Monday 22 July.

Joe Biden stepping out of the US election was greeted with a shrug as the market had already thought his position was untenable. A rate cut from china was met with disappointment as the market is concerned that the Chinese government feels the need to stimulate it's economy. For the time being, I still view negative Chinese sentiment as not particularly concerning. But the AUD and NZD have once again struggled, in the case of the AUD, compounded by the falling price of copper. And you may be thinking, why haven't you been shorting the AUD over the last week?....I may well be forced to re-evaluate my view, but for now, whilst the underlying narrative is soft landing, I still think the highest probability trade is 'interest rate differential', meaning, long hawkish central bank Vs dovish central bank, which (at the moment) is AUD or GBP Vs JPY, CHF or CAD. (The CAD is the trickiest to trade due to its proximity to the US . And because at heart it's a risk on currency itself).

But the recent 'price action' has not indicated a viability in interest rate differential trades.

Essentially, no instrument ever continuesly goes up (or down) in a straight line. It will always revert to the mean at some point.

As you may know, I don't use any indicators ( it's a road I've been down and will never revisit)... But... (In my opinion) The one indicator that has any semblance of relevance is the 200 day moving average (see red line on AUD JPY photo above). At the peak of the chart, the price visually looks miles away from the 200 day moving average. It's only natural that at some point, the chart will be drawn back. And when there are periods that don't fit into your view of how the currencies should be reacting, it could be something as simple as reversion to the mean. Basically, the 'big banks' could have been using the recent slightly negative sentiment to take profits.

So, for now, I'm still waiting for the JPY strength to reverse, possibly at the daily support area it's approaching. Then, if the VIX continues to drop, the S&P continues sideways or pushes up and there is general positivity in the air. I'll be ready to place a risk on trade again.

Feel free to email any thoughts or questions: johnelfedforexblog@gmail.com