Buy the Rumor Sell the News

Market Trends - 30/06/2015

The sharp uptick in risk assets including the Pound and Euro over the last hour reflects another potential rumor of Europe coming back to the negotiating table with an improved offer from Greece as growing calls are being voiced by the countries youth to exit and reestablish under the Drachma. This contrasts sharply with the prevailing belief of the government and pensioners that Euro membership is essential and non-negotiable. The rumor mill is alive and kicking with the latest revelations showing that optimism in the abilities of creditors and Greece to negotiate a compromise is severely misplaced. This is among the best times to trade the news as there is a sharp move higher on the rumor before the actual news crushes the hope. Markets have been awash with rumors that a deal is close, feeding rallies in stocks and the Euro before the actual announcement shows the opposite, with zero accomplishments or compromises actually made.

 

The near vertical move on the 1-hour charts in GBPUSD and EURUSD reflect exactly this point. Contrarian traders are especially fond of these volatile market conditions with these sharp movements providing perfect entry points for shorting volatile upticks and buying downticks. They are not comprised of trend traders which are typically viewed from the perspective of a trading herd. Contrarian traders focus on identifying opportunities to swim upstream, whether buying tremendously undervalued assets or conversely selling overly optimistic valuations. In today’s case, buy the rumor and sell the news has not been a more pertinent strategy since the last financial crisis in which financial markets experienced similar levels of volatility. Any rumors out of Greece are likely to be quashed within a short time frame, meaning that today’s sharp uptick in the Pound and Euro might well not last. If anything, gold provides all the evidence necessary to dispel the latest myth, with the precious metal failing to tick higher despite the weakness in the dollar.

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