Wednesday 19 june.
It's very unusually a midweek US holiday today. Often the currencies slowly grind in the prevailing direction in quiet market. There is nothing wrong with placing a trade during holiday hours, but it's a case of being aware if the brokers spreads widen.
Personally, I will most likely sit on the sidelines and await the 'potential catalyst' BOE interest rate decision.
In the meantime, here is my 'snap shot' of the current fundamentals:
Risk environment: with the S&P holding steady around all time highs, a US 'soft landing' is well and truly being priced in. And barring occasional 'political fears' / 'recession fears' or an 'out of the blue fear' we haven't even thought of, I currently expect the risk environment to remain generally positive over the coming months.
USD: US data is slowly starting to soften and 'negate' hawkish FED rhetoric. It currently appears September is the likely date of the first rate cut. And the market is happy with that. I currently expect the USD to end the year weaker than it is now. But when 'strong data' is released, bouts of USD strength will provide occasional 'catalyst' long trades.
JPY: My preferred trade of choice is still JPY short 'interest rate differential'. The yen will have periods of strength, whether through 'intervention', 'jawboning' another possible rate hike or a 'risk off' event. But over the medium to long term, the interest rate differential should keep the yen weak.
AUD: it's been a particularly good week for the AUD so far following the 'still hawkish' RBA. With inflation still high in Australia, early 2025 appears to be the timing of the first rate cut. Potential headwinds could come from china, commodity prices or periods of risk off. But currently the AUD is my preferred long of choice.
NZD: almost a carbon copy of AUD, although signs of the economy slowing has knocked sentiment a little, the RBNZ is still hawkish. And the NZD remains high on the 'to long list'.
CAD: A slowing Canadian economy with a BOC which has already cut rates and maintained a dovish stance puts the CAD firmly on the 'to short list'. Although periods of 'fake strength' could emerge if the price of oil suddenly rises or if the USD gains strength and takes the CAD with it due to geographical proximity.
GBP: The UK economy has held up remarkably well to extremely high inflation, which slowly appears to be dropping and a UK soft landing is on the cards when it once looked very unlikely. Tomorrows rate decision will be interesting, any deviation from an August rate cut could create a short term GBP 'catalyst' opportunity. But in the main, the pound remains a good 'risk on' long trade.
EUR: following a 'hawkish cut', all was quite serene in Europe as a 'soft landing' looks likely. But political uncertainty in France has rocked the boat and there may be incoming EUR opportunities according to whichever political party has the upper hand.
CHF: A 'dovish cut' in March provided excellent short CHF opportunities. But the last couple of weeks has seen a period of Swiss Franc strength I can't quite put my finger on. But all in all, the CHF remains an 'interest rate differential' short trade. Especially if the SNB cut rates again during Thursday's European session.
Feel free to email any questions or different thoughts you may have: johnelfedforexblog@gmail.com