that affects one pair can be entirely different to another. This makes it is very important for you to view each currency pair individually. Keep your eyes open and evaluate each pair on its own before you trade.
Q. Dear Josh, with Nick Clegg’s Liberal Democrats closing the gap on Labour and the Conservatives, what is the market impact?
A. The upsurge in Nick Clegg’s popularity has certainly been a surprise to the market and it has made the eventual winner of the UK general election all the more difficult to predict.
One thing for certain is that the more votes the Liberal Democrats gain, the more likely a hung parliament will be. This is where sterling has been taking its lead in recent days.
The market likes consistency and if there is to be a hung parliament, it could create a high degree of uncertainty among market participants. Traders are likely to maintain a close eye on the polls.