Monday 14 July
Despite a little bit of tariff noise, nothing has fundamentally altered my view that 'risk on' trades are viable, particularly short JPY. Although (with the exception of the strong USD, we've seen fairly lackluster movement today). Which I suspect can be put down to the market waiting for Tuesdays US CPI data. I would also attribute today's USD strength to 'positioning' ahead of the release.
Regarding the data, it could be very market moving. We are starting to hit the time when 'tariff caused inflation' could show up in the data.
This is a situation where anyone 'testing' anticipation trades could set USD orders in both directions a few minutes before the event. Meaning, (for example) a 'buy stop' AUD USD in the event of a below forecast number (USD negative). But also a 'sell stop' AUD USD for the event of a higher than forecast number (USD positive).
Setting the orders (roughly) the distance of the 1hr ATR (look back 100). Ideally with a stop loss behind, or close to, the open of the news candle.
If an order triggers, immediately delete the other order. If no orders trigger after 90 seconds, delete both orders and reassess.
The 'anticipation' strategy is something I've dipped in and out of for a while now. Privately it's been very successful, but the reason I say 'testing' is because I can't endorse it in a live account until each individual has experienced the 'slippage on entry' the strategy occasionally experiences (causing a loss to what looks like a winning trade). As alluded to over the last week or so, I do think 'red flag' US data releases could create 'anticipation trades' moving forward. But, please don't dive in with a live account. Be sure to gather enough 'demo data' to form your own opinion as to if it's a good strategy or not.
Regarding post event, catalyst / standard trades. It's complicated. I envision that long term the market will brush aside a high CPI number. But, in the short term, in the event of a high number, a USD long 'catalyst trade' would be very viable.
My preference would be for a below forecast number, which would create a 'no-brainer risk on trade', probably USD short but I would compare the momentum of USD JPY to determine which is the best 'short option'.
In other news, Canada reports CPI at the same time as the US, I expect the US data to dominate. But the CAD could be used as a tradable currency depending on the outcome of its data.
Sentiment for the GBP remains negative, in particular I suspect GBP AUD will continue it's downward trajectory.
Finally, the CHF continues to be strong in the face of the 'risk on environment'. Which I can only put down to the article I read a while ago suggesting the SNB GOLD HOLDINGS are benefitting the CHF. It makes sense considering the high price of gold at the moment.
It's not a situation i envision will last forever, but, it does mean I would rather short the JPY (or USD) in times of 'risk on'. In times of 'risk off' I'll compare the USD, JPY and CHF against each other. If the CHF is the strongest, I'd feel very confident in a CHF long.
Trading is never easy, but it feels particularly complicated at the moment, please email any thoughts or questions: johnelfedforexblog@gmail.com