Muddy waters

The hangover from 'strange November' trading continues, at the moment....Uncertainty once again reigns.

Confusion over the incoming Trump administrations intentions for the dollar appear to be muddying the water. Will hard tarrifs be implemented? causing inflation, higher yields and a strong dollar? Or is the threat of tarrifs a rues? With the real intention a weaker USD, which would avoid a 'trade war'.

All the while, the US economy remains strong, the dot plot number of projected rates cuts for next year looks ambitious. And I continue to believe the fundamentals still suggest the USD should be on the 'to long list'.

Arguably the biggest puddle of mud is still the BOJ. The... will they won't they, probably have to, but don't really want to hike scenario continues. It's difficult to see a resumption of the short yen carry trade until the BOJ announces interest rates are at a peak. Which, my 'guess' will be sometime in the first quarter next year.

The AUD continues to frustrate, simply because, as the steadfastly most hawkish central bank, all things being equal, the AUD should be the strongest currency. I can only assume a combination of USD liquidity, the carry trade unwind and china concerns are still keeping the AUD subdued.

Throw in the underlying geopolitical concerns (Ukraine/ Israel) and it's easy to see why the market itself doesn't know which way to send the currencies. Incidentally, today's South Korea news only adds to the mud. But the fact the VIX hasn't risen indicates the market isn't too concerned.

It's been a tough year. Definitely the most complicated I've experienced in 9 years. I suspect not many people have made money trading Forex this year.

But...take heart, I recall January was particularly difficult, I also recall September and October were 'fairly easy' (trading is never easy so I should say easier)... And as long as we remain vigilant, keep gathering information (no matter how 'mind boggling' it may seem at the time) and continue to look for a stop loss you truly believe will 'invalidate' the trade idea.... There will be easier times ahead, things will get back to 'normal' and actual economics will determine strength or weakness at some point in the near future...but until then:

My current view is that either a 'speculative' 4hr support and resistance 'interest rate differential trade' is potentially viable...something like AUD, USD or GBP long Vs CHF, JPY or EUR.

Or... To wait for a clear 'outsized' piece of US data in either direction.... Data suggesting the US economy is still very strong would compound the 'higher for longer' narrative and lend itself to USD long Vs whichever currency you feel is the best short in the moment.

Data suggesting the US economy is softening would speed up the FED rate cut path and would likely create 'bad news is good news' and lend itself to a 'risk on' trade... CHF, JPY or USD short Vs whichever currency you feel is the best to long in the moment.

Please feel free to email any questions: johnelfedforexblog@gmail.com