Fundamental Analysis

Twist in Saudi Game of Thrones

Typography

Major political upheaval is underway in Saudi Arabia after dozens of top officials were arrested on Saturday along with a series of other events that are unlikely to be a coincidence. The Canadian dollar was the top performer last week, while the pound lagged. CFTC positioning showed a shift against commodity currencies. A new Premium trade has been issued on a commodity currency, backed by 3 supporting charts.

Thirty-two year Prince Mohammed bin Salman continues to tighten his grip following his rise to Crown Prince in June. A series of arrests on Saturday, ostensibly for corruption, threaten major turmoil in the Kingdom. The arrests included 11 senior princes, a former finance minister and Prince al-Waleed bin Talal, who is the richest man in the Arab world and the largest shareholder of Citigroup. The head of the National Guard was also removed.

Also on Saturday, a missile was shot down near Riyadh while on Sunday a helicopter carrying Mansour bin Muqrin crashed. His father had been in-line to succeed King Salman until 2015.

This all comes just a week after Trump's son-in-law Jared Kushner made an unannounced trip to Saudi Arabia and on Saturday Trump tweeted asking Aramco to launch its IPO in New York. Lebanese PM Hariri's announced resignation on Friday on the grounds that it is no longer safe to remain on the post may be related to the Saudi equation as the Kingdom has long served as a safehaven to the PM and his family.

We struggle to believe this is all a coincidence but what comes next is equally opaque. The turmoil could be followed by assassinations and internal strife or Bin Salman could successfully tighten his grip on all the levers of power. For now, the present is developing quickly and the future highly uncertain.

Domestic market signals may also be tough to interpret. Saudi stocks fell 2.2% early but finished up 0.3% in what was likely government buying.

Late on Friday, WTI crude broke out to the highest since January 2015 and - once again - we can't dismiss that as a coincidence.We will be watching very closely in the days ahead.

CFTC Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +.

  • EUR +72K vs +84K prior
  • GBP +1vs -1K prior
  • JPY -119K vs -116K prior
  • CHF -21K vs -12K prior
  • CAD +58K vs +72K prior
  • AUD +52K vs +57K prior
  • NZD -6K vs +1K prior

The head-and-shoulders pattern in EUR/USD along with the resurgent US dollar placed substantial euro positions in jeopardy. Commodity currencies also remain in a precarious position despite last week's bounce. With the BoE decision out of the way and no more hikes coming in the near term, expect to see a slow build in GBP shorts unless the Brexit rhetoric improves in the coming 6 weeks.

Author: Ashraf LaidiWebsite: http://ashraflaidi.com/
Ashraf Laidi
Ashraf Laidi is an independent strategist and trader, founder of Intermarket Strategy Ltd and author of "Currency Trading & Intermarket Analysis". He is the former chief global strategist at City Index / FX Solutions, where he focused on foreign exchange and global macro developments pertaining to central bank policies, sovereign debt and intermarket dynamics. Ashraf had also served as Chief Strategist at CMC Markets, where he headed a global team of analysts and led seminars and trainings in four continents. His insights on currencies and commodities won him several #1 rankings with FXWeek and Reuters. Prior to CMC Markets, Laidi monitored the performance of a multi-FX portfolio at the United Nations, assessed sovereign and project investment risk with Hagler Bailly and the World Bank, and analyzed emerging market bonds at Reuters. Laidi also created the first 24-hour currency web site for traders and researchers alike on the eve of the creation of the euro. Laidi's analysis of currency markets stand out based on his distinct style in bridging the fundamental and technical aspects of the markets. Laidi regularly appears on CNBC TV (US, Europe, Arabia and Asia/Pacific), Bloomberg TV (US, Asia/Pacific, France and Spain), BNN, PBSs Nightly Business Report, and BBC. His insights also appear in the Financial Times, the Wall Street Journal and Barrons. He has given numerous interviews and lectures in Arabic, French, and to audiences spanning from Canada, Central America and Asia/Pacific.
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