The state of play.

I have some good news and some bad news. The good news is, following Mr Powell yesterday suggesting a US rate cut is likely in may, and because the US economy is still performing reasonably well despite the recent hiking cycle. It now appears that the 'soft landing' (which has been potentially on the cards) is almost certainly happening.

The other good news is now that we have a date from the FED for the first likely cut, we will be able to guage the relative strength and weakness of the other currencies according to when they will cut themselves. Currently, it looks like it's either the USD or EUR to cut first, with the AUD and CAD in the middle. And GBP or NZD to be last.

In a 'soft landing' environment, the go to trade would be 'short JPY'. But the JPY is stubbornly strong at the moment. And I can't put my finger on why. And that's the bad news.

The BOJ have said they are in no rush to hike (if they do at all) and even if they do, the interest rate will still be 0. Which backs up the carry trade (short JPY interest differential trades). But USD JPY is in free fall, along with US bond yields. Is the market looking past the fact there is no cut in march and simply focusing on the fact the next move will be a cut? (This would be stock positive and USD negative) and the JPY strength will likely not last. Or are bonds being bought (yield down) due to a re-surfacing of regional bank fears in the US (which I've read will likely be short lived).

At the moment I'm not sure. And only trading events I have a strong opinion on has served me well over the years. So even though I may have to sit and watch USD JPY fall further, my current decision is to wait for clarity and form an opinion when I know more.

My ideal scenario would be for the JPY strength to reverse, then a NZD or GBP long Vs JPY sound be a viable option.

Or... To read a clear article suggesting the market is strongly 'risk off' due to banking fears, if that happens the VIX will rapidly rise above 15 and I could fundamentally get behind a JPY long.

I can't stress enough how important it is to only trade what you can fundamentally understand. It is very easy to simply jump on big moves that you can't explain. But trading is a long game and placing trades based on movement you can explain is a profitable long term strategy.

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